Monopoly and real world economics: a comparative analysis

Economics

The game Monopoly only has vague similarities to real world economics. The name of the game alludes to a particular state of competition wherein a company has no competitors in the market. The competitor then uses that monopoly power to extract premium rents from customers. These premium rents would not be possible if there was no monopoly.

The game mirrors this theory in one of its basic elements. When a player owns an entire section of the board, donated by colored streets, then the player is allowed to build houses and eventually a hotel. The first step after a color block is acquired is that the rents are doubled. It is implied that the lack of competition allows for this. From that point, houses and hotels can be purchased for the properties as well. These increases the rents further.

Real world economics accepts that monopoly positions give the holder the entitlement to higher rents (Investopedia, 2010). However, in the real world the situation is more sophisticated. A player in the game is forced to move the number of spaces by the role of the dice. In the real world, this is not necessarily the case. The consumer may have the option not to purchase at all, for example. The game's version ignores this option, implying that the blocks of streets are products for which there is limitless demand.

Another key divergence between the game and the real world is that in the game, the objective is to accumulate the most money. The game ends once the first player goes bankrupt, which creates economic incentive towards short-term profit maximization. In the real world, a long-term profit maximization model is more typically followed. Consumers and businesses go bankrupt all the time without but the "game" continues.

An interesting divergence is that when you end up in jail, this is not necessarily bad. Once the game is in full swing, with houses on most properties, traveling around the board can be expensive. Going to jail takes you out of the economic system. In the real world, this is usually to one's financial detriment, but not necessarily so in the game.

Comparing the game and real world versions of the monopoly concept, they are similar. In the real world, a monopoly can occur when an owner has exclusive rights over a resource. The color blocks are not considered monopolized until one person owns all of them. Before that point, the properties are considered to be subject to competition. In the game, competition is simplified significantly. Prices are simply stated -- players have no ability to control prices nor do they have the ability to attract demand. Demand is simply apportioned by the dice.