Monopoly...Is a Great Enemy to Good Management Term Paper

Pages: 5 (1626 words)  ·  Bibliography Sources: 5  ·  File: .docx  ·  Topic: Economics

Monopoly...is a great enemy to good management

Adam Smith, 1776, "The Wealth of Nations," Book I, Chapter XI, Part I,

Adam Smith was born in 1723 in Kirkcaldy, Scotland (Falkner, 1997) and dedicated his life to the philosophical studies. He was also a pioneer of the economics theories which guide us today and his ideas were later on adopted and developed by several renowned economists, such as David Ricardo (1772-1823) or Karl Max (1818-1883). "With the Wealth of Nations, Adam Smith installed himself as the fountainhead of contemporary economic thought. Currents of Adam Smith ran through David Ricardo and Karl Marx in the nineteenth century and through Keynes and Friedman in the twentieth." (Henderson, 1999-2002)

In 1776, Smith published his works in economics, the most comprehensive study published by that time, entitled an Inquiry into the Nature and Causes of the Wealth of Nations, or short, the Wealth of Nations. The book was "was published to great success and world-wide acclaim. Only five chapters long, the book introduced original concepts such as the division of labour into specialist skills, individual enterprise, a common international currency and what today is known as a market-led economy" (Falkner, 1997). An important concept the author debated upon is monopoly, and a most valuable quote from the Wealth of Nations is that "monopoly...is a great enemy to good management" (Smith, 1776).

Monopoly as an Enemy to Good Management

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Before actually approaching the monopoly as the enemy of good leadership, one must clearly understand what monopoly really is and how it is highlighted in the context of modern economics.

Monopoly

There are numerous definitions of monopoly throughout the economics theory, formulated in different ways but generally conducting the reader to the same conclusion: monopoly is power - the power of one company to produce as much as they like, generally the offer is lower than the demand, and then price these items to their personal benefit. "Monopoly power refers to the degree of practical control that firms have over their prices" (Karier, 1993).

Term Paper on Monopoly...Is a Great Enemy to Good Management Assignment

There are no competitors due to either man-made restrictions or due to barriers imposed by the economy and the consumers have no other choice but to purchase the items presented to them by the sole company activating on that particular industry segment. The man-made restrictions which foster a monopolistic economy are legal barriers and patents. In the case of legal barriers to entry, there are specific regulations which prevent other companies from activating onto the specified industry or industry segment. Patents, part of the legal restrictions, are yet another important cause generating monopoly and refer to the patent given to an inventor to be the sole producer and seller of his invented product, such as Pfizer is the sole manufacturer of Viagra. The natural barriers to entry refer to two situations, where the costs of entering the market are too high, or, the second, where only the large companies are advantaged by the cost structure on the market (Moffatt, 2008).

In addition, the workers activating in that segment have no alternative than to work for the monopolistic organization. "Monopoly is a term used by economists to refer to the situation in which there is a single seller of a product (i.e., a good or service) for which there are no close substitutes" (the Linux Information Project, 2005).

However it is generally perceived as a negative feature of the market, the monopoly has both supporters as well as disclaimers, as it has both advantages and disadvantages.

Disadvantages of monopoly:

high prices and low output on both short- and long-term since there are no other companies to offer the desired product and the company's capabilities are generally incapable to satisfy the entire demand

Source: Schenk, Font of Cyber-economics lack of incentives to innovate high inefficiency uneven distribution of income

The fact that a monopolistic economy has the power to influence the income distribution within the country's population shows why Adam Smith considered the monopoly as important and discussed it throughout the pages of the Wealth of Nations

Advantages of monopoly:

economies of scale: "A monopoly may produce at a lower cost than a competitive industry. This is due to economies of scale, which a monopoly is able to exploit more than a competitive firm, as the monopoly is the sole provider of that good, whereas in a competitive industry the firms share the total output" (Course Work, 2003) high corporate profits which could support the development of other underdeveloped industrial sectors and increase the state budget

Monopoly as Enemy monopoly granted either to an individual or to a trading company has the same effect as a secret in trade or manufactures. The monopolists, by keeping the market constantly understocked, by never fully supplying the effectual demand, sell their commodities much above the natural price, and raise their emoluments, whether they consist in wages or profit, greatly above their natural rate. The price of monopoly is upon every occasion the highest which can be got" (Smith, 1776).

The fact that monopoly is an enemy derives from its disadvantages upon the market, industry and consumers. But it can also negatively impact the organization as a whole, as it reduces the quality of the managerial act. Monopoly can generate negative effects upon the management of an organization in the meaning of making the company less adaptable and less competing. In other words, the company will get into a rut. The leadership of the organization will no longer feel compelled to develop their products and increase the level of satisfaction of the customers' needs. "Monopoly reduces or eliminates competition, which may lead companies to be more interested in their shareholders than their customers, for example. Self-interest and profits prevail, and the quality of management in respect of products/service is consequently diminished - since the number of other options customers have is limited" (Yahoo! Answers, 2008).

The basic feature which makes monopoly a threat to good leadership is the fact that it reduces competition. And competition is good for every business, especially in a world like the one we now live in, where change occurs on daily basis and companies must quickly adjust and satisfy these needs. Monopoly creates a stiff company, unable to adapt to the new requirements. In addition, it makes the company unable to satisfy all needs and deliver underdeveloped products. The manufacturer, or service provider, will not feel the need to constantly develop their product and service offer, generating as such a reduction in the quality of the managerial act.

But we must keep in mind that management is not only about product innovation; it is about all features within and outside the company. In this order of ideas, another feature of monopoly which negatively impacts the management of an organization is given by the fact that the workforce activating in the given industrial sector will also get into a rut, will do the same job every day, with no incentives to further develop and increase their performances, with no additional training and with no basic motivation. On the long-term, this will negatively impact the quality of the final product.

And besides the poor research and development and poor human resource policies, monopoly also affects the management from the stand point of resource allocation. However the basic scope of monopoly is increase in revenues through high prices and low costs, this is not always the case. Focused on market strategies to reduce competition to a minimum and prevent it from occurring while in the same time implementing high prices for products which do not satisfy the customers, the management might neglect the internal costs of producing the goods. "While monopoly may provide the basis for extracting higher prices from customers, the lack of competitive stimulus may raise the costs of producing the goods and services it… [END OF PREVIEW] . . . READ MORE

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