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Death of Monopolies – Economics

Introduction

At one point in the history and evolution of companies and markets, monopolies were common across the world. During those times, competition was low for various reasons. Firstly, start-ups were few, and thus the monopolistic companies did not have emerging competitors. Secondly, the emerging competitors were highly disadvantaged due to the lack of sufficient capital to carry out rigorous marketing or influence the market prices. Therefore, monopolistic companies were in a position to counter any form of competition by using their elaborate financial muscles and customer loyalty.

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However, with the technological revolution, competition has heightened and different companies are coming up with novel ideas to rival even the well-established entities. The marketing dynamics have changed and companies even without enough marketing resources can use emerging technologies to market their products.

Microsoft is the best case in point of this assertion. Before the early 21st century, Microsoft was the dominant player in the world of computers; however, rival companies have emerged with novel ideas, thus overthrowing Microsoft’s market dominance. Currently, Apple is the dominant force in the ICT world; however, it might suffer the Microsoft’s fate if it does not treasure continuous innovation to sustain its popularity and dominance. Continuous innovation is the key to the sustenance of dominance of any market player in the contemporary world.

How developments in technology erode monopoly power

According to the given passage, developments in technology are the antidote to monopolistic entities. Companies become monopolies by creating unrivalled products and services, or by law. Unfortunately, after becoming monopolistic, most companies become reluctant and they assume that yesterday’s innovations will meet tomorrow’s market demands (O’Grady 2008). Therefore, such companies bask in the past glory for long until novel rival products enter the market and take over. In the past, customers remained loyal to a certain product or service perhaps due to lack of options.

For instance, in the Microsoft’s case, consumers did not have many choices when deciding on the computers to use. Therefore, Microsoft enjoyed unrivalled market dominance and even though the company lacked continuous innovation, consumers did not have the choice to move on to another brand. Unfortunately, the 21st century heralded a revolution in the technology world coupled with the emergence of antitrust laws, thus disadvantaging erstwhile monopolies like Microsoft.

After its establishment, Apple struggled for over two decades to establish itself as a key market player in the ICT industry. Unfortunately, it could not overcome Microsoft’s dominance. However, the successful entry of iPod music player and iTunes music store in 2001 and 2003 respectively was a game changer in the ICT world (O’Grady 2008).

At this point, Microsoft was still the dominant player in the PC industry, while Apple was an upcoming rival. By this time, Microsoft could have embraced the emerging technologies to diversify its products, but it did not and on the other side, Apple utilised this opportunity to diversify its products and markets. Apple embraced the iPod and iTunes’ idea, thus introducing a novel idea to consumers. Given that consumers have an insatiable hunger for new products and experiences, they shifted their focus to Apple, thus underscoring how innovation breaks monopolies.

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Conventionally, consumers go for value for their money. This assertion leads to the view that consumers leverage the pain that they feel whilst purchasing a product by the joy and satisfaction that they derive from using the product. Even though indirectly, consumers control monopolies. For instance, monopolistic companies cannot sustain their dominance without the consumers’ goodwill.

At this point, it is important to note that consumers remain loyal to products not companies, and this aspect serves as the only link between consumers and companies. This assertion explains why consumers shift their loyalty and focus to other satisfying products regardless of the companies behind the products. If consumers were loyal to companies as opposed to products, start-ups would never breakthrough in any market. This understanding explains how development in technology breaks monopolies as explored in the next paragraph.

Development in technologies assists companies to come up with novel ideas. The novel ideas give birth to new products that meet the consumers’ unattended needs at a certain time. Therefore, based on the earlier assertion that consumers are loyal to products as opposed to companies, the new product attracts customers who were hitherto loyal to products from a monopolistic entity. Consequently, the monopolistic entity loses customers and as stated earlier, customers sustain monopolies. Therefore, without the support of customers, monopolies start to crumble under the weight of diminishing revenues and constant costs of production and operation. Within no time, the monopolistic power is broken as consumers move to the novel products from the innovative company.

