Simone Lawson
A monopoly is a market structure in which a single entity or company is the dominant supplier of a good or service, with the power to control prices and limit consumer choice. Monopolies are generally discouraged in free-market economies due to their stifling impact on competition. While holding a dominant position in a market is often not illegal, certain behaviours can lead to legal sanctions. In the English legal system, the concept of monopoly is addressed through competition laws and antitrust legislation, which aim to prevent unfair practices and promote market competition. This includes examining firms with significant market power and assessing whether their position was gained or maintained through improper conduct, such as exclusionary or predatory acts. The English legal system also recognises the concept of a legal monopoly, where a monopoly is sanctioned by the state for specific purposes or industries.
| Characteristics | Values |
|---|---|
| Legal basis | A monopoly is protected by law from competition. |
| Competition | A monopoly is a market structure with a single seller or producer that dominates an industry. |
| Market Power | A monopolist is a firm with significant and durable market power. |
| Market Share | Courts look at the firm's market share but typically do not find monopoly power if the firm has less than 50% of the sales of a particular product or service within a certain geographic area. |
| Sustainability | The leading position must be sustainable over time. |
| Exclusionary Conduct | Exclusionary or predatory acts may include exclusive supply or purchase agreements, tying, predatory pricing, or refusal to deal. |
| Natural Monopoly | A natural monopoly develops from reliance on unique raw materials, technology, or specialization. |
| Public Monopoly | Public monopolies, such as the utility industry, provide essential services and goods. |
| Legal Monopoly | A legal monopoly is a monopoly sanctioned by the state, often to provide an incentive to invest in a risky venture or enrich a domestic interest group. |
| De Facto Monopoly | A de facto monopoly is a broad category for monopolies that are not created by the government. |
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What You'll Learn
Legal vs. de facto monopolies
A monopoly is a market structure characterised by a single seller or producer that dominates an industry. Monopolies are discouraged in free-market economies because they stifle competition, limit consumer substitutes, and thereby limit consumer choice.
A legal monopoly, also known as a statutory monopoly or de jure monopoly, is a monopoly that is protected by law from competition. It is a company that operates as a monopoly under a government mandate and offers a specific product or service at a regulated price. The prevailing idea behind legal monopolies is that if too many competitors invest in their own delivery infrastructure, prices would climb to unreasonably high levels. The earliest iteration of a legal monopoly is the Statute of Monopolies of 1623, an act by England's Parliament. Under this statute, patents evolved from letters patent, which were written orders issued by a monarch granting title to an individual or corporation. The Dutch East India Company, British East India Company, and similar national trading companies were granted exclusive trade rights by their respective governments. Private freelance traders operating outside the scope of these companies were subject to criminal penalties.
A de facto monopoly, on the other hand, is a monopoly that is not created by a government entity. It is a broad category for monopolies that are established by market forces rather than government intervention. Obtaining a de facto monopoly by offering superior products, innovation, or business acumen is legal; however, achieving the same result through exclusionary or predatory acts may raise antitrust concerns. Exclusionary or predatory acts may include practices such as exclusive supply or purchase agreements, tying, predatory pricing, or refusal to deal.
In the United States, for example, Microsoft was accused of using its significant market share in the personal computer operating systems business to prevent competition and maintain a de facto monopoly. Authorities claimed that the company was "using exclusionary and anticompetitive contracts to market its personal computer operating system software". Microsoft illegally maintained its operating systems monopoly by including Internet Explorer with every copy of its Windows operating system software sold to computer makers, making it technically difficult to use a non-Microsoft browser.
Legal monopolies continue to exist in the United States and Europe, despite the current trend against their recognition and endorsement. Examples of legal monopolies in the United States include the USPS, which holds a legal monopoly on mail carrying, and Major League Baseball, which is exempt from antitrust law.
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Antitrust laws
In the English legal system, a monopoly is a market structure with a single seller or producer that assumes a dominant position in an industry or sector. Monopolies are discouraged in free-market economies because they stifle competition, limit consumer substitutes, and restrict consumer choice. While holding a dominant position or a monopoly in a market is often not illegal in itself, certain categories of behaviour can be considered abusive and therefore incur legal sanctions.
A legal monopoly, also known as a statutory monopoly or de jure monopoly, is a monopoly that is protected by law from competition. It is sanctioned by the state, often to provide an incentive to invest in a risky venture or enrich a domestic interest group. Patents, copyrights, and trademarks are sometimes used as examples of government-granted monopolies. The government may also reserve the venture for itself, thus forming a government monopoly, for example with a state-owned company.
The earliest iteration of a legal monopoly is the Statute of Monopolies of 1623, an act by England's Parliament. Under this statute, patents evolved from letters patent, which were written orders issued by a monarch granting title to an individual or corporation. The English East India Company and the Dutch East India Company were granted exclusive trade rights by their respective governments, and private traders operating outside the scope of these companies were subject to criminal penalties.
