Oligopoly not Monopoly

In this country we tend to fear the rise of Monopolies. Most Americans probably think our country does a good job at keeping them at bay. But what if the main heavy-hitters in our economy were oligopolies? Are we any better off?

The consumer may think that when they go to the grocery store or chose a cellphone plan they have many options to choose from. Though there may be many toothpaste brand names for instance, in actuality more than 80% of toothpaste brands are controlled by two companies: Procter & Gamble and Colgate-Palmolive Business Practice - Oligopoly. A monopoly is when a market is controlled by one firm who has unlimited market power. When a small number of firms control the market we call that an oligopoly and it is more common than we may think. The oligopoly firms are too few to create any sort of competition and they make parallel pricing and production decisions. If these few firms were under one company name we would call it a monopoly.

Cellphone service providers are another classic example Big Cellphone Companies. If you feel like you're getting ripped off by your cellphone provider you are probably right. There are four main companies, AT&T, Verizon, Sprint, and T-Mobil, with AT&T and Verizon controlling two-thirds of the market Big Cellphone Companies. Although some smaller companies attempt to make the market competitive often times they end up being bought out. For a long time T-Mobil has made the same type of market controlling decisions as the other cellphone companies, like high overage charges, binding contracts, etc, but now they are going out on their own. T-Mobil is attempting to move in on the market by making better decisions for the consumer. They will set themselves apart by ditching contracts and roaming charges  Big Cellphone Companies. This makes them a target for acquisition but hopefully they can bring some competition to the market, a market that so many American's rely on.

Russia Wielding Monopoly Power

Monopolies can do more than just harm consumer surplus they can translate to substantial political power. Russia's government owned natural gas company, Gazprom has shown itself to be a huge player in the Ukrainian annexation. Gazprom holds control over many European natural gas supplies and the closer the country is to Russia the more dependent they are for Russian gas.

Gas Prices in Europe

Russian gas control has translated into strong political muscle. Acting as a monopoly Gazprom is able to raise prices on natural gas at will. Ukraine is somewhat helpless because they rely on Russia for half of their total gas needs. Gazprom "The chief executive, Aleksei B. Miller, said Gazprom had stepped up the price by an additional $100 per 1,000 cubic meters, to $485, far more than Gazprom charges utilities in other countries." Ukraine Struggle This influence has also been a factor in preventing intervention from other European Countries. Most of the continent is dependent on Russia for their natural gas supply. In order to be strong politically many are pushing for Europe to be independent from Russian natural gas. This however would be no small feat; it would cost Europe "$160 for every single person in Europe." Gas Prices in Europe If big changes don't come Europe may be "stuck with Russian gas" Gas Prices in Europe. One option is to get gas to Ukraine from other Europe how pay less to Russia, which could cause more harm than good. The other is to look elsewhere for a natural gas supply for all European, which would come from countries like the US or find some natural gas substitutes fast.

Car Cartel

When we hear the word 'cartel' we may only think of oil-powerhouses or drug lords. But unfortunately cartels exist in many areas of business, most illegally. To form a cartel multiple companies enter into an agreement where they agree to set a monopolistic level of supply thereby incurring a monopolistic price and profit. Sometimes these agreements are simply referred to as 'price-fixing'.

Last September several Japanese auto parts companies were prosecuted. These companies, including Mitsubishi Electric Corp. were setting high-prices for their auto parts which they sold to American car companies. These prices eliminated the competitive market and elevated the prices on 25 million vehicles from GM, Ford, and Chrysler, to name a few Autoparts Cartel.

Luckily this type of activity is highly prosecuted. These auto part companies pleaded guilty and face $740 million in fines Autoparts Cartel. The main legal issue is the harm to consumers, which for this case that encompasses many individuals.

How Cartels Work

Cartels gain profits and divide them among their members by taking away some consumer surplus 'A' and leaving dead-weight loss 'B' or money on the table in a competitive environment. Cartels are a huge harm to the economy; "the consumer losses more than the cartel wins" How Cartels Work.

Price Discrimination

Often we see various discounts for all sorts of things. As long as you belong to some demographic group you may be eligible for some type of discount. There are discounts on a college education, car repairs, or coffee. One of the most common price discrimination is senior citizen discounts. We might not be apt to look at these discounts as price discrimination, but that's exactly what they are: charging different groups of people different prices for the same product or service.

Our initial reaction may be either "that's not fair" or "it's good to cut someone a break who has a lower income." Let's take the last reaction: Does price discrimination help senior citizens because they are on a fixed income. The truth is, "A 2007 study shows that poverty rate among adults ages 19 to 64 is 15 percent but among people 65 and over is only 13 percent. Certainly there are struggling seniors, but as a group they are actually better off than the general population." price discrimination. So the real motive behind this price discrimination is increasing business revenues. Price discrimination takes advantage of groups who in one way or another have spending power. "Price discrimination exists because it is profitable. It allows sellers to capture demand along different parts of the demand curve." Just Marketing Blog Senior citizens in America “hold 80 percent of the country’s personal net worth" seniors. Making them a target market for many industries. If a senior citizen is going out to get a cup of coffee you might as well make sure they buy your cup of coffee. 

Now our other reaction to price discrimination, "that's not fair." Using senior citizens as an example; they have enough money but still get a discount, that doesn't seem right. Remember price discrimination happens all the time in more discreet ways that we accept. Like charging different prices on soda based on packaging or different prices on a meal based on location. In the case of senior citizens I may not have a satisfactory answer but it is just not strictly fair. As far as business goes its good for the economy. "Thirty-five percent of our population is over 55 years old, and these very affluent senior citizens control almost 45 percent of the disposable income of our country." senior citizen purchasing power. It is good for everyone to have a group of people with money to spend, to use it and fuel the economy. Price discrimination is one of the ways to incentivize that spending.