Using anti-monopoly laws, authorities can block mergers and acquisitions if they feel a transaction would give a company too much market power. Mergers and Acquisitions: Companies that want to build a monopoly often buy up competitors.Monopoly laws are often referred to as antitrust laws or competition laws and help ensure fair and open competition.Īntitrust laws cover the following activities: In fact, many competition laws are aimed at protecting consumers, not competitors. Since monopolies raise prices and have little incentive to innovate, they can be detrimental to consumers. Still, many governments have anti-monopoly laws in place to prevent monopolies from forming in certain markets or industries. It’s often impractical for multiple companies to each build their own power lines running through a single city. Some public utilities enjoy monopolies over their respective markets, and some other companies may have monopoly power for valid reasons.Īn electricity company may have a monopoly over a town’s electrical grid, for example. Governments sometimes establish monopolies for certain parts of the economy. Google controls nearly 90 percent of the American search engine market, according to Statcounter GlobalStats, which tracks Internet usage. Some allege Amazon is gaining monopoly power over e-commerce since it already controls about 39 percent of the e-commerce market in the United States, according to eMarketer, a research company that focuses on digital technology. There are prominent situations today in which monopoly power may be a concern. So governments can authorize and establish monopolies in situations where it’s difficult for competitive markets to function. Public utilities are one example - it would be impractical for a town to have its electricity or water provided by multiple companies, each with its own infrastructure. In some circumstances, there are good reasons for monopolies. Even if a company lowers production costs, there’s no incentive to pass on the savings to consumers. In a monopoly, however, a company has little incentive to take these steps: It doesn’t have to worry about being undercut by competitors, and it has little incentive to innovate since no one is offering better products. Some monopolies are known as “trusts” - hence the term “antitrust,” which refers to laws aimed at preventing monopolies.įree markets, those in which businesses can easily enter a market and compete with each other, generally force companies to innovate, cut prices, and take other steps that benefit consumers. As a result, the company doesn’t have to worry about other companies that might offer better products or lower prices, and that can distort the market.

A business or other organization secures a monopoly when it has complete control of a market or is dominant enough that it doesn’t face competition.

Definition of a monopoly economics