Texas Business Lawyer

Understanding Monopolies

In the eyes of children, the word monopoly refers to a harmless board game involving dice, plastic hotels, and piles of brightly colored money. The object of the game, of course, is to drive your opponents into bankruptcy until you own everything on the board.

In the real world, the goal of a monopoly is the same – disproportionate, unilateral control over a specific good or service by driving out all other competitors. Unfortunately, in reality, a monopoly is much more harmful than losing a board game. Monopolies not only hurt competing companies, but may also drive up prices and reduce the quality of goods that consumers purchase. Because American capitalism is so rooted in the benefits of free competition, monopolies are considered by many to be the enemy of a healthy economy.

History seems to bear out such a claim. In the late 1800s and early 1900s, John D. Rockefeller’s Standard Oil Company built up a monopoly in the oil industry through shady tactics, including secret deals with railroad companies and making threats against competing companies. Even though a few small competitors remained in business, in 1911 the US Supreme Court ruled that Standard Oil had violated the Sherman Antitrust Act and was a threat to the economy.

However, the issue is not quite so simple. Although Standard Oil may have been a “bad” monopoly, the reality is that not all monopolies are harmful – and not all monopolies are avoidable. For example, it is simply good sense to have one company supply water to a given geographical area. Although that company would technically have a monopoly, such a monopoly actually benefits the area because it provides an efficient water delivery system. Furthermore, antitrust laws in the United States do not prohibit a company from gaining control of a good or service, as long as that control is not obtained through illegal or unethical practices. The maker of a soft drink so delicious that it captured virtually the entire market could not be penalized for its dominance, because it did not artificially force out its competitors.

Monopolies are a controversial topic even among economists; some agree with the current tough stance against monopolies, while others feel that such stringent antitrust policies may actually hurt the economy by limiting the potential of promising companies.

Have a question about business law, or need legal advice in your business law case? If so, contact an Austin business lawyer from Slater & Kennon at 512-472-2431 today. Centrally located in the Arboretum area of north Austin, the Slater & Kennon law firm represents clients in Travis County, Bastrop County, Burnet County, Williamson County, and Hays County, including the cities of Austin, San Marcos, Bastrop, Burnet, and Georgetown.