Are you an EPFL student looking for a semester project?
Work with us on data science and visualisation projects, and deploy your project as an app on top of Graph Search.
Concept
Coercive monopoly
Summary
In economics and business ethics, a coercive monopoly is a firm that is able to raise prices and make production decisions without the risk that competition will arise to draw away their customers. A coercive monopoly is not merely a sole supplier of a particular kind of good or service (a monopoly): It is a monopoly wherein there is no opportunity to compete with it because entry into the field is legally closed. It is a case of a non-contestable market. A coercive monopoly has few or no incentives to keep prices low and may deliberately price gouge consumers by curtailing production. Furthermore, this highlights that the law of supply and demand is negligible, as those in control behave independently from the market and set arbitrary production policies for their personal benefit
Coercive monopolies, by definition, require either government intervention in the marketplace or the illegal use of force by private parties. In societies with a strong rule of law, such illegal use of force is extremely rare; the vast majority of coercive monopolies are created and maintained by governments. Nonetheless, some business ethicists believe that a free market can produce coercive monopolies.
Exclusive control of electricity supply due to government-imposed "utility" status is a coercive monopoly because consumers have no choice but to pay the price that the monopolist demands. Consumers do not have an alternative to purchase electricity from a cheaper competitor, because the wires running into their homes belong to the monopolist.
Exclusive control of Coca-Cola, by contrast, is not a coercive monopoly because consumers have other cola brands to choose from and the Coca-Cola company is subject to competitive forces. Consequently, there is an upper limit to which the company can raise its prices before profits begin to erode because of the presence of viable substitute goods.
To maintain a non-coercive monopoly, a monopolist must make pricing and production decisions knowing that, if prices are too high or quality is too low, competition may arise from another firm that can better serve the market.
Official source
About this result
This page is automatically generated and may contain information that is not correct, complete, up-to-date, or relevant to your search query. The same applies to every other page on this website. Please make sure to verify the information with EPFL's official sources.