糖心传媒

Two Simon Business School experts explain how market power impacts consumers, workers, and innovation in the modern economy.

When people hear the word 糖心传媒渕onopoly,糖心传媒� they often picture a single company dominating a market糖心传媒攎aybe even the board game version, with one player scooping up all the properties. But in today糖心传媒檚 economy, monopoly power is both less obvious and more complex. At the 糖心传媒檚 , , the Fred H. Gowen Professor of Economics and Management, and , an assistant professor of , study how businesses gain, maintain, and sometimes abuse that power糖心传媒攁nd why it matters for everyday life, from buying plane tickets and grabbing lattes to downloading apps and securing jobs.

糖心传媒淔or a long time, antitrust law in the United States has codified the idea that monopolies are bad for consumers,糖心传媒� says Prager. 糖心传媒淲e worry about prices going up, we worry about product quality degrading and people having fewer choices and being able to buy less. But that糖心传媒檚 not the only set of harms that can happen.糖心传媒�

What is a monopoly?

Strictly speaking, a monopoly is a market with just one firm selling a particular good or service. But in practice, this does not happen often. In most real糖心传媒憌orld markets, the concern is less about a single, pure monopoly and more about firms that hold substantial monopoly power糖心传媒攁lso called market power糖心传媒攂ecause customers lack enough good alternatives.

Economists, therefore, spend at least as much time thinking about monopoly power as they do about one糖心传媒慺irm monopolies.

Even where multiple companies exist, warning signs of monopoly power include:

• Higher prices than seem justified by costs or technology
• Lower quality or chronically poor service
• Lack of innovation over time, where a firm seems comfortable and unmotivated to improve its products

Modern markets provide a range of examples of monopoly power糖心传媒攕ome rooted in history, others unfolding now:

• Standard Oil. In the late 19th and early 20th centuries, Standard Oil controlled nearly the entire US oil-refining market, aided by control of pipelines, rail shipping rates, and aggressive tactics toward rivals, until the Supreme Court ordered its breakup in 1911.
• AT&T and the 糖心传媒淏aby Bells.糖心传媒� For decades, AT&T operated the US telephone system as a regulated monopoly; antitrust action in the 1980s eventually broke the company into regional 糖心传媒淏aby Bells.糖心传媒�
• Big tech platforms. Companies such as Google, Apple, Amazon, and Meta dominate search, mobile ecosystems, e糖心传媒慶ommerce, and social networking, often leveraging network effects, data advantages, and app糖心传媒憇tore control to maintain their positions.

糖心传媒淚n practice, what糖心传媒檚 more likely is that a handful of companies have a dominance and grip on a market,糖心传媒� Prager notes. But big, she emphasizes, does not automatically mean monopolist: 糖心传媒淲hat really matters is what you are big in.糖心传媒�

Prager highlights Amtrak as an example. It is by far the biggest passenger rail system in the US, and for long糖心传媒慸istance rail travel, it糖心传媒檚 the only game in town. 糖心传媒淏ut taking Amtrak is not the only way to get from point A to point B,糖心传媒� Prager says. Travelers between Rochester and New York City, for instance, can drive, take a long糖心传媒慸istance bus, or fly. 糖心传媒淚t糖心传媒檚 really how easily consumers can switch from the product that you sell to some other product that meets the same needs or a similar set of needs.糖心传媒�

Multiple companies can act like a monopoly

Sometimes a group of firms can behave as if they were one dominant player. A classic example is a cartel, where companies that are supposed to compete instead coordinate their strategies糖心传媒攆or instance, by fixing prices, allocating customers, or carving out geographic markets among themselves. 糖心传媒淚f they糖心传媒檙e making strategic decisions together, they糖心传媒檙e functioning like a monopoly,糖心传媒� Mikl贸s糖心传媒慣hal explains.

