Competition Vs Monopolies

Monopolies and competitive markets can be seen throughout Australian society. Monopolies exist when there is a sole supplier selling unique goods (Pass, 2005), whereas competitive markets have many buyers and sellers competing against each other. This essay will focus on the difference between monopolies and competition, exploring the positive and negative aspects for both. Additionally, I will briefly touch on why governments purposely create monopolies in some industries and whether these can be sustained in a free market.

Competitive markets benefit society when organisations compete to produce goods and services providing consumers with variety of quality and price. In a perfect state, ‘Consumers by their buying or abstention from buying
Similar to competitive markets, a monopoly has its advantages and disadvantages. As a sole supplier, profits come easily, so in effect, more funds can be directed into research and development, which in turn improves goods and services. Also, due to economies of scale where increased output leads to decreased costs of production, these savings can be passed onto consumers as lower prices – though they tend to be higher than in competitive markets. The disadvantages of a monopoly can have negative effects on society, where companies have fewer incentives to be efficient, resulting in wastage. Lack of competition can lead to a decrease in innovation impacting consumers by restricting
There are a few examples of monopolies in such markets, for example Nespresso and Panadol (paracetamol). Singleton and Howard (1977) explored aspects towards such monopolies and stated that in a free market society they have the ability to charge high prices without question, being the sole providers of such goods or services, therefore giving them impunity. Nestle’s coffee counterpart Nespresso invented capsule technology as a more convenient way for making coffee and added copyrights and patents to their product in order to prevent competition from other coffee companies. ‘Competitors have emerged to other single-serve coffee products, but Nestlé is the first to take legal action to try to ward generics away from the gold mine of coffee by the pod’ (Alderman, 2010). However, we observe that monopolies cannot remain in a free market for very long without government intervention, as we can see from the Nespresso example, that in the last few years, its capsule delivery method lost its ability to be protected by law with its worldwide patents having come to their limits. When all the protectionist barriers have been removed, other players come into the market to capitalise and provide ‘better options to the consumer’. Players in the coffee industry went into the market such as, Illy