An Examination of Monopoly Services Provided by the State: Economics

This essay provides an economic analysis of state-provided monopoly services. It defines monopolies, highlighting the absence of close substitutes and barriers to entry, and explains how states often enjoy monopolies due to natural or artificial barriers, allowing them to control pricing. The essay discusses the economic advantages, such as economies of scale and the provision of widely accessible services, and explores the concept of price discrimination to benefit low-income groups. It also examines the government's role in ensuring quality and safety, including the granting of patents to encourage research and development. The essay concludes by summarizing the state's use of monopoly power to achieve economic efficiencies, reduce societal inequalities, and provide quality services, referencing relevant literature on the subject.

Running head: Monopoly 0
Monopoly Services by State

Running head: Monopoly 1
Monopoly is a market where there is only single seller in the market and no close substitute
for the product or service is available in the market. Monopolist can charge any price
whatever they want as they are the single source of the particular product or service. In
monopoly market, there are barriers in entry of firm, barriers like natural barriers, artificial
barriers because of these barriers, companies are prevented to enter the market and state
(government) enjoys the monopoly.
There are various reasons that state is providing the monopoly services. The economic
advantage of such state monopolies is that, they help to keep costs low of products and
services by using the concept of economies of scale, and provide services which are widely
approachable to the general public. They are not affected by market constraints, which helps
keep out price rise. Such firms become monopoly because of their size and nature of
business. And monopolies of these existing firms make troublesome task for the new firms to
enter in the market. These industries incur high fixed cost for example internet services,
railways (The state and its monopolies, 1976). In monopoly, seller earns the abnormal profits
in the long run. As he is the only seller with no close substitutes available in the market so
consumers don’t have choice they have to purchase that product or service only (Korbinian &
Neubert, 2015)
In certain cases Government has the only license to produce that particular goods and
services. For example, when national railways transportation is created by the government, in
most cases they are permitted the freedom on the functioning of passenger trains in the
country. The political argument for nationalisation of industry is that the services given to all
sector should be given uniformly. As seller (government) fixes the prices or cost of that
particular product or services and becomes the price maker so can charge any price from
consumers. In monopoly market, there is use of price discrimination which provide add on

Running head: Monopoly 2
advantage to low income group of society as they provide inexpensive services to them. For
example, railways, posts and transport in remote areas.
In monopoly, seller earns the abnormal profits in the long run. As he is the only seller with no
close substitutes available in the market so consumers don’t have choice they have to
purchase that product or service only (Korbinian & Neubert, 2015). Government use
monopoly right for assuring better quality and safety of goods and services to the society. For
assurance of good quality and safety government also grants rights in the form of patents,
which provide company to come up with new and exclusive product and services. In some
countries, rights have been given to companies to produce a particular goods and services.
The reason behind doing this is to encourage companies to invest more funds in research and
development of new products.
This can be concluded that state enjoys the monopoly market and uses economies of scale in
their operations and from these earning abnormal profits in the long run period. By earning
more state tries to invest more amounts in the research and development of a service. In
monopoly, seller (government) uses the concept of price discrimination and tries to reduce
the inequalities in the weaker section of society and also try to give assurance of safety and
quality services to the society.

Running head: Monopoly 3
References:
Bibliography
The state and its monopolies. (1976, November 27).
Advantages And Disadvantages Of A Monopoly Market. (2011, September 12). Retrieved March 20,
2018, from toughnickel: https://toughnickel.com/business/Advantages-And-Disadvantages-
Of-A-Monopoly-Market
Buzzle. (n.d.). Retrieved from https://www.buzzle.com/articles/understanding-government-
monopoly-with-examples.html
Korbinian , K. v., & Neubert, M. (2015, March 15). Monopoly Profit Maximization: Success and
Economic Principles.
MCKENZIE, R. B. (n.d.). In Defense of Monopoly.
Stigler, G. J. (1983). The Economists and the Problem of Monopoly.