![]() He established this company in 1870 in Cleveland, Ohio. Rockefeller, also considered the wealthiest American of all time. The etymology of monopoly is of Latin origins from the word ‘monopolium’, meaning the right of exclusive sale. Usually, monopolies surface in one of the two ways, i.e., a larger company strategically conducting business to make small businesses shut down or two rivals merging together, eliminating any competition. Interestingly, even if a company controls 30% of the market, it can be considered a monopoly. ![]() Unexpectedly, monopolies grant significant benefits to the company however, they simultaneously make consumers lose their interest in the same company because of a lack of competition. This leads to the company gaining control over the economic fundamentals like production, supply, and trade of goods and services within an industry. A monopoly is deemed as an exclusive control of an industry by a single entity. When we think of the term ‘Monopoly’, the popular board game comes to mind however, monopoly is not just limited to the living room. Although the free market is generally a positive aspect for both the companies and customers, it can promote unethical practices like monopoly. Only the possibility of real competition can keep a software company on its perverbial toes.Economics is such a dynamic and comprehensive discipline that proposing a new business practice can shake up the entire economic model of a nation, especially in a capitalist community. A company with a monopoly, natural or otherwise, has little incentive to improve its product. Innovation in electricity production may not be of vital concern, but in the software industry, innovation is everything. ![]() Bill Gates would probably not be happy about putting his company's pricing into the hands of Washington.Īnother problem with software natural monopolies is the suffocation of innovation which would accompany it. The price of software like Windows 95 is determined, not by how much it costs to make, but by how much people are willing to pay for it. Only strict government regulation keeps the coorporate greed in check. Because the electric company has a monopoly, consumers are unresponsive to price changes if a company doubled the price of electricity, people would have to pay it because they have no one else to buy it from. First of all, there is a good reason why natural monopolies are regulated by the government. The world is not so simple and businesses are not so fair. We should therefore be cheering such software monopolies and welcoming the related economic benefits! Therefore, the greater Microsoft's market share, the lower the average cost, and the lower the price of the package for the software consumer. After all, a project like Windows 95 has fixed costs in the hundreds of millions, and the cost of producing each Windows 95 box is comparitively nill. Clearly, competition, the flagship of the American economy, is not always the answer.Īre natural monopolies a phenomenon found in the software industry? Is system software a candidate for a natural monopoly? The growing cost of software development and the shrinking cost of software duplication suggest so. Having two electric companies split electricity production, each with their own power source and power lines would lead to a near doubling of price. Once the gargantuan fixed costs involved with power generation and power lines is payed, each additional unit of electricity costs very little the more units sold, the more the fixed costs can be spread, creating a reasonable price for the consumer. An electric company is a classic example of a natural monopoly. ![]() A natural monopoly exists when average costs continuously fall as the firm gets larger.
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