What’s in This Chapter?

A monopoly is an industry in which one seller dominates or controls the industry. There are two kinds of monopolies: government granted monopolies, and free market monopolies. The delivery of first class letters by the U.S. Postal Service is government granted; no other company is allowed to deliver first class letters. In the Internet search industry, mostly dominated by Google, other companies are allowed to compete.

The U.S. Postal Service does not have to fear potential competitors (in the area of delivering first class letters, providing passports, and a few other services). It does not have to operate at maximum efficiency, and does not have to keep its prices as low as it would if there had been more competition. Google does have to fear competitors, because of the threat of potential competitors (it already has some competitors, including Microsoft’s Bing, and Yahoo Search). If Google does not operate efficiently and if it does not keep delivering a quality product, then it will lose market share and lose advertising revenue. Google also has to make sure it doesn’t illegally abuse its monopoly power (even though it does appear it has done this in some ways) if it wants to avoid a public backlash or court case. Google may be considered a near monopoly in the Internet search industry, but, unlike a government granted monopoly, it must behave as if there is substantial competition if it wants to survive.

This unit discusses these two types of monopolies, barriers to entry, profit maximization, and anti-trust laws.