Ways in Which Changes in the Global Economy are Affecting Monopoly Power

By: Eduardo R. Zayas-Quiñones

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Hall & Lieberman (2001) define monopoly as a market where only one provider of goods or services exists without close substitutes. The authors further define market as "a group of buyers and sellers with the potential to trade". In the example of a Cable TV provider, the economy in which the monopoly exists is circumscribed by the boundaries of the governmental institution that authorized it - this can be city, county or statewide. In the case of global monopolies like the Organization of Petroleum Exporting Countries (OPEC), the market is global. However, monopoly markets are not necessarily confined by geography but instead by barriers like economies of scale, control of scarce inputs and government regulation. From analysis of these definitions I conclude that the effect of changes in global economy is proportional to the extent in which a monopoly extends through the global economy in terms of its inputs, processes and outputs.

For example, Malpass in National Review Online describes the breakdown of OPEC's monopoly as "due in part, to Russia's growing relationship with the Bush administration." Malpass goes on to say that because of the growing relationship between the US and the Soviet Union, "the economic importance of Saudi Arabia and the Arab oil producers" was materially diminished in simple words, Arab countries were no longer in control of "scarce inputs" or oil. In this case, the change in relationship between two countries, the US and Soviet Union (a change of global economic reaching proportions) affect a global monopoly.

Now let's take a look at what happens in Smallville USA as a direct result. The local hotel or cable television provided may not be impacted drastically by the events affecting OPEC, in fact the price of gasoline may be so small that these two monopolies may not be affected at all. Now let's think about the small gas station in town - you know, the one cited in the book as a monopoly which becomes a monopoly simply because of economy of scale. Here, another service station would have to beat the price of gas and win over the clients in order to make a profit. However, because the inputs to the gas station consist of refined oil products, the cost of gas may have an indirect impact on its level of profit. This change in global economy's effect is due to the fact that the gas station's (our little monopoly) input comes from the affected global oil market.

References:

Hall & Lieberman (2001) Introduction to Economics, 1st edition [University of Phoenix Print Version]. South-Western College Publishing, OH: Thomson Learning Inc.

David Malpass, National Review Financial Online, http://www.nationalreview.com/nrof_malpass/malpass111901.shtml

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