To judge the conduct of an alleged monopolist, an in-depth analysis of the market and the means used to achieve or maintain the monopoly is required. Obtaining a monopoly by superior products, innovation, or business acumen is legal; however, exclusionary or predatory acts may raise antitrust concerns. These acts may include exclusive supply or purchase agreements, tying, predatory pricing, or refusal to deal.
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Market power
The English legal system, like many other jurisdictions, has competition laws that restrict monopolies to prevent adverse effects on consumers and the economy. The focus is on preventing firms with significant and durable market power from restraining competition and harming consumers. Courts will assess a firm's market share, typically requiring a substantial percentage of sales within a geographic area to establish monopoly power.
On the other hand, a de facto monopoly is not created by a government entity but can arise naturally due to limited competition or resource control. For instance, certain railroad systems may have a natural monopoly due to the resource intensity of the industry. Obtaining a monopoly through superior products, innovation, or business acumen is generally legal. However, exclusionary or predatory acts, such as exclusive supply agreements or predatory pricing, may raise antitrust concerns and lead to legal sanctions.
Overall, the English legal system's approach to market power and monopolies aims to balance the potential benefits of monopolies, such as efficiency and innovation, with the need to prevent abusive practices and ensure fair competition for the benefit of consumers.
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Exclusionary or predatory acts
A monopoly is a market structure characterised by a single seller or producer that dominates an industry. In the English legal system, monopolies are discouraged in free-market economies as they stifle competition, limit consumer substitutes, and restrict consumer choice. Holding a dominant position or a monopoly in a market is often not illegal in itself; however, certain categories of behaviour can be considered abusive and therefore incur legal sanctions.
To determine whether a firm's conduct is exclusionary or predatory, courts will first ask if the firm has "monopoly power" in any market. This requires an in-depth study of the products sold by the leading firm and any alternative products consumers may turn to if the firm attempted to raise prices. Courts will also evaluate the anticompetitive effects of the conduct and its procompetitive justifications.
In some cases, a monopolist may have a legitimate business justification for behaving in a way that prevents other firms from succeeding in the marketplace. For instance, the monopolist may be competing on the merits in a way that benefits consumers through greater efficiency or a unique set of products or services.
It is important to note that the term "monopoly" is also used in a legal context to describe a variety of market conditions that are not monopolies in the strictest sense. For example, multiple sellers in an industry sector with similar substitutes are defined as having monopolistic competition. Additionally, a legal monopoly refers to a company that is operating as a monopoly under a government mandate, which differs from a "de facto" monopoly that is not created by a government entity.
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Patents, copyrights, trademarks
Patents, copyrights, and trademarks are forms of intellectual property that provide legal protection for ideas, concepts, or images. They are distinct from physical property, such as a house or a car. These legal protections can act as barriers to market entry, preventing or discouraging competitors from entering a market and enabling monopolies.
A monopoly is a market structure with a single seller or producer that assumes a dominant position in an industry or sector. Monopolies are discouraged in free-market economies because they stifle competition, limit consumer substitutes, and, in turn, limit consumer choice.
In the English legal system, patents evolved from letters patent, which were written orders issued by a monarch granting monopolies over particular industries to skilled individuals with new techniques. The Statute of Monopolies of 1623 (or 1624) was the first statutory expression of English patent law. This statute restricted patents for new inventions to a specified term of years and is considered a significant moment in the evolution of patent law and the transition of England's economy from feudal to capitalist.
Copyrights also have a long history in England, with the Stationers' Company holding a monopoly on publishing until 1695, when the Statute of Anne imposed strict term limits on copyright.
Trademarks are another form of intellectual property protection, although their specific history in the English legal system is less clear from the sources available. However, trademarks are generally recognised as important in promoting innovation and are included in the definition of intellectual property, along with patents, copyrights, and trade secrets.
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Frequently asked questions
A monopoly is a market structure characterized by a single seller or producer that dominates an industry. Monopolies are discouraged in free-market economies because they stifle competition, limit consumer substitutes, and thus limit consumer choice.
A legal monopoly is a monopoly that is sanctioned by the state, often to provide an incentive to invest in a risky venture or enrich a domestic interest group. Patents, copyrights, and trademarks are sometimes used as examples of government-granted monopolies.
In the English legal system, a monopoly is constituted by a single firm or entity that creates an unreasonable restraint of competition in a market. The English legal system also recognizes the concept of a "legal monopoly," which is a monopoly sanctioned by the state. The earliest example of this is the English Statute of Monopolies of 1623.
The English legal system has laws in place to restrict monopolies and promote competition. The Competition Act 1998 and the Enterprise Act 2002 are two key pieces of legislation that prohibit anti-competitive behavior and provide for the investigation and prosecution of monopolies.
