Difference Between Monopoly and Oligopoly

¶ … Oligopoly and a Monopoly: Viewed in Light of the AT& T. And SBC Prospective Merger

Since the Gilded age of the robber barons ended with the enforcement of the Sherman Anti-Trust Act, corporate monopolies have had a bad name in American commerce. However, a monopoly is not synonymous with the abuse of consumer welfare. A monopoly is simply is the exclusive control by one group, often a company, of the means of producing or selling a commodity or service, although it arises frequently from government support or from collusive agreements among individuals, in the words of Milton Friedman. ("Monopoly," Answers.com, 2005) Sometimes, monopolies are conferred, often in the case of limited natural resources such as oil, or in industries with difficulty physical or economic barriers to enter the market. This was previously true of the telephone communications industry. The monopolistic right to dominate the industry was granted by the government, giving exclusive control over a specified commercial activity to a single party. (Robinson, 1969)

In contrast to the singular dominance of monopolies, oligopolies are industries controlled by a few companies or entities. Oligopolies often are allowed, tacitly or officially, in industries with high entry barriers, and are also often subject to strict government control. The concentration of supply in a few producers is not uncommon in the United States. For instance, several large companies have dominated the automobile and steel industries for decades. (Dewey, 1990)

Even in the name of protecting consumer welfare, many governments have created public-service monopolies by laws excluding competition from an industry. What resulted in the United States were generally publicly regulated private monopolies, such as some power, cable television, and local telephone companies. Such enterprises usually existed in areas of natural monopolies where the conditions of the market make unified control necessary or desirable to the public interest.

Since the 1960s, however, the U.S. Justice Dept. has occasionally been more active in attacking natural or artificial monopolies or near monopolies The AT& T Corporation was the largest long distance carrier in the U.S. And leading provider of business networks and services until on January 1, 1984, it was relieved of its operating telephone companies by Federal court order. (Freyer, 1992)

Part II

Recently, according to the AT& T. Company's press site, "in connection with the proposed transaction, SBC Communications Inc." ("filed a registration statement with the Securities and Exchange Commission. AT& T. maintains that the $16 billion transaction will create a company with robust, high-quality network assets, "both in the United States and around the globe, and complementary expertise and capabilities. It will have the resources and skill sets to innovate and more quickly deliver to customers the next generation of advanced, integrated IP-based wire line and wireless communications services." (AT& T, 2005)

According to SBC, the merger has "a great deal of momentum" and "post-merger, the companies will use their complementary strengths to deliver advanced communications services to residential, small and medium business, and to enterprise customers on a national and global scale." The purpose of the merger from the consumer's point-of-view is to combine AT& T's national and global IP-based networks and expertise with SBC's strong local exchange, broadband and wireless assets, creating a company of the future. It is thus not a monopoly, as the effort of the AT& T. And SBC merger is to bring AT& T. into the evolving telecommunication future of wireless technology, while harnessing the current strengths new company known as SBC to AT& T's previous and existing strengths as a company in its global outreach.

From an investor point-of-view, it is claimed that "significant synergies expected to make transaction cash flow positive in 2007 and generate earnings per share growth in 2008 (SBC, 2005) In other words, the initial merger will have company costs, but hopefully the company will break even by 2007 and optimistically turn a profit by 2008. But the merger also raises the question -- when two different forms of communication coalesce, is it a monopoly? SBC and AT& T. offer different communications services and technology to the potential consumer, one through evolving global wireless technology, and the other through the use of more conventional landlines. The overlap between the users of such consumers is not perfect, currently, moreover as AT& T. has less of a global outreach than SBC.

Thus, it seems like the two companies are merging services and expanding their consumer's range of services, rather than narrowing consumer choice and range of opportunities and do not currently fit the example of a monopoly. But as AT& T's own evolution demonstrates as a company, a company can begin as a non-monopoly, and gradually as its services prove more and more ubiquitous, a monopoly can be created, as for example, more and more global users switch to wireless SBC style technology than current AT& T. wireless technology. In other words, the merging of the companies in the short run seems to likely to be salutary for consumer choice and welfare, but in the long-term, there is a strong manifest danger of a monopoly arising between the merger of these two communications companies, one relatively new and the other extremely old in both its history as an innovator and also as a potential market encroacher in monopolistic form.

But does this mean that a monopoly has to be bad, by definition, given that it is difficult to predict how technology over the next five, ten, twenty years will expand? It could be argued that the existence of larger corporate entities such as AT& T. made wireless technology and Internet technology possible today, for the vast majority of consumers, and thus improved consumer choice and welfare through the use of monopolistic practices. One of the advantages of a supervised monopoly is that a larger entity can manage its costs and frequently provide cheaper rather than more expensive goods and services to its consumers, while continuing to invest in research and development, unlike a purely controlled public enterprise.