Micro Economics and the Effects of Monopolies

More than anything else, the progress of the world in the 21^st Century depends on economics. It affects everything and everyone, whether natives in darkest Africa, striving to avoid encroaching urbanization, to the middle aged managers, now out of work in America because of downsizing. Microeconomics is a far more personal aspect of the world economy in general. What we earn, what we spend, what we save, how diligently we work and retain our jobs is all part of the microeconomic system that controls our daily lives.

Because of the wide range of subjects, the following pages are more a generalized overview, with some specifics included. It is almost a primer of how we deal with the microeconomic status under which we live and the ever-escalating goal of "bigness" in manufacture, globalization, retailing and even in the service industries. To begin, one should take apart the idea that we are now the slaves of computers.

The new high-tech age, a.k.a. as The Computer Age, is not a new Industrial Revolution. It is merely an expansion of it. It is, in a way, similar to the coming of jet airplanes to make journeys faster. While there has been much promise that the computer will spark an entirely new and improved economic system, there is little proof that this is happening. We are in an age where each day new "dot.com" companies are being formed, making instant millionaires out of ordinary computer nerds (and seeing many of them lose all those millions when the companies fail to perform or even earn a fair profit).

Rather than think of this new high-tech infusion in the world's economic institutions, one should consider this the age of a new type of entrepreneur. As Thorstein Veblen wrote: "The material framework of modern civilization is the industrial system, and the directing force which animates this framework is business enterprise." (Veblen 1) Business enterprise, as we enter the 21^st century is nothing more than creating an acceptable combination of product or service availability matched to consumer needs.

What is interesting in this new system of business enterprises is that human capital- always thought of as one of the most precious and valuable sources of a company's success and dominance has been reduced to computer programmers and customer service representatives. In essence, the "new" human capital represents an avid consumer population which is more demanding and weary of time-consuming ordering and purchasing at retail stores. Human capital is part of today's microeconomics.

"Microeconomics is the study of individual markets; it explores how consumers, workers, and companies behave in specific situations." (Samuelson 47) Microeconomics has assumed an important place in the way we look at economies the world over, in order to predict specific performance, given specific parameters. Everything from America's boom economy to Europe's high unemployment rate, Russia's financial instability to the government attacks on Bill Gates and Microsoft are all somehow connected. And that connection is microeconomics.

In an economic milieu where "macro-" and "micro-" are meant to define the scopes of economic examination and forecasting, it might be an idea to set down some foundations on which the parameters of microeconomics are based. However, one concern of economists and government agencies is "bigness." "The theory that the industrial combine will swallow us all alive reached its apogee 39 years ago with the publication of John Kenneth Galbraith's The New Industrial State. The eminent economist explained how corporate giants were a law unto themselves, answerable to no one. Suppliers and workers were mere pawns" (Baldwin 2).

To begin with, any economic system "must set goals of production...how scarce resources are to be allocated....how the results of production are to be allocated among the population...and what provision is to be made for economic progress..." (Dewey 3) Given these four basics, sometimes the borderline between "macro-" and "micro-" is blurred. "By common practice, the activities of the household, the firm, the labor union, and the industry are now consigned to the micro category, while the forces that affect the important aggregates of the economic system- income, consumption, investment, and over-all growth are placed in the macro category." (Dewey 11)

Microeconomics starts with a single consumer: his wants and needs, his predictable and unpredictable buying and living habits. It moves up through the family to a specific industry, and the labor required to produce what that consumer wants to buy. Microeconomics, however, does not differentiate among the powerful, controlling industries and those just starting up, or those content to find their niche in the market-place. A perfect example, of course, is Microsoft, which, through its pioneering innovative efforts has the lion's share of the PC software market. Very few computers are now sold without Windows or other Microsoft software included. While this certainly bodes well for the corporation, and for the general dollar statistics of American companies, it does not account for the federal lawsuits claiming Microsoft is not only a monopoly in fact, but that it is forcing computer manufacturers to install Microsoft products, or be left out in the cold. So, the question must be asked: how does such a market controlling business affect the microeconomics of a nation? The answer, in part, is that the average consumer is only interested in performance and price, not whose name is on the product. In the consumer computer industry there seems to be less consumer loyalty than in other industries (automobiles and household products, for example

Just what is a Monopoly (other than the popular board game? "A company (or a group of affiliated companies) is considered to have a dominant position in a particular market if it can exert a decisive influence over the general conditions of trade in that market or can restrict access to that market for other businesses. A company is automatically considered dominant if its market share exceeds 65%" (Anon 1).

