Editing State monopoly

{{Short description|Government control of an industry or economic sector}}
In [[economics]], a '''government monopoly''' or '''public monopoly''' is a form of [[coercive monopoly]] in which a [[government]] agency or [[government corporation]] is the sole provider of a particular good or service and competition is prohibited by law. It is a monopoly created, owned, and operated by the government. It is usually distinguished from a [[government-granted monopoly]], where the government grants a monopoly to a private individual or company.

A government monopoly may be run by any level of government—national, regional, local; for levels below the national, it is a [[local monopoly]]. The term '''state monopoly''' usually means a government monopoly run by the national government.

== Characteristics of state monopolies ==
A state monopoly can be characterized by its commercial behavior not being effectively limited by the competitive pressures of [[Company|private organisations]].<ref>{{Cite book |url=http://www.bloomsburycollections.com/book/the-regulation-of-the-state-in-competitive-markets-in-the-eu |title=The Regulation of the State in Competitive Markets in the EU |date=2007 |publisher=Hart Publishing |isbn=978-1-84113-497-0 |doi=10.5040/9781472560124.ch-004}}</ref><ref>{{Citation |last=Gordon |first=Richard L. |title=Problems of Environmental Impacts and Regulating Business Practices |date=1994 |url=http://dx.doi.org/10.1007/978-1-4615-2620-9_10 |work=Regulation and Economic Analysis |pages=129–147 |place=Boston, MA |publisher=Springer US |doi=10.1007/978-1-4615-2620-9_10 |isbn=978-1-4613-6123-7 |access-date=2022-05-02|url-access=subscription }}</ref> This occurs when its business activities exert an extensive influence within the [[Market (economics)|market]], can act autonomously of any [[Competition|competitors]], and potential competitors are unable to successfully compete with it.<ref>{{Cite book |last1=Berg |first1=Sanford V. |url=http://dx.doi.org/10.1017/cbo9780511572067 |title=Natural Monopoly Regulation |last2=Tschirhart |first2=John |date=1989-01-27 |publisher=Cambridge University Press |doi=10.1017/cbo9780511572067 |isbn=978-0-521-33039-8}}</ref><ref name="Weber Waller 504–504">{{Cite journal |last=Weber Waller |first=Spencer |date=2006-09-01 |title=Book Review: ''Economics of Regulation and Antitrust'', W. Kip Viscusi, Joseph E. Harrington, Jr., and John M. Vernon (MIT Press, Cambridge, Massachusetts & London, England, 4th Edn, 2005) |url=http://dx.doi.org/10.54648/woco2006035 |journal=World Competition |volume=29 |issue= 3 |pages=504 |doi=10.54648/woco2006035 |s2cid=248274219 |issn=1011-4548|url-access=subscription }}</ref>

These activities have a major influence on the operational environment, when its trading activities are not subject to competitive forces inherent within [[Free trade|free trading markets]].<ref>{{Cite journal |last1=Li |first1=Shuai |last2=Cai |first2=Jiannan |last3=Feng |first3=Zhuo |last4=Xu |first4=Yifang |last5=Cai |first5=Hubo |date=February 2019 |title=Government contracting with monopoly in infrastructure provision: Regulation or deregulation? |url=https://linkinghub.elsevier.com/retrieve/pii/S136655451830913X |journal=Transportation Research Part E: Logistics and Transportation Review |language=en |volume=122 |pages=506–523 |doi=10.1016/j.tre.2019.01.002|bibcode=2019TRPE..122..506L |s2cid=159127679 |url-access=subscription }}</ref> Therefore, this results in using its [[Dominance (economics)|market dominance]] and influence to its advantage, in affecting how the market evolves over a long period of time.<ref>{{Cite book |last=Allen |first=G. C. |url=https://www.taylorfrancis.com/books/9781136510861 |title=Monopoly and Restrictive Practices |date=2013-11-05 |publisher=Routledge |isbn=978-1-136-51086-1 |edition=0 |language=en |doi=10.4324/9781315016597}}</ref> This is especially the case if the state monopoly controls access to vital inputs essential to operating within the market.<ref>{{Cite journal |last1=Sibley |first1=David S. |last2=Doane |first2=Michael J. |last3=Williams |first3=Michael A. |last4=Tsai |first4=Shu-Yi |date=October 2004 |title=Pricing Access to a Monopoly Input |url=https://onlinelibrary.wiley.com/doi/10.1111/j.1467-9779.2004.00179.x |journal=Journal of Public Economic Theory |language=en |volume=6 |issue=4 |pages=541–555 |doi=10.1111/j.1467-9779.2004.00179.x |issn=1097-3923|url-access=subscription }}</ref> 

