Economics Analysis On Monopolies Undergraduate Essay

1105 words - 5 pages

Short Project: ‘Is It Time to Break Up Google?’
Article Summary:
The focus of this article is to explain the effects that monopolies have within the market and whether the government should regulate them or if they should be broken up so that the market is more contestable, which was written by Jonathan Taplin (2017) in an article in the New York Times. This article analysis big companies such as; Google which is considered a monopoly due to the lack of competition in web search engine. Also, the author makes an interesting point as to whether these companies e.g. Google, are natural monopolise which I will discuss further in the essay. I this essay, I will analyse the effectiveness of monopolise and to what extent they should be regulated and how it affects consumers in the long-run.
Economic Analysis:
Monopoly is a market structure where there is one dominant firm within the market. In the UK a firm would be considered a monopoly if it had over 25% market share e.g. Google which has 88% of search engine traffic. Within this market structure there are high barriers to entry (technological as well as legal) as there are no close substitutes for the commodity the company produces so therefore, monopolies are price makers. As stated in the article, Facebook owns 77% of mobile social traffic and Amazon has a 74% share in the e-book market. This shows that these companies are monopolies as they own significant share within the market which affects smaller companies as they are not able to compete so they exit the market.
This diagram illustrates that monopolists e.g. Google produces the good or service where they will get the maximum profit at the point where MR=MC. It restricts the quantity at Xm to raise prices at Pm compared to a competitive industry so that they can make supernormal profits illustrated by the shaded (black) region. Under monopoly, firm’s demand curve constitutes the industry’s demand curve. Since the demand curve of the consumer slopes downward from left to right, the monopolist faces a downward sloping demand curve. It means, if the monopolist reduces the price of the product, demand of that product will increase. In the article it states that “in a democratic society the existence of large centres of private power is dangerous to the continuing vitality of a free people.” This shows that the author is against monopolies due to their market dominance, ability to restrict output and its inefficiencies. A monopoly is allocatively inefficient because in monopoly (at Pm) the price is greater than MC. In a competitive market, the price would be lower and more consumers would benefit from buying the good. A monopoly results in dead-weight welfare loss indicated by the blue triangle (e). Furthermore, companies like Facebook may be x-inefficient as a monopoly has less incentive to cut costs due to the high barriers to entry which restricts competition.
On the other hand, monopolies can also be beneficial to the economy as they can be...

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