A monopoly in general involves one business entity controlling, in practical terms, a particular market. This control could be over a resource, a product or a service. Whichever the case, the monopoly sets the price and supply at whim, without any concern for competition.
Since the introduction of the antitrust laws in the 1930s, the federal government has been opposed to monopolies in general. However, the government also protects and controls specific markets as well. This may, at first blush, seem hypocritical, but there are sound reasons for it.
What is a Government Monopoly?
When the government allows or creates a monopoly within a market, that is in essence a government monopoly. The government is either directly or indirectly the only provider of a service or product, and other competition is not allowed.
When the government allows a private entity to have this power, it is called a government-granted monopoly. Many electricity and water utilities are examples of this alternative.
A government monopoly can be at any level of government, from national down to the city or special district level. The only distinction in name to discern the level of jurisdiction tends to be national, regional or local (that is, a national monopoly or local monopoly).
Government Monopolies We Use Everyday
Some functions, depending on the country, remain under standard control of the government. For instance, in Germany the postal service and train service are national government operations. In Nigeria, the land phone system is government owned and operated.
In the United States, the postal service is entirely government operated. However, this doesn't necessarily create a monopoly per se. For instance, U.S. shipping can be performed through FedEx, DHL or UPS. So the U.S. Postal Service doesn't currently dominate the market. On the other hand, the German public train system is entirely government run; there are no private competitors. That is a true monopoly.
Why Have a Government Monopoly? The Scandinavian Example
Many times, government monopolies are created to guarantee a public service or to protect the public from harm. In Scandinavian countries, alcohol and drinking are serious concerns. To control the damage caused by alcoholism, particularly with regard to health and driving, the government only allows alcohol sales through government stores. The prices are kept high and the amount bought is limited. Clearly, the government has asserted a monopoly for the purpose of protecting people's health.
Why Have a Monopoly? The Canadian Example
In Canada, the healthcare system is government controlled. Competition is not allowed, and the industries that do exist are government-approved monopolies. The intent is to make sure everybody receives a certain standard of healthcare. While the system is good for many needing basic care, those few needing special care may not receive the best treatment as they might in a competitive market. But the Canadian government believes the majority benefit from the program.
Why Government Monopolies are a Bad Idea
Opposition to government monopolies tends to focus on those that are government granted. It essentially favors one business over another versus creating another government program. The downside of favoring a business is that it creates an inefficient provision of a service or product. The favored business has no incentive to improve; its profits are guaranteed by the government. As a result, there is no true customer service or quality assurance. In comparison, competition instead forces companies to stay the best or lose market share, which in turn is assumed to be better for the customer.
A Work in Progress
Government monopolies exist because some services have to exist for everyone with their availability not being subject to market forces or the ability to pay. Other reasons include protecting the public welfare. However, subsidizing a favored business creates inefficiencies and can risk producing an inferior product or service for all customers. There is no perfect answer to the issue; government monopolies will continue to be a work in progress subject to political and public interests.
Monopoly Vs. Oligopoly
The terms "monopoly" and "oligopoly" refer to the number of competitors within a defined market or geographic region.
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