Main Page | See live article | Alphabetical index

Government-granted monopoly

In economics, a government-granted monopoly, also known as a state monopoly or a coercive monopoly, is a monopoly which is established and protected through the use of laws, regulations, or other mechanisms of government enforcement to forbid competition in providing a particular good or service. It is contrasted, in this respect, with natural monopoly — in which a sole provider arises on the free market due to the peculiar characteristics of a particular service or producer.

Government-granted monopolies must also be distinguished from the (nevertheless similiar) phenomenon of government-sponsored cartels. In a government-sponsored cartel, the government establishes an organizational structure to (partially) coordinate the actions of several independent providers. In a government-granted monopoly, the government establishes one sole provider of a good or service (although, in some cases, that sole provider may be created by forcibly combining several formerly independent providers).

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 are often 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.

Government-granted monopolies may take one of two different forms. A monopoly may be created through the direct nationalization of an industry, i.e., bringing a particular industry under the direct and exclusive control of government agencies, with proceeds going into the government budget. In other cases, monopoly privileges may be granted to private individuals or firms, with most of the control and profits being privately retained.

The latter form of monopoly is often closely related, in both motivations and effects, to government-sponsored cartelization of major industries, and is often accompanied by increased government regulation and oversight, as well as substantial subsidies from tax funds.

In addition, many commentators have pointed out that what are sometimes called intellectual property laws--laws granting protections through copyrights, patents, and trademarks--represent government-granted monopolies on the copying and use of particular items of information. Intellectual property restrictions, however, usually have different motivations from other government-granted monopolies. Whereas other government-granted monopolies are usually motivated by a perceived need for greater public control over the accessibility and quality of essential goods and services, "intellectual property" monopolies are usually motivated by a perceived need for greater private control, by an artist or inventor, over the use and profits from their work. Similarly, whereas most other government-granted monopolies are accompanied with extensive regulations intended to prevent the taking of monopoly profits by the monopolist, "intellectual property" monopolies are usually granted with the express purpose that artists and inventors will reap monopoly profits from their work, giving them a greater incentive to persist in creative work, and preventing low-cost unauthorized copies from driving them out of the market.