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Political power from a cotton monopoly

The image is a photograph of a cotton plant.
In the mid-nineteenth century, the United States, specifically the Southern states, had a near monopoly in the cotton supplied to Great Britain. These states attempted to leverage this economic power into political power—trying to sway Great Britain to formally recognize the Confederate States of America. (Credit: modification of work by “ashleylovespizza”/Flickr Creative Commons)

The rest is history

Many of the opening case studies have focused on current events. This one steps into the past to observe how monopoly, or near monopolies, have helped shape history. In the spring of 1773, the East India Company, a firm that, in its time, was designated ‘too big to fail,’ was continuing to experience financial difficulties. To help shore up the failing firm, the British Parliament authorized the Tea Act. The act continued the tax on teas and made the East India Company the sole legal supplier of tea to the American colonies. By November, the citizens of Boston had had enough. They refused to permit the tea to be unloaded, citing their main complaint: “No taxation without representation.” Arriving tea-bearing ships were warned via several newspapers, including The Massachusetts Gazette , “We are prepared, and shall not fail to pay them an unwelcome visit; by The Mohawks.”

Step forward in time to 1860—the eve of the American Civil War—to another near monopoly supplier of historical significance: the U.S. cotton industry. At that time, the Southern states provided the majority of the cotton Britain imported. The South, wanting to secede from the Union, hoped to leverage Britain’s high dependency on its cotton into formal diplomatic recognition of the Confederate States of America.

This leads us to the topic of this chapter: a firm that controls all (or nearly all) of the supply of a good or service—a monopoly. How do monopoly firms behave in the marketplace? Do they have “power?” Does this power potentially have unintended consequences? We’ll return to this case at the end of the chapter to see how the tea and cotton monopolies influenced U.S. history.

Introduction to a monopoly

In this chapter, you will learn about:

  • How Monopolies form: Barriers to Entry
  • How a Profit-Maximizing Monopoly Chooses Output and Price

There is a widespread belief that top executives at firms are the strongest supporters of market competition, but this belief is far from the truth. Think about it this way: If you very much wanted to win an Olympic gold medal, would you rather be far better than everyone else, or locked in competition with many athletes just as good as you are? Similarly, if you would like to attain a very high level of profits, would you rather manage a business with little or no competition, or struggle against many tough competitors who are trying to sell to your customers? By now, you might have read the chapter on Perfect Competition . In this chapter, we explore the opposite extreme: monopoly.

If perfect competition is a market where firms have no market power and they simply respond to the market price, monopoly is a market with no competition at all, and firms have complete market power. In the case of monopoly , one firm produces all of the output in a market. Since a monopoly faces no significant competition, it can charge any price it wishes. While a monopoly, by definition, refers to a single firm, in practice the term is often used to describe a market in which one firm merely has a very high market share. This tends to be the definition that the U.S. Department of Justice uses.

Even though there are very few true monopolies in existence, we do deal with some of those few every day, often without realizing it: The U.S. Postal Service, your electric and garbage collection companies are a few examples. Some new drugs are produced by only one pharmaceutical firm—and no close substitutes for that drug may exist.

From the mid-1990s until 2004, the U.S. Department of Justice prosecuted the Microsoft Corporation for including Internet Explorer as the default web browser with its operating system. The Justice Department’s argument was that, since Microsoft possessed an extremely high market share in the industry for operating systems, the inclusion of a free web browser constituted unfair competition to other browsers, such as Netscape Navigator. Since nearly everyone was using Windows, including Internet Explorer eliminated the incentive for consumers to explore other browsers and made it impossible for competitors to gain a foothold in the market. In 2013, the Windows system ran on more than 90% of the most commonly sold personal computers. In 2015, a U.S. federal court tossed out antitrust charges that Google had an agreement with mobile device makers to set Google as the default search engine.

This chapter begins by describing how monopolies are protected from competition, including laws that prohibit competition, technological advantages, and certain configurations of demand and supply. It then discusses how a monopoly will choose its profit-maximizing quantity to produce and what price to charge. While a monopoly must be concerned about whether consumers will purchase its products or spend their money on something altogether different, the monopolist need not worry about the actions of other competing firms producing its products. As a result, a monopoly is not a price taker like a perfectly competitive firm, but instead exercises some power to choose its market price.