Microsoft, with its enormous advantage over competition and certainly Wal-Mart, accused of running small shop-owners out of business when and where they open their stores, are just two examples of potential monopolistic practices. "The movement to fetter corporate Goliaths has had periodic victories. A century ago it broke up John D. Rockefeller's oil empire. In the Depression it gave us anti-chain-store legislation. Now Bill Gates has taken Rockefeller's place as the man with the conspicuous market share, and Wal-Mart is the target of legislators who think retailing efficiencies should not be permitted to get out of hand"( Baldwin 1).

Microsoft is particularly under attack because of its dominance. "A report by a group of computer security experts urges the government to ensure the 'survivability of our technological infrastructure' by doing whatever is necessary to halt efforts by Microsoft to create software 'in evermore complex ways so as to illegally shut out efforts by others to interoperate or compete.'" (Piazza 37).

Until the Sherman Anti-Trust act of 1890, America was literally built on monopolies:: railroads, rubber, even the early stage-coaches, banking, and shipping, even iron and steel and coal were often monopolies, or close to them. And, of course, before FedEx and UPS, there was the U.S. Post Office, and before the Baby Bells, there was A T & T.. "The basic concept of antitrust law is that competition is preferable to monopoly or trade restraint in promoting the general social welfare. The economic environment of late 19th century America permitted corporate mechanisms that encouraged the restraint of trade, often through the mechanism of trusts that operated as cartels to set prices and quantities of product offered for sale" (Sagner 38).

What really seems to be at the base of current complaints and possible new legislation is the growing size of some businesses at the expense of their smaller competitors. Few consumers complain about Wal-Mart's prices, nor the accessibility of Microsoft products. Supermarket chains have far more customers than the small delicatessens of Mom and Pop grocery stores. Even the neighborhood hardware store has been replaced by national chains. So, there certainly are some arguments to be made that, as far as the consumer is concerned, bigger is often better.

Sometimes monopolies are a detriment. Mexico is one example: "The domain of a few companies and a weak regulatory organ make Mexico's information-technology and telecommunication development to be lower compared other nations" Anon 1). There is also concern over some monopolistic practices in Israel "The state, monopolies and cartels control 70% of building and infrastructure inputs, thereby preventing the construction industry from functioning as a free market" (Nissim 1). In Eastern Europe, where Communism once held a monopoly over everything economic, there is still a problem in Poland. "...in Poland monopolies know a plethora of ways to evade limitations and they are secretly supported by the state" (Anon 1).

One of the elements of modern microeconomics seems to be its elasticity. As we have seen, the idea of monopolies is really a two-edged sword. Government controls have their benefits as well as their drawbacks. Enormous size may hurt the small retailer or manufacturer/distributor but benefits the customer looking for low prices without sacrificing quality. Since microeconomics is basically the study of small groups and individuals, the effect on them of monopolies is not easily pin-pointed. As mentioned above, the individual looking for bargain pricing will love the Wal-Marts or Costcos, while the neighborhood retailer or small manufacturer who cannot meet strict price guidelines will suffer. Sometimes, bigger is better. But not always.

WORKS CITED:

Baldwin, William: "Bigness and Badness" Forbes, April 17, 2006 v177 i8

Dewey, Donald: Microeconomics: The Analysis of Prices and Markets (1997) New York: Oxford University Press

Nissim, Gail: "State, monopolies, cartels control 70% of building inputs" Israel Business Arena, April 2, 2006

Piazza, Peter: "Bullying the Monopoly" Arflington VA: Security Management. : Dec 2003.Vol.47, Iss. 12;

Sagner,James S. "Antitrust as Frontier Justice: Is It Time to Retire the Sheriff? New York:Business and Society Review. : Spring 2006. Vol.111, Iss. 1;

Samuelson, Robert J. "God is in the Details" NEWSWEEK Magazine, April 20, 1998

Veblein, Thorstein: The Theory of Business Enterprise (1904)

No author listed: "Country Commerce - Main report: November 23rd 2005" Economist Intelligence Unit eiu.com

No author listed: "Monopolies cause Mexico's technological backwardness" The America's Intelligence Wire, March 28, 2006

No author listed: "Secretly Backed by State, Monopolies Hold Strong"Europe Intelligence Wire, March 8, 2006