The high degree of autonomy and ability to act independently in the market, has been demonstrated by the ability to alter relationships with its [[customer]]s to its advantage, without negatively impacting its dominant market share.<ref name="Weber Waller 504–504"/><ref>{{Cite journal |last1=Grunichev |first1=A.S. |last2=Mierin |first2=L.A. |last3=Yagudin |first3=R.Kh. |last4=Fakhrutdinov |first4=R.M. |date=2015-02-01 |title=Institutional Features of Interaction of the State and of Natural Monopolies |url=https://www.richtmann.org/journal/index.php/mjss/article/view/5673 |journal=Mediterranean Journal of Social Sciences |doi=10.5901/mjss.2015.v6n1s3p73|doi-access=free }}</ref> A state monopoly's ability to increase the [[price]] or quantity of [[goods and services]] provided, without a relational change in its own [[operating cost]]s (coupled with maintaining this price or quantity at above a [[Market clearing|market clearing rate]]), demonstrates its ability to disregard any competitive forces within the market.<ref>{{Cite journal |last1=Peck |first1=James |last2=Rampal |first2=Jeevant |date=October 2019 |title=Non-optimality of state by state monopoly pricing with demand uncertainty: An example |url=http://dx.doi.org/10.1016/j.econlet.2019.108561 |journal=Economics Letters |volume=183 |pages=108561 |doi=10.1016/j.econlet.2019.108561 |s2cid=200077285 |issn=0165-1765|url-access=subscription }}</ref> A state monopoly also retains the ability to reduce service value, or impose restrictive [[Contractual term|terms and conditions]], without experiencing a loss in [[market share]].<ref>Gordon. (1994). ''Regulation and economic analysis : a critique over two centuries'' (1st ed. 1994.). Springer-Science+Business Media, B.V.</ref>

== Purpose of state monopolies ==
The theoretical purpose of state monopolies is to maximise collective [[welfare spending|welfare]]. This is based on the idea that public administrations are not strictly aimed at profit-making. Products or services therefore can be guaranteed to consumers of that supply of that product or service under the best conditions and at prices that are comparable to the expectations of the value and characteristics of the product or service.<ref name=":02">{{Citation |last1=Scognamiglio |first1=Carlo |title=Public Monopolies |date=1992 |url=https://doi.org/10.1007/978-1-349-12818-1_9 |work=Oligopoly and Dynamic Competition: Firm, Market and Economic System |pages=249–278 |editor-last=Baldassarri |editor-first=Mario |access-date=2023-04-22 |place=London |publisher=Palgrave Macmillan UK |language=en |doi=10.1007/978-1-349-12818-1_9 |isbn=978-1-349-12818-1 |last2=Caroli |first2=Matteo|url-access=subscription }}</ref>

However, the structure of a country's economy more broadly usually determines how state monopolies operate. In countries that are members of the [[OECD]], sectors where there are state monopolies are usually those that are meeting the "needs of utilities and public services."<ref>{{Cite journal |last=Machmud |first=Aris |date=September 2022 |title=Monopoly Analysis of a Limited Liability of State-Owned Enterprises (SOEs) |journal=Jurnal Penegakan Hukum Dan Keadilan |volume=3 |issue=2 |pages=152–168|doi=10.18196/jphk.v3i2.15825 |s2cid=253294152 |doi-access=free }}</ref> Whereas, in [[Developing country|developing economies]], state monopolies can disrupt healthy business competition, and in [[Planned economy|centrally controlled economies]], such stifling of private competition plateaus economic growth.

The concept of public goods, as produced and distributed under state monopolies, are that they are supplied at a level independent from, or inconsistent with, the actual market demand for the good. Therefore, the price does not reflect the utility of the product or service. Under [[Marxism|Marxist]] economic ideology, this advocates for a centralised production system to account for the fact this product or service should be universally available and competition 'badly adapts,' to the constraints to which the supply of these products or services are subject.<ref name=":02">{{Citation |last1=Scognamiglio |first1=Carlo |title=Public Monopolies |date=1992 |url=https://doi.org/10.1007/978-1-349-12818-1_9 |work=Oligopoly and Dynamic Competition: Firm, Market and Economic System |pages=249–278 |editor-last=Baldassarri |editor-first=Mario |access-date=2023-04-22 |place=London |publisher=Palgrave Macmillan UK |language=en |doi=10.1007/978-1-349-12818-1_9 |isbn=978-1-349-12818-1 |last2=Caroli |first2=Matteo|url-access=subscription }}</ref>

