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Competition or Monopoly: Which is better? Essay

Competition or Monopoly: Which is better?

            Much debate has existed in proving which is better, a monopoly market or a competitive market. Generally, a monopoly has gained a negative connotation because it is mostly harmful to the consumers while a competitive market has praised.

To better explain the differences between the two types of market, we will use the electric utility business as an example. Meralco provides electricity for the entire Metro Manila. Meralco can raise their prices as much as they want and the consumers can do nothing about it as Meralco has monopolized the industry. If consumers would not buy their electricity from Meralco because they price it too much, they have nowhere else to go to get their supply of electricity. Thus, they are forced to buy electricity at outrageous prices since electricity is a basic commodity. On the other hand, if another electric utility company entered the scene, the situation would be different. Let us say that Penelco started offering electricity for a much lower price. The consumers now have the option of choosing to get their electricity supplied by Penelco. Meralco would lose its customers so it would be compelled to decrease their prices or increase

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the quality of their service. Either way, a competitive market is generally better for the consumers.

In extreme cases, the term pure monopoly or pure competition (also referred to as perfect competition) has been coined. A pure monopoly controls the entire supply of a product or service just like the case of Meralco. Pure competition is when there are many sellers of a single commodity. This is the case when Penelco or any electric company enters the business. Sometimes, a monopoly can be economically beneficial but this only happens when legislation is in place that would prevent the monopolist from overcharging.

Generally, monopoly has been deemed economically and socially harmful while competitive markets remain as the preferred market type. Even as a monopoly can sometimes prove beneficial, these are very rare cases.

References

The Linux Information Project. (1 December 2006). Monopoly: A Brief Introduction. Retrieved November 20, 2008, from http://www.linfo.org/monopoly.html

 

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