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Unless specifically legally permitted, agreements to suppress or eliminate competition are illegal and unenforceable.
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However, there are monopolies that exist and thrive.
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Some examples may be a patented medical device, the usps, major league baseball, the nfl, and public utilities.
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We're going to look at what a legal monopoly is and why this occurs.
00:24
So a legal monopoly is also known as a statutory monopoly, is a firm that is protected by law, from competitors.
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In other words, a legal monopoly is a firm that receives government mandate to operate as a monopoly.
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Legal monopolies can be established through a public franchise, a government license, a patent or copyright.
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Monoplies arise because of a key resource that is owned by a firm.
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Some government monopolies are the result of special interests and corruption, so some enhance efficiency by encouraging innovation.
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Rationale behind a legal monopoly.
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So why, if we originally said monopolies are not okay, why do we all of a sudden have legal monopolies that we say, you know what, sometimes it's okay? so the rationale behind a legal monopoly is a legal monopoly is a situation in which the government grants a firm to be the exclusive provider of a good and or service, in exchange for the right to be monitored and regulated.
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Disadvantages of monopoly.
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There are disadvantages to a monopoly, just like anything in life.
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It has pros and cons.
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Higher prices and lower output.
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Consumer exploitation and bullying.
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Poor quality and service.
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And this is because they don't have competition to help regulate them.
04:49
When there is competition, prices are lower because they'll keep lowering their price to compete with the other guy, so to speak.
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Poor quality and service exists in monopoly because there's not another competitor to come along and say, hey, we can do it better and to help keep that quality up.
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The biggest disadvantage behind a monopoly is the lack of incentive to improve the product or service that's being offered and a potential limitation of innovation.
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Monoplies don't need to innovate on their products or services or provide exceptional customer service because there's no competition in the market.
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There's no incentive for them to do better.
05:45
Characteristics of a monopoly are a monopoly exists when the free market forces are such that one firm can either force out or acquire every other competitor within a market.
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Once one company is the only actor within the market or industry, then they are free to set the prices as they see fit.
06:05
Consumers have to accept the terms of a monopolistic firm because they have no one.
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Choice between providers.
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There's no one else to go to for that service or good.
06:14
Monoplies are illegal within the united states.
06:17
However, there are certain circumstances where a natural monopoly can occur...