                                                  April 3, 1995

  'Monopolies Effect on Resource Allocation in Industry'

 Monopolies are under constant critics from the public and other
producers of being polutive, straining to competition and they are
accused of worsening resource allocation. Whether this is true or
not, depends on the specific company, but certain characteristics
are possible to define. It is these I will describe in the
following, and hence conclude if monopolies worsen or improve
resource allocation.

 It is important to distinguish between competition and monopoly
before describing advantages and disadvantages of both. Many
monopolies are government owned. This means that the incentive to
strive for more profit, better conditions etc. is gone. This is due
to the fact that, if there is a loss, the government will cover it,
and government owned companies seldom strive to achieve maximum
profits. A lot of the characteristics are also seen in privately
owned monopolizing firms. When they become so big, that competition
is practically gone, the incentive to make even more profits, and
being innovative diminishes.
 In a competitive industry this is not the case. The fear of
loosing your job, not being able to compete, your products becoming
obsolete etc. are important factors, which stimulate productivity.
It is therefor obvious that the competitive industry will try
harder to allocate their resources in the most efficient way.  
 To land, the external costs in a competitive industry will often
be pollution, seeing that the firm will strive hard to diminish
their costs resulting in the firm ignoring 'unnecessary' costs. The
monopoly owned by the government, would never be able to ignore
such a serious matter, and they would have to pay the costs. A
monopoly would also have to be careful not to damage its image,
seeing that is, in many cases, already is unpopular.
 Capital, on the other hand, is often to the benefit of a monopoly,
since they produce at a large scale. To fully utilize capital, a
lot of labour is needed, labour which a monopoly is expected to
have, and a smaller competitive firm may lack. For example, a blast
furnace might need a crew of 24 men working night and day, to fully
utilize it. The monopolizing company may be able to provide the
men, but the smaller firm might not have the money to hire all the
24 men at night, seeing wages are much higher at then. The question
then is if the competitive company is so much more efficient due to
hard work, that they still can produce more than the monopoly.
 When it comes to labour, it is obvious that a competitive industry
will strive to utilize the workers at a maximum level, due to the
desire of minimizing costs, and workers will in general be very
efficient due the reasons mentioned above. The workers in a
monopoly, often loose the feeling, that their work makes a
difference in the firm, making it hard for managers to fully
utilize the them. 

 In my opinion, the characteristics described above are not as
valid any more. Companies, which enjoyed monopoly status in the
beginning of the 80's, like IBM, are now realizing that nothing
lasts forever, and they have be innovative, even if the competition
is not a great threat. Bill Gates, owner of MicroSoft, has very
admirable policies concerning this. His firm is not a monopoly, but
it is definably a cutting-edge firm, which is shaping the future.
One rule he has, is that every six months the bottom five percent
of the company's workforce (in terms of performance) get firedø. It
is his goal to make his own products obsolete, not letting others
do it, and it seems he is achieving that goal. Allocating resources
in monopoly does not have to be worsening, but times change and so
must management.



words: 632

øPC Format, March 1995

