America Has A Monopoly Problem

The article I chose discusses the Monopoly problem we have in America. The article I’m choosing to discuss is “America has a Monopoly Problem” by John Mauldin. In this article he brings light to the fact that a greater portion of America’s economy consists of companies that face little competition. Evidently, these companies have no intentions of creating better products but instead to keep dishing out the same thing because consumers have no choice but to buy from them if they want that type of product. You would think this problem would solve itself due to preference changes by consumers but it has yet to happen. In the U. S. , three companies control roughly 80% of mobile telecoms. Three have 95% of credit cards. Four have 70% of airline flights within the U. S. Google handles 60% of search. ” and the list goes on (Mauldin). How can we have the perfect economy if most of the services everyone uses is dominated by the same few companies? It’s impossible and sad to say it will probably never change. This forces other small companies to either sell out to the monopolistic companies or go out of business altogether. The same thing happens in agriculture as well. Only a few companies dominate this industry, therefore smaller farmers are forced out of business. John then introduces the phrase “Gumming up the economy” to explain the decades of flat wages and weak productivity growth. He explains that competition allows for a more efficient flow to get more output from the same input, but if competition is taken away, the free flow is halted. In a perfect world, “companies increase profits by delivering better products at lower prices than their competitors”(Mauldin). Competitors drop out and new competitors emerge to compete for the top spot. Often referred to as creative destruction, is essential for economic growth, but workers lose their jobs and have to hope new companies will hire them. However, that isn’t happening today and as a result we struggle to create economic growth.

In the class, we discussed monopolies and natural monopolies. Monopolies are firms that is the sole seller of a product without close substitutes. Natural monopoly is a type of monopoly that arises because a single firm can supply a good or service to an entire market at a lower cost than many firms could. Furthermore, we discussed that like a competitive firm, a monopoly firm maximizes profit by producing the quantity at which marginal revenue equals marginal cost. The monopoly then sets the price at which that quantity is demanded. Unlike a competitive firm, a monopoly firm’s price exceeds its marginal revenue, so its price exceeds marginal cost. Also that a monopolist’s profit-maximizing level of output is below the level that maximizes the sum of consumer and producer surplus. That is, when the monopoly charges a price above marginal cost, some consumers who value the good more than its cost of production do not buy it. As a result, monopoly causes deadweight losses similar to those caused by taxes. However, in the extreme case of perfect price discrimination, the dead-weight loss of monopoly is completely eliminated and the entire surplus in the market goes to the monopoly producer. In relation to the article, monopolies do have the power to control the price of a product based on the consumers willingness to pay. A monopoly could make their prices high, causing inefficiency, and consumers could decide to buy fewer units from that firm creating a low quantity of output. This creates a problem because if consumers did not get discouraged by the high price, it will raise producer surplus whilst reducing consumer surplus. This keeps monopolies afloat and dominating the industry, even with subpar products, and other companies struggling to survive. Eventually leading to the “gummed up economy” explained in the article. If we continue to live like this, we will experience little to no economic growth in our future, so lawmakers must make moves to help stabilize competition in the market.

One strength my article possess is including the statistics of how monopolistic our economy is. Providing these statistics at the beginning of the article immediately gives credibility to Mauldin to make the rest of his article worth the reading. More importantly I believe the biggest strength of this article is linking to the topic to economic growth or decline. Giving a brief background on what a monopoly is and how it works and later connecting it to economic growth gives the article meaning. It educates the reader and enlighten them on just how damaging a monopoly can be. However, there are weaknesses in the article as well. Although, being a good article, it is very one sided. It only discuss monopolies from the negative point of view. Some readers could find this as a very biased article and find it not credible. Therefore, only discussing the disadvantages of monopolies and not even mentioning the good weakens the argument of the article. The article could have included how monopolies have the greater ability to fund research and development, can lead to a decrease in average cost of production, or even mention the international competitiveness in global markets. There are a few examples such as electricity distribution, bus travel in a city, and pharmaceutical drug provision that monopolies are the best option for. Monopolies have been associated with evil for the longest and this article does nothing but contributes to that. However, it is written with positive economic reasoning because it includes facts that can be verified and discuss the process in which monopolies tend to operate and how they can affect the economy. It doesn’t state what a monopoly should do or what they believe it is, but simply what they actually do and who’s affected by it.