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Business Ethics ­MGT610
VU
LESSON 22
MONOPOLY COMPETITION
Of course, the three values of capitalist justice are only produced if the market embodies the
seven conditions that define perfect competition. If even one of the conditions is not present,
then the market cannot claim to promote those values. This, in fact, is the most important
limitation of free market morality: because free markets are not perfectly competitive, they do
not achieve the moral values.
Monopoly Competition
In a monopoly, two of the seven conditions are absent: there is only one seller, and other sellers
cannot enter the market. As the case of Alcoa exemplifies, such markets are far from the
perfectly competitive model. Although Alcoa's patents on the manufacturing of aluminum ran
out in 1909, it remained the sole producer of virgin aluminum for another thirty years. No
competitor could enter the market because their startup costs would have been too great, and
they lacked Alcoa's experience. Alcoa and other monopolies like Western Electric, Standard
Oil, and the American Tobacco Company were thus able to fix output at a quantity less than
equilibrium, making demand so high that they reaped excess profits. (Had entry into these
markets been open, the excess profits would have drawn others into producing these goods
until prices dropped, but this does not happen in a monopoly.)
Monopolistic markets and their high prices and profits violate capitalist justice because the
seller charges more than the goods are worth. Thus, the prices the buyer must pay are unjust. In
addition, the monopoly market results in a decline in the efficiency of the system. First, the
monopoly market allows resources to be used in ways that will produce shortages of those
things buyers want and cause them to be sold at higher prices than necessary. Second,
monopoly markets do not encourage suppliers to use resources in ways that will minimize the
resources consumed to produce a certain amount of a commodity. A monopoly firm is not
encouraged to reduce its costs and is therefore not motivated to find less costly methods of
production. Third, a monopoly market allows the seller to introduce price differentials that
block consumers from putting together the most satisfying bundle of commodities they can
purchase given the commodities available and the money they can spend. Because everyone
must buy from the monopoly firm, the firm can set its prices so that some buyers are forced to
pay a higher price for the same goods than others.
In effect, those who have a greater desire for an item will buy less, and those who desire an
item less will buy more, which is a great inefficiency, and means that consumers are no longer
able to purchase the most satisfying bundle of goods they can.
Oligopolistic Competition
Most industries are not entirely monopolistic; in fact, most are dominated by a few large firms.
These markets lie somewhere in between the monopoly and the perfectly competitive free
market; the most important type of these imperfectly competitive markets is the oligopoly.
In an oligopoly, two of the seven conditions are not present. Instead of many sellers, there are
only a few significant ones. The share each firm holds may be somewhere between 25 percent
and 90 percent of the market, and the firms controlling this share may range from 2 to 50
depending on the industry. Second, as with the monopoly, other sellers are not free to enter the
market. Markets like this, which are dominated by four to eight firms, are highly concentrated
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Business Ethics ­MGT610
VU
markets. A list of firms in oligopoly markets in the most highly concentrated American
industries reads like a who's who of American corporate power.
The most common cause of oligopolistic market structure is the horizontal merger or
unification of two companies that formerly competed in the same line of business. Because
such markets are comprised of a small number of firms, it is easy for their managers to join
forces to set prices and restrict their output, acting, in effect, like one large monopolistic firm.
Therefore, like monopolies, they can fail to set just profits, respect basic economic freedoms,
and protect social utility.
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Table of Contents:
  1. INTRODUCTION:Business Issues
  2. INTRODUCTION (CONTD.)
  3. THEORY OF ETHICAL RELATIVISM
  4. MORAL DEVELOPMENTS AND MORAL REASONING
  5. MORAL REASONING:Arguments For and Against Business Ethics
  6. MORAL RESPONSIBILITY AND BLAME
  7. UTILITARIANISM:Utilitarianism: Weighing Social Costs and Benefits
  8. UTILITARIANISM (CONTD.):rule utilitarianism, Rights and Duties
  9. UNIVERSALIZABILITY & REVERSIBILITY:Justice and Fairness
  10. EGALITARIANS’ VIEW
  11. JOHN RAWLS' THEORY OF JUSTICE:The Ethics of Care
  12. THE ETHICS OF CARE:Integrating Utility, Rights, Justice, and Caring
  13. THE ETHICS OF CARE (CONTD.):Morality in International Contexts
  14. MORALITY IN INTERNATIONAL CONTEXTS:Free Markets and Rights: John Locke
  15. FREE MARKET & PLANNED ECONOMY:FREE TRADE THEORIES
  16. LAW OF NATURE:Theory of Absolute Advantage, Comparative Advantage
  17. FREE MARKETS AND UTILITY: ADAM SMITH:Free Trade and Utility: David Ricardo
  18. RICARDO & GLOBALIZATION:Ricardo’s Assumptions, Conclusion
  19. FREE MARKET ECONOMY:Mixed Economy, Bottom Line for Business
  20. COMPETITION AND THE MARKET:Perfect Competition
  21. PERFECT COMPETITION
  22. MONOPOLY COMPETITION:Oligopolistic Competition
  23. OLIGOPOLISTIC COMPETITION:Crowded and Mature Market
  24. OLIGOPOLIES AND PUBLIC POLICY:Ethic & Environment, Ozone depletion
  25. WORLDWATCH FIGURES:Population Year, Agriculture, Food and Land Use
  26. FORESTS AND BIODIVERSITY:The Ethics of Pollution Control
  27. THE ETHICS OF POLLUTION CONTROL:Toxic Chemicals in Teflon
  28. THE ETHICS OF POLLUTION CONTROL
  29. THE ETHICS OF POLLUTION CONTROL:Recommendations to Managers
  30. COST AND BENEFITS:Basis of social audit, Objectives of social audit
  31. COST AND BENEFITS:The Ethics of Conserving Depletable Resources
  32. COST AND BENEFITS:The Club of Rome
  33. THE ETHICS OF CONSUMER PRODUCTION AND MARKETING:DSA Comments
  34. THE ETHICS OF CONSUMER PRODUCTION AND MARKETING:Should Consumers Bear More Responsibility?
  35. THE CONTRACT VIEW OF BUSINESS' DUTIES TO CONSUMERS
  36. THE CONTRACT VIEW OF BUSINESS' DUTIES TO CONSUMERS:The Due Care Theory
  37. THE SOCIAL COSTS VIEW OF THE MANUFACTURER’S DUTIES
  38. ADVERTISING ETHICS:The Benefits of Advertising, The harm done by advertising
  39. ADVERTISING ETHICS:Basic Principles, Evidence, Remedies, Puffery
  40. ADVERTISING IN TODAY’S SOCIETY:Psychological tricks
  41. ADVERTISING IN TODAY’S SOCIETY:Criticism of Galbraith's Work
  42. ADVERTISING IN TODAY’S SOCIETY:Medal of Freedom
  43. ADVERTISING IN TODAY’S SOCIETY:GENERAL RULES, Substantiation
  44. ADVERTISING IN TODAY’S SOCIETY:Consumer Privacy, Accuracy
  45. THE ETHICS OF JOB DISCRIMINATION:Job Discrimination: Its Nature