Questions & Answers

what is the meaning of function in economics
Effah Reply
Pls, I need more explanation on price Elasticity of Supply
Isaac Reply
Is the degree to the degree of responsiveness of a change in quantity supplied of goods to a change in price
Afran
Discuss the short-term and long-term balance positions of the firm in the monopoly market?
Rabindranath Reply
hey
Soumya
hi
Mitiku
how are you?
Mitiku
can you tell how can i economics honurs(BSC) in reputed college?
Soumya
through hard study and performing well than expected from you
Mitiku
what should i prepare for it?
Soumya
prepare first, in psychologically as well as potentially to sacrifice what's expected from you, when I say this I mean that you have to be ready, for every thing and to accept failure as a good and you need to change them to potential for achievement of ur goals
Mitiku
parna kya hai behencho?
Soumya
Hallo
Rabindranath
Hello, dear what's up?
Mitiku
cool
Momoh
good morning
Isaac
pls, is anyone here from Ghana?
Isaac
Hw s every one please
Afran
Ys please I'm in Ghana
Afran
what is firms
Anteyi Reply
A firm is a business entity which engages in the production of goods and aimed at making profit.
Avuwada
What is autarky in Economics.
Avuwada
what is choice
Tia Reply
So how is the perfect competition different from others
Rev Reply
what is choice
Tia
please what type of commodity is 1.Beaf 2.Suagr 3.Bread
Alfred Reply
1
Naziru
what is the difference between short run and long run?
Ukpen Reply
It just depends on how far you would like to run!!!🤣🤣🤣
Anna
meaning? You guys need not to be playing here; if you don't know a question, leave it for he that knows.
Ukpen
pls is question from which subject or which course
Ada
Is this not economics?
Ukpen
This place is meant to be for serious educational matters n not playing ground so pls let's make it a serious place.
Docky
Is there an economics expert here?
Docky
Okay and I was being serous
Anna
The short run is a period of time in which the quantity of at least one inputs is fixed...
Anna
that is the answer that I found online and in my text book
Anna
Elacisity
salihu
Meaning of economics
Suraj Reply
It will creates rooms for an effective demands.
Chinedum Reply
different between production and supply
babsnof
Hii
Suraj
hlo
eshita
What is the economic?
Suraj
Economics is a science which study human behavior as a relationship between ends and scarce means which has an alternative use.
Mr
what is supply
babsnof
what is different between demand and supply
Debless Reply
Demand refers to the quantity of products that consumers are willing to purchase at various prices per time while Supply has to do with the quantity of products suppliers are willing to supply at various prices per time. find the difference in between
Saye
Please what are the effects of rationing Effect of black market Effects of hoarding
Atty Reply
monoply is amarket structure charecrized by asingle seller and produce a unique product in the market
Cali Reply
yes
Niraj
I want to know wen does the demand curve shift to the right
Nana
demand curve shifts to the right when there's an increase in price of a substitute or increase in income
kin
ask me anything in economics, I promise to try and do justice to the question, you can send me an email or message, I will answer
kin
what are the factor that change the curve right
Nana
explain the law of supply in simple .....
freshwater
the Law of supply: states that all factor being equal, when the price of a particular goods increase the supply will also increase, as it decreases the supply will also decrease
kin
@Nana the factor that changes or shift the d demand curve to the right is 1) the increase in price of a substitute good or commodity 2) increase in income
kin
you can send your questions I am Comr. Kin chukwuebuka
kin
different between bill of exchange n treasure bill
Nana
yes
Ada
so would you tell me what means an apportunity cost plz?
Cali
what is true cost
Akiti
your question isn't correct naadi
Anthonia
define an apportunity cost?
Cali
orukpe ,is my question whats wrong or u dont know anything?
Cali
In a simple term, it is an Alternative foregone.
Sule
opportunity cost is the next best value of a scale of preference
Akiti
Both of you are not correct.
Nelly
opportunity cost: is a forgone alternative
kin
Monopoly is where is one producer produces a given product with no close substitute
James
what is income effect?
Qwecou Reply
if you borrow $5000 to buy a car at 12 percent compounded monthly to be repaid over the next 4 year what is monthly payment
Nitish Reply

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Source:  OpenStax, Principles of economics. OpenStax CNX. Sep 19, 2014 Download for free at http://legacy.cnx.org/content/col11613/1.11
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