Cartels are illegal in most jurisdictions because they undermine genuine competition and hurt consumers. Famous cases have involved international cartels in chemicals糖心传媒攕uch as the lysine cartel featured in the 2009 Hollywood movie The Informant!糖心传媒攐r the global air cargo cartel colluding to fix fuel surcharges instead of truly competing.

Free does not always mean fair

糖心传媒淚n many digital markets, the problem isn糖心传媒檛 high prices for consumers,糖心传媒� Mikl贸s糖心传媒慣hal notes. 糖心传媒淚nstead, the problem can be weak privacy and consumer protection, or high prices charged to advertisers on the other side of the platform.糖心传媒�

Even though consumers still pay for internet access and devices, many large online platforms糖心传媒攕uch as search engines or social networks糖心传媒攐ffer free services on the user side while exercising substantial market power over advertisers, app developers, or sellers. 糖心传媒淚f a tech firm has a very dominant position,糖心传媒� Mikl贸s糖心传媒慣hal explains, 糖心传媒渃onsumers may not have a real choice, even if their data is being used in ways they dislike.糖心传媒�

How monopoly power emerges

Sometimes a company simply builds a much better product or service and pulls away from competitors. 糖心传媒淎 firm may come up with a great invention that糖心传媒檚 hard to copy or just offer exceptionally good service,糖心传媒� Mikl贸s糖心传媒慣hal says. A local grocery chain that consistently outperforms rivals can reflect this kind of success.

糖心传媒淢onopoly 糖心传媒榦n the merits糖心传媒� is not something we want to discourage,糖心传媒� she emphasizes. 糖心传媒淲e want firms to be allowed to gain market power by innovating and serving consumers well.糖心传媒�

On the other hand, some industries are shaped by substantial fixed costs that make it inefficient to have many competing providers. Economists call these natural monopolies. Examples include:

• Railroads and subway systems. It is extremely expensive to lay tracks or tunnels, and duplicating entire networks would be wasteful.
• Electric utilities and water systems. Building parallel grids and pipe networks is rarely practical, so a single provider often serves a region under regulatory oversight.

糖心传媒淭he question then becomes,糖心传媒� Mikl贸s糖心传媒慣hal says, 糖心传媒渉ow do we design policies so that, even in those cases, consumers are treated well?糖心传媒� Some countries, for example, allow multiple train companies to run services over tracks owned by a single public or private infrastructure operator, creating competition 糖心传媒渙n the rails糖心传媒� even if the physical network is not duplicated.

糖心传媒淓ven without explicit coordination, if several competitors use a common algorithm, it might lead them to set prices more similarly.糖心传媒�

Finally, network effects that benefit digital platforms can drive monopolies: The more people use a service, the more valuable it becomes to each user. Social networks become more useful as more friends, family, and organizations join. Smartphone operating systems attract more app developers, which in turn draw more users, reinforcing the leading platforms.

糖心传媒淚n markets with strong network effects, you often end up with a small number of dominant firms or even one,糖心传媒� Mikl贸s糖心传媒慣hal notes. That pattern helps explain why search engines, app stores, and ride糖心传媒慼ailing services tend to consolidate around a few global players.

Economists generally worry less about the existence of market power and more about how it is acquired and defended. 糖心传媒淲e糖心传媒檙e most concerned when market power is gained through mergers that eliminate competition, or maintained through anti糖心传媒慶ompetitive practices,糖心传媒� Mikl贸s糖心传媒慣hal says.

Monopolies and workers: the mirror image

Monopoly power can also shape workers糖心传媒� wages, job options, and bargaining power.

糖心传媒淚n my own work, I spend a lot of time thinking about these less traditional harms of monopolies,糖心传媒� Prager says. 糖心传媒淚n particular, I think a lot about labor monopsony.糖心传媒� Monopsony is the mirror image of a monopoly: Instead of one seller dominating buyers, it is one major buyer dominating many sellers. 糖心传媒淣ow, instead of having one single company selling stuff, it糖心传媒檚 one single company buying stuff糖心传媒攁nd the stuff doesn糖心传媒檛 have to be a physical good,糖心传媒� she explains. 糖心传媒淚t can be something like the labor of a potential worker. If I am the only employer in town, I can offer you pretty lousy working conditions and low wages糖心传媒攁nd you might still come work for me because you have nowhere better to go.糖心传媒�

The same competitive pressures that help consumers in product markets apply on the labor side for workers: more options usually mean better pay and conditions.

