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Monopolies Effect On Resource Allocation In Industry


Monopolies are under constant critics from the public and
other producers of being polutive, straining to competition
and they are accused of worsening resource allocation.
Whether this is true or not, depends on the specific
company, but certain characteristics are possible to
define. It is these I will describe in the following, and
hence conclude if monopolies worsen or improve resource
allocation. It is important to distinguish between
competition and monopoly before describing advantages and
disadvantages of both. Many monopolies are government
owned. This means that the incentive to strive for more
profit, better conditions etc. is gone. This is due to the
fact that, if there is a loss, the government will cover
it, and government owned companies seldom strive to achieve
maximum profits. A lot of the characteristics are also seen
in privately owned monopolizing firms. When they become so
big, that competition is practically gone, the incentive to
make even more profits, and being innovative diminishes. In
a competitive industry this is not the case. The fear of
loosing your job, not being able to compete, your products
becoming obsolete etc. are important factors, which
stimulate productivity. It is therefor obvious that the
competitive industry will try harder to allocate their
resources in the most efficient way.
To land, the external costs in a competitive industry will
often be pollution, seeing that the firm will strive hard
to diminish their costs resulting in the firm ignoring
'unnecessary' costs. The monopoly owned by the government,
would never be able to ignore such a serious matter, and
they would have to pay the costs. A monopoly would also
have to be careful not to damage its image, seeing that is,
in many cases, already is unpopular. Capital, on the other
hand, is often to the benefit of a monopoly, since they
produce at a large scale. To fully utilize capital, a lot
of labour is needed, labour which a monopoly is expected to
have, and a smaller competitive firm may lack. For example,
a blast furnace might need a crew of 24 men working night
and day, to fully utilize it. The monopolizing company may
be able to provide the men, but the smaller firm might not
have the money to hire all the 24 men at night, seeing
wages are much higher at then. The question then is if the
competitive company is so much more efficient due to hard
work, that they still can produce more than the monopoly.
When it comes to labour, it is obvious that a competitive
industry will strive to utilize the workers at a maximum
level, due to the desire of minimizing costs, and workers
will in general be very efficient due the reasons mentioned
above. The workers in a monopoly, often loose the feeling,
that their work makes a difference in the firm, making it
hard for managers to fully utilize the them.
In my opinion, the characteristics described above are not
as valid any more. Companies, which enjoyed monopoly status
in the beginning of the 80's, like IBM, are now realizing
that nothing lasts forever, and they have be innovative,
even if the competition is not a great threat. Bill Gates,
owner of MicroSoft, has very admirable policies concerning
this. His firm is not a monopoly, but it is definably a
cutting-edge firm, which is shaping the future. One rule he
has, is that every six months the bottom five percent of
the company's workforce (in terms of performance) get
firedø. It is his goal to make his own products obsolete,
not letting others do it, and it seems he is achieving that
goal. Allocating resources in monopoly does not have to be
worsening, but times change and so must management.


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