Monopolies and Competitive Markets

A monopoly is where there is only one provider of a product or service. There is no competition or no close substitute for the good or service.

A market economy is one in which economic decisions and the pricing of goods and services are guided by how much people buy and sell. There is little government intervention or central planning. Competitive markets affect both buyers and sellers. Competition among sellers means lower prices for the consumer. Competition among buyers means higher prices for the consumer.

Let’s look at the history of our telephone service.

“The history of AT&T is in large measure the history of the telephone in the United States. AT&T’s roots stretch back to 1875, with founder Alexander Graham Bell’s invention of the telephone. During the 19th century, AT&T became the parent company of the Bell System, the American telephone monopoly. The Bell System provided what was by all accounts the best telephone service in the world. The system broke up into eight companies in 1984 by agreement between AT&T and the U.S. Department of Justice.” Source: www.att.com/history

This break-up occurred by law to end the monopoly held by AT&T and to allow a competitive market in the phone industry. What happened? You know! Competition for your dollars brought about incredible changes in the industry. Today there are many service providers. Sprint, Verizon and many more offer a variety of plans and features. Do you think that there would have been as much innovation in phone service if there had remained one provider?

Let’s look at a few competitive markets that affect our lives. Athletic shoes, cereals and collectibles (such as Beanie Babies or baseball cards) are examples of competitive markets.

• What affects your decision on what to buy?

• What is the opportunity cost when you make a decision?

• How are prices affected by having a choice of products?

• What would determine the price that a business would charge for its goods or services?

• What role does scarcity play in the price of items? (Think about Ohio State football tickets!)