Interestingly, a 2013 study found that when private options for products or services are available, welfare is more likely to be maximised.<ref>{{Cite journal |last1=Seim |first1=Katja |last2=Waldfogel |first2=Joel |date=April 2013 |title=Public Monopoly and Economic Efficiency |journal=American Economic Review |volume=103 |issue=2 |pages=831–862|doi=10.1257/aer.103.2.831 |s2cid=53691574 |url=https://repository.upenn.edu/marketing_papers/418 }}</ref> The simple rationalisation to this is that when there are more players, there is therefore more choice. More choice allows greater access to a greater number of people.

== Market power ==
A state monopoly's market power and dominance can arise from its superior [[Innovation|innovative]] capacity or greater performance.<ref>{{Cite journal |last=Zhao |first=Bo |date=May 2012 |title=Monopoly, economic efficiency and unemployment |url=https://linkinghub.elsevier.com/retrieve/pii/S0264999312000065 |journal=Economic Modelling |language=en |volume=29 |issue=3 |pages=586–600 |doi=10.1016/j.econmod.2012.01.001|s2cid=154754431 |url-access=subscription }}</ref> However, any of the three following factors more broadly explain a state monopoly's existence:

* A natural monopoly endures within the market, whereby the most efficient form of meeting demand is through the creation of a [[State-owned enterprise|single government entity]].<ref name=":0">{{Cite book |last=W. |first=Sharkey, William |url=http://worldcat.org/oclc/1127513607 |title=The Theory of Natural Monopoly |date=1982 |publisher=Cambridge University Press |isbn=978-0-511-57181-7 |oclc=1127513607}}</ref>
* The state monopoly is legislated for, with legislative instruments precluding competitive activities regarding the provision of goods or services.<ref name=":0" />
* A poorly contestable market exists, with competition previously operating inefficiently despite the lack of legal restrictions.<ref name=":0" /><ref>{{Cite journal |last1=Davis |first1=Colin |last2=Hashimoto |first2=Ken-ichi |date=February 2016 |title=Economic Integration, Monopoly Power and Productivity Growth without Scale Effects: Economic Integration and Productivity Growth |url=https://onlinelibrary.wiley.com/doi/10.1111/rode.12200 |journal=Review of Development Economics |language=en |volume=20 |issue=1 |pages=152–163 |doi=10.1111/rode.12200|s2cid=59503533 |hdl=10.1111/rode.12200 |hdl-access=free }}</ref>

=== Evidence of exercising market power ===
The primary determinations of demonstrating the market power of state monopolies are:

* The monopoly's [[economic income]] within the market is characterized by disproportionate returns on its existing [[Asset|asset base]].<ref name=":1">{{Cite journal |last1=von Blanckenburg |first1=Korbinian |last2=Neubert |first2=Milena |date=2015-04-19 |title=Monopoly Profit Maximization: Success and Economic Principles |journal=Economics Research International |language=en |volume=2015 |pages=1–10 |doi=10.1155/2015/875301 |issn=2090-2123|doi-access=free }}</ref> This income would be excessive, if it were not a result of its inefficient operations.<ref name=":1" /><ref name=":2">{{Cite journal |last=Toole |first=Andrew A. |date=September 2010 |title=G. G. Djolov, The Economics of Competition: The Race to Monopoly. London: The Haworth Press, 2006, 322 pp., ISBN 0789027895 (SC), $47.50. |url=http://dx.doi.org/10.1002/agr.20232 |journal=Agribusiness |volume=26 |issue=1 |pages=174–175 |doi=10.1002/agr.20232 |issn=0742-4477|url-access=subscription }}</ref>
* There is a substantial difference between best practice benchmarks within private organisations, and the state monopoly's own productive efficiency.<ref name=":3">{{Cite journal |last=Brown |first=John Howard |date=June 2009 |title=Henry W. de Jong and William G. Shepherd, eds., Pioneers of Industrial Organization: How the Economics of Competition and Monopoly Took Shape (Cheltenham, UK: Edward Elgar, 2007). |url=http://dx.doi.org/10.1017/s1053837209090245 |journal=Journal of the History of Economic Thought |volume=31 |issue=2 |pages=243–244 |doi=10.1017/s1053837209090245 |s2cid=154765535 |issn=1053-8372|url-access=subscription }}</ref> For example, a monopoly's lack of productive efficiency could be resultant of [[Gold plating (project management)|gold plating of assets]].<ref name=":4">{{Cite journal |date=February 1949 |title=Eyring, Carl F. Essentials of physics. New York: Prentice-Hall, Inc. 1948. 422 p. $3.75 |url=http://dx.doi.org/10.1002/sce.3730330167 |journal=Science Education |volume=33 |issue=1 |pages=85–86 |doi=10.1002/sce.3730330167 |bibcode=1949SciEd..33S..85. |issn=0036-8326|url-access=subscription }}</ref>
* The monopoly [[Cross subsidization|cross-subsidies]] incomes between loss-making activities and profitable activities.<ref name=":3" /> If the aforementioned occurs through production or pricing behaviors, this suggests usual competitive forces characteristic of competitive markets are not being applied to the state monopoly.<ref name=":2" /> A firm engaging in this practice under normal market conditions, would not survive in the [[Long run and short run|long run]].<ref name=":4" /><ref name=":2" />