This chain is repetitive and the company that breaks the monopoly of another entity by winning the consumers’ loyalty suffers the same fate if another company emerges to provide better products and services. This scenario underscores the Microsoft and Kodak cases. These erstwhile monopolistic companies were robbed of their dominance courtesy of emerging companies that had embraced innovation. Developing technologies are synonymous with innovation, which implies novel ideas, hence new products.

Therefore, developments in technology break monopolies by facilitating innovation, which introduces novel products in the marketplace, thus wooing consumers to shift their loyalty. This shift breaks monopolies, as they cannot stand without the support of consumers. Unfortunately, the chain is repetitive and the emerging companies face the same fate when they neglect further innovation. For instance, if Apple does not keep on coming up with new products, then its market dominance will diminish in the face of upcoming technologies and innovations.

Two similar examples

One of the most outstanding monopolies that have broken up under the weight of developments in new technology is AT&T monopoly. Even though most critics argue that AT&T monopoly existed due to legislations, the company had the option of becoming competitive even after the 1982 decision to break up its monopoly via law. The emergence of mobile telephony was irresistible and this new technology would undoubtedly revolutionise the telecommunication industry.

Currently, Verizon Wireless enjoys the market dominance that was once the preserve of AT&T. AT&T Mobility comes in the second place in terms of wireless telecommunication services provision. Verizon Wireless boasts in its ability to provide strong signals across the United States. The company has used emerging technologies to assert its dominance in the market. For instance, in 2011, the company launched its Verizon iPhone 4 to win more customers who were seemingly dissatisfied with AT&T’s allegedly poor network coverage.

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The other example of a monopoly broken down by developments in technology is the United States Postal Services (USPS). In the 19th century, this institution had monopolised the delivery of mails across the United States (Armentano 1999). However, the emergence of the Internet toppled this erstwhile giant and currently, the institution has been posting losses for the last three consecutive years. The development of the Internet facilitated the innovation of online mail delivery services and with the entry of Yahoo and Google in the market, the USPS was doomed to failure.

Currently, individuals simply log into their online mail services and forward the needed information to the relevant destinations. In addition, social media is revolutionising the communication landscape, which further dims the USPS’s relevancy in the contemporary times. Even though the supporters of the USPS hold that its relevancy will remain in decades to come, this paper’s objective was to highlight how the organisation lost its monopolistic powers to emerging technologies.

Conclusion

Monopolies were a common occurrence in the American markets before the 21st century. Consumers sustain monopolies and the moment a rival enters the marketplace and provides novel products, consumers shift their loyalty. In most cases, monopolies were sustained by legislations, but the moment the legislations were countered with antitrust laws, the competing companies gained footing in the market.

For instance, Microsoft remained a monopolistic establishment until early 21st century when Apple embraced developments in technology to come up with novel products like iPods and IPads among others. Similarly, AT&T and the USPS suffered the same fate in the hands of technology and emerging companies like Verizon and Google took advantage of the technologies to come up with novel products, thus gaining market dominance.

Developments in technology give way to innovations, which in turn herald the development of novel products, which win consumers’ loyalty. This way, monopolies are broken as they lose customers to the upcoming innovative companies (Armentano 1999). This assertion holds for without consumers, monopolies cannot stand.

Reference List

Armentano, D 1999, Antitrust and Monopoly: Anatomy of a Policy Failure, The Independent Institute, Oakland.

O’Grady, J 2008, Apple Inc. (Corporations That Changed the World), Greenwood Press, Westport.

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StudyCorgi. (2020, October 19). Death of Monopolies – Economics. Retrieved from https://studycorgi.com/death-of-monopolies-economics/

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StudyCorgi. 2020. "Death of Monopolies – Economics." October 19, 2020. https://studycorgi.com/death-of-monopolies-economics/.

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StudyCorgi. (2020) 'Death of Monopolies – Economics'. 19 October.

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