• Home
  • Knowledge base
  • Useful Forms
  • FAQ
Updated at 2018/07/12
A:

Monopolies over a particular commodity, market or aspect of production are considered good or economically advisable in cases where free market competition would be economically inefficient, the price to consumers should be regulated, or high risk and high entry costs inhibit initial investment in a necessary sector. For example, a government may sanction or take partial ownership of a single supplier for a commodity in order to keep costs to consumers to a necessary minimum. Taking such actions is in the public interest if the good in question is relatively inelastic or necessary, that is, without substitutes. This is known as a legal monopoly or, a natural monopoly, where a single corporation can most efficiently carry the supply.

Natural monopolies are often found in the market for public utilities, relatively high-cost sectors that deter capital investment. The government may then support the total market share of a single corporation in providing water, electricity or natural gas to its public. In doing so, both government regulation of the price of a necessary good and a continuous supply are guaranteed, with external competition curtailed by the formation of a monopoly.
Two examples of government-sanctioned monopolies in the United States are the American Telephone and Telegraph Corporation (AT&T) and the United States Postal Service. Prior to its mandated breakup into six subsidiary corporations in 1982, AT&T was the sole supplier of U.S. telecommunications. Since 1970, the United States Postal Service has been the sole courier of standardized mail across the U.S.

Government-sanctioned monopolies need not always be for reasons of economic efficiency or consumer price protection, however. Nine of the 52 states of the union operate legal monopolies of hard-liquor sales.


Did You Find it Helpful?
Related Articles