== Examples ==
The most prominent example of the monopoly is law and the legitimate use of physical force.<ref>K. Grechenig, M. Kolmar, The State's Enforcement Monopoly and the Private Protection of Property, [http://ssrn.com/abstract=2404617 Journal of Institutional and Theoretical Economics (JITE) 2014, vol. 170 (1), 5-23].</ref> In many countries, the [[postal system]] is run by the government with competition forbidden by law in some or all services. Also, government monopolies on [[public utilities]], [[telecommunications]] and [[Rail transport|railroads]] have historically been common, though recent decades have seen a strong [[privatization]] trend throughout the [[industrialized world]].

In [[Nordic countries]], some goods deemed harmful are distributed through a government monopoly. For example, in [[Denmark]], [[Finland]], [[Iceland]], [[Norway]], and [[Sweden]] government-owned companies have [[alcohol monopoly|monopolies for selling alcoholic beverages]]. [[Casino]]s and other institutions for [[gambling]] might also be monopolized. In Finland, the government has a monopoly to operate slot machines (see [[Veikkaus]]). Similar regimes for alcohol exist in the [[United States]], where certain [[alcoholic beverage control state]]s (ABC states), e.g. [[Pennsylvania]] and [[Virginia]], maintain state-owned-and-operated monopolies on the sale of certain kinds of alcohol (typically [[distilled spirits]] and sometimes [[wine]] or [[beer]]). In these monopolies over harmful goods or services, the monopoly is designed to reduce consumption of the product by deliberately decreasing the efficiency of the market.

Governments often create or allow monopolies to exist and grant them patents. This limits entry and allow the patent-holding firm to earn a monopoly profit from an invention.

Health care systems where the government controls the industry and specifically prohibits competition, such as [[Health care in Canada|in Canada]], are government monopolies.<ref>{{cite news |first=David |last=Gratzer |author-link=David Gratzer |title= The Ugly Truth About Canadian Health Care |url=http://www.city-journal.org/html/17_3_canadian_healthcare.html |date=Summer 2007|work=[[City Journal (New York)|City Journal]] |publisher= [[Manhattan Institute]] |access-date=29 December 2008 }}</ref>

== Reforms to enhance competition ==
Although state monopolies are sustained through [[legislative instrument]]s, many [[OECD|major economies]] have seen efforts to reform the disproportionate market powers they sustain, to therefore enhance competition.<ref name=":5">{{Cite journal |last1=Buehler |first1=Stefan |last2=Gärtner |first2=Dennis |last3=Halbheer |first3=Daniel |date=July 2006 |title=Deregulating Network Industries: Dealing with Price-quality Tradeoffs |url=http://link.springer.com/10.1007/s11149-006-0011-8 |journal=Journal of Regulatory Economics |language=en |volume=30 |issue=1 |pages=99–115 |doi=10.1007/s11149-006-0011-8 |issn=0922-680X|hdl=10419/76237 |hdl-access=free }}</ref><ref>{{Cite journal |last=Butler |first=Graham |date=2021-09-01 |title=State Monopolies and the Free Movement of Goods in EU Law: Getting Beyond Obscure Clarity |url=http://dx.doi.org/10.54648/leie2021020 |journal=Legal Issues of Economic Integration |volume=48 |issue= 3 |pages=285–308 |doi=10.54648/leie2021020 |s2cid=247829825 |issn=1566-6573|url-access=subscription }}</ref> This has been enacted through [[regulatory reform]]s (removing statutory restrictions to market competition) and structural reforms (including separating contestable elements of a state monopoly, and creating third party rights of access to natural monopolies).<ref>{{Cite journal |last=Estache |first=A. |date=2001-05-01 |title=Privatization and Regulation of Transport Infrastructure in the 1990s |url=https://academic.oup.com/wbro/article-lookup/doi/10.1093/wbro/16.1.85 |journal=The World Bank Research Observer |volume=16 |issue=1 |pages=85–107 |doi=10.1093/wbro/16.1.85|hdl=10986/17127 |hdl-access=free }}</ref><ref>{{Cite journal |last=Naughton |first=Barry |date=January 1992 |title=Implications of the State Monopoly Over Industry and Its Relaxation |url=http://journals.sagepub.com/doi/10.1177/009770049201800102 |journal=Modern China |language=en |volume=18 |issue=1 |pages=14–41 |doi=10.1177/009770049201800102 |s2cid=154538716 |issn=0097-7004|url-access=subscription }}</ref>

