Assessment of Discriminating Monopoly or
Price Discrimination:
Price
discrimination is said to occur when a monopolist charges more than one price
for an identical product and these price differences are not justified by cost
differences. Is this price discrimination, unchecked
monopoly power, collusion,
price fixing is beneficial for a society or harmful to a economy is debatable.
The main points which go in favor or against of discriminating monopoly are
discussed in brief as under:
Case
for Discriminating Monopoly:
(1)
Need for strong companies to face global competition: The industries which
require a great deal of capital need protection and support of the government to
face global competition. If these companies are made larger and given more
monopolistic power, they will be able to avail of the economies of scale and
face competition in the global market
(2) Research and development: Schumpeter is of the
view that it is only the monopolists
or the oligopolists that can provide large sums of money for carrying out
expensive research and development programmes. So the support for discriminating
monopoly.
(3)
Capital flow: It is also argued that investors are always looking for
profitable ventures and mobilize huge sums of money to enter unto the industry
which is most profitable. The businesses which have monopoly earn more profit
and so attract large capital.
(4) Redistribution of income: The case for monopoly is
pleaded on the ground also that it
brings a redistribution of income. The monopolist earning huge profits give
bonuses, higher reward to the workers. The wealth thus gets redistributed from
the rich to the poor.
Case
Against Discriminating Monopoly:
(1) Dumping: A monopolist often tries to dump its
surplus output on foreign markets, at
below cost price. When a dumping company succeeds in driving out competitors, it
then raises the price of its product. So the price discrimination that lessens
competition is considered harmful and illegal.
(2) Allocative inefficiency: it is a fact that a
monopolist produces goods at a price
greater than marginal cost. It represents a misallocation of resources.
Conclusion:
The
government plays two basic roles which are contradictory, (i) it promotes
competition and (ii) it restricts competition by regulating and protecting
certain industries. The government protects the natural monopolies by taking
complete control over them. Sometimes they are operated through public private
ownership. The most popular trend, of the 1980's is the transfer of government
business to the private sector. The basic logic behind privatization of business
is that incentive to be efficient is greater when one's own money is at risk.
Those who oppose privatization argue that monopoly must be regulated as it is in
the public interest.
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