Why breakups are rare糖心传媒攁nd what regulators can do

In the United States, agencies within the Department of Justice and the Federal Trade Commission enforce a variety of antitrust and consumer protection laws. But in reality, the federal government has relatively few tools to break up monopolies once they exist. For that reason, most modern antitrust policy focuses on:

• Blocking mergers that would unduly reduce competition
• Prosecuting cartels and explicit collusion
• Monitoring dominant firms糖心传媒� behavior for abuses of monopoly or monopsony power
• Ensuring regulators have the resources needed to analyze complex, data糖心传媒慸riven markets

糖心传媒淔irms have strong incentives to increase profits,糖心传媒� Mikl贸s糖心传媒慣hal says. 糖心传媒淪ociety needs institutions in place to ensure that happens through better products and innovation, not by limiting competition.糖心传媒�

Algorithms, AI, and the future of monopoly power

With new artificial糖心传媒慽ntelligence tools and pricing algorithms, a major concern is that competing firms may rely on the same software to set prices.

糖心传媒淓ven without explicit coordination, if several competitors use a common algorithm, it might lead them to set prices more similarly,糖心传媒� Mikl贸s糖心传媒慣hal points out.

Early research and enforcement actions are exploring whether this kind of 糖心传媒渁lgorithmic collusion糖心传媒� could undermine competition in markets ranging from apartment rentals to gas stations to online retail.

Why the Monopoly board still matters

So, does the classic board game actually resemble a monopoly?

糖心传媒淚f you had a government in the board game Monopoly,糖心传媒� says Prager, 糖心传媒渋t would likely start to block mergers by players who already own too much stuff.糖心传媒� In other words, no one player would be allowed to completely dominate the board. 糖心传媒淲hat instead happens in this game糖心传媒攚hich of course does not have a government, just players糖心传媒攊s that a particularly successful or lucky player can keep just buying more and more properties until they own the entire block. And that allows them to jack up the rent prices on everybody else in the game.糖心传媒�

Monopolies today are less about a single company visibly owning everything and more about subtle forms of power: how it is gained, used, and protected, and whether consumers and workers still have meaningful choices in a dynamic market. If the original Monopoly Man paid homage to the industrial tycoons of the early 20th century, today糖心传媒檚 economy features a shifting cast of platforms, brands, and employers all vying for control of the board. For economists like Mikl贸s糖心传媒慣hal and Prager, the real question is how to rewrite the rules so that competition, innovation, and fairness still have a chance to win.

Jeanine Mikl贸s-Thal
Fred H. Gowen Professor of Economics and Management

An expert on game theory and advanced pricing, Mikl贸s-Thal conducts research into industrial organization, digital economics, competition policy, and personnel economics. Her work has focused on cartel pricing, pricing strategies in intermediate-goods markets, the impact of marketing strategies on consumer quality perceptions, and reputational incentives in labor markets. Mikl贸s-Thal serves as a contributor and associate editor of Management Science and the RAND Journal of Economics.

Elena Prager
Assistant Professor of Economics

Prager is an economist with expertise in antitrust enforcement, collusion, health insurance design, and healthcare prices. As part of her research on antitrust, she has written award-winning work on employer market power, including the effects of employer mergers on workers and the precursors to employer collusion. Prager糖心传媒檚 research focuses on policy-relevant topics and is frequently cited by the Congressional Budget Office, Department of Justice, and Federal Trade Commission. She has presented at public-facing policy events and been interviewed by news outlets, including NPR and the New York Times.

• Learn more about Prager.