Across all levels of governmental jurisdiction, both structural and regulatory reforms have been preferred, as it forces all [[market participant]]s (both state monopolies and private industry) to respond to competitive pressures, as opposed to legislated regulatory structures.<ref>{{Cite journal |last=Haber |first=Hanan |date=2018-03-04 |title=Liberalizing markets, liberalizing welfare? Economic reform and social regulation in the EU's electricity regime |url=https://www.tandfonline.com/doi/full/10.1080/13501763.2016.1249012 |journal=Journal of European Public Policy |language=en |volume=25 |issue=3 |pages=307–326 |doi=10.1080/13501763.2016.1249012 |s2cid=157115433 |issn=1350-1763}}</ref><ref>{{Cite book |first=Alberto |last=Asquer |url=http://worldcat.org/oclc/1015849922 |title=Regulation of Infrastructure and Utilities : Public Policy and Management Issues |date=2018 |publisher=Palgrave Macmillan |isbn=978-3-319-67735-4 |oclc=1015849922}}</ref> This has been observed to result in more [[Market efficiency|optimal]] outcomes for an economy, as [[resource allocation]] is no longer directed by legislative instruments or [[Regulatory agency|regulatory authorities]].<ref>{{Cite book |date=2019-09-24 |title=Doing Business 2020: Comparing Business Regulation in 190 Economies |url=http://dx.doi.org/10.1596/978-1-4648-1440-2 |doi=10.1596/978-1-4648-1440-2|isbn=978-1-4648-1440-2 |s2cid=243030172 }}</ref>

Despite these reform efforts to promote competitive markets, regulatory and structural reforms struggle to overcome the entrenched market dominance of state monopolies.<ref>{{Cite book |date=2019-09-24 |title=Doing Business 2020: Comparing Business Regulation in 190 Economies |url=http://dx.doi.org/10.1596/978-1-4648-1440-2 |doi=10.1596/978-1-4648-1440-2|isbn=978-1-4648-1440-2 |s2cid=243030172 }}</ref> This is resultant of advantages enjoyed by state monopolies, including [[First-mover advantage|first mover advantages]].<ref name=":5" />

== Advantages ==
The following advantages, may happen or not:<ref>{{Cite web |last=Cabral |first=Carrie |date=2020-07-02 |title=Are Monopolies Good? Surprisingly, Yes—Peter Thiel Explains |url=https://www.shortform.com/blog/are-monopolies-good/ |access-date=2023-02-03 |website=Shortform Books |language=en-US}}</ref>

* Government monopolies tend to comply with law (tax compliance, environmental law, safety regulations)
* Prices of a good or service might be stabler, or at a set price.
* No economical dead-weight in advertising
* Greater and stabler government income, than with a state owned company in a free market
* No pressure to drive down costs ([[race to the bottom]]), which can be seen as posing bases for more ethical business
* Can take over a private monopoly judged harmful.

== Disadvantages ==
Government monopolies have traditional risks of usual monopolies:

* High prices can arise
* Abuse of market dominance
Furthermore, there are concerns that government-controlled entitles can be manipulated by political will. This can manifest through the allocation of resources for the purpose of political ends, rather than for the promotion of economic efficiency.<ref>{{Cite journal |last1=Seim |first1=Katja |last2=Waldfogel |first2=Joel |date=April 2013 |title=Public Monopoly and Economic Efficiency |journal=American Economic Review |volume=103 |