Government-granted monopoly

"Franchise (rail)" redirects here. For the process as applied in the United Kingdom, see Rail franchising in Great Britain.

In economics, a government-granted monopoly (also called a "de jure monopoly") is a form of coercive monopoly by which a government grants exclusive privilege to a private individual or firm to be the sole provider of a good or service; potential competitors are excluded from the market by law, regulation, or other mechanisms of government enforcement. As a form of coercive monopoly, government-granted monopoly is contrasted with a non-coercive monopoly or an efficiency monopoly, where there is no competition but it is not forcibly excluded. Amongst forms of coercive monopoly it is distinguished from government monopoly or state monopoly (in which government agencies hold the legally enforced monopoly rather than private individuals or firms) and from government-sponsored cartels (in which the government forces several independent producers to partially coordinate their decisions through a centralized organization). Advocates for government-granted monopolies often claim that they ensure a degree of public control over essential industries, without having those industries actually run by the state. Opponents often criticize them as political favors to corporations. Government-granted monopolies may be opposed by those who would prefer free markets as well as by those who would prefer to replace private corporations with public ownership.

History

Under mercantilist economic systems, European governments with colonial interests often granted large and extremely lucrative monopolies to companies trading in particular regions, such as the Dutch East India Company.

Today, government-granted monopolies may be found in public utility services such as public roads, mail, water supply, and electric power, as well as certain specialized and highly regulated fields such as education and gambling. In many countries lucrative natural resources industries, especially the petroleum industry, are controlled by government-granted monopolies. Franchises granted by governments to operate public transit through public roads are another example.

Patent

Main article: Patent

A patent is a set of exclusive rights granted by a state or national government to an inventor or his/her assignee for a limited period of time in exchange for a public disclosure of an invention.

The procedure for granting patents, the requirements placed on the patentee, and the extent of the exclusive rights vary widely between countries according to national laws and international agreements. Typically, however, a patent application must include one or more claims defining the invention which must be new, inventive, and useful or industrially applicable. In many countries, certain subject areas are excluded from patents, such as business methods and mental acts. The exclusive right granted to a patentee in most countries is the right to prevent others from making, using, selling, or distributing the patented invention without permission.

Trademark

Main article: Trademark

A trademark or trade mark is a distinctive sign or indicator used by an individual, business organization, or other legal entity to identify that the products or services to consumers with which the trademark appears originate from a unique source, and to distinguish its products or services from those of other entities.

Trademarks can act as a form of consumer protection that lowers the transaction costs between a buyer and seller who are not personally acquainted.

Directly mandated

Governments have granted monopolies to forms of copy prevention. In the Digital Millennium Copyright Act, for example, the proprietary Macrovision copy prevention technology is required for analog video recorders. Though other forms of copy prevention aren't prohibited, requiring Macrovision effectively gives it a monopoly and prevents more effective copy prevention methods from being developed.

Criticism

Opponents of government-granted monopoly often point out that such a firm is able to set its pricing and production policies without fear of breeding potential competition. They argue that this causes inefficiencies in the market place, such as unnecessarily high prices to consumers for the good or service being supplied (government-imposed price caps might avert this problem, however, it is still possible that competition would supply the good or service at a lower price). One historical example of this is the government-granted monopoly in steamboat traffic operated by Robert Fulton. The New York legislature granted Fulton the privilege to be the sole provider of all steamboat traffic for thirty years. Competition was forbidden by law. Thomas Gibbons, a steamboat entrepreneur, hired Cornelius Vanderbilt to ferry passengers for a cheaper fare in defiance of the law in an attempt to compete with Fulton for about six months. In 1824, in Gibbons v. Ogden, the Supreme Court struck down Fulton's government-granted monopoly ruling that states cannot legally regulate interstate commerce. Steamboat fares almost immediately dropped from seven to three dollars after the decision and traffic increased dramatically. Fulton was unable to successfully compete with the low fares offered by Gibbons and Vanderbilt, which resulted in his bankruptcy. (The Myth of the Robber Barrons, by Burton W. Folsom Jr.)

Examples

• State Bar of Arizona
• Saudi Aramco
• British East India Company
• French East India Company
• Brewers Retail
• Theatre Royal, Drury Lane
• K–12 education
• Interest rates
• West Virginia American Water

See also

• Coercive monopoly
• Legal monopoly
• Government monopoly
• Monopoly
• Natural monopoly
• Rent seeking
• Federal Reserve System

External links

• Unnatural Monopoly: Critical Moments in the Development of the Bell System Monopoly by Adam D. Thierer
• Antitrust Policy As Corporate Welfare by Clyde Wayne Crews Jr (PDF)
• Antitrust Policy As Corporate Welfare by Clyde Wayne Crews Jr (Google conversion from PDF)