The Life Cycle of a Monopoly Enterprise

Every monopoly is born, lives, and dies.

First, a monopoly enterprise is born thru:

  • organic growth of one competitor
  • a trust between several competitors
  • an outside firm using cash to buy a monopoly position
    government fiat
  • a privatization of a governmental function

Standard Oil was created as a trust. China Mobile had originally been a branch of the government in China.

Second the monopoly enterprise acts like a monopoly by:

  • Enjoying economies of scale
  • Extracts economic profit
  • Experiences regulation by the political economic system, which itself requires the monopoly to:
    • flatter existing power-holdings
    • Assist other stakeholders in achieving their objectives
    • Avoid enraging any stakeholder that can kill the monopoly

I’ve previously discussed dangers that monopolies face.

Third, the monopoly enterprise loses monopoly status and capitulates. This can be because of:

  • Not understanding the market
  • Not being empathetic to other stakeholders

The unpopularity of the term “monopoly” comes from this process of capitulation from a consumer’s perspective.

Following capitulation, the monopoly might be

  • Broken up into multiple successor firms
  • Reduced to single competitor firm in a market
  • Incorporated into the government

At some point in their history, Hudson’s Bay Company and General Motors both operated as monopolies, and all have now been reduced to being single competitors in their respective markets. AT&T used to be a monopoly and was broken up into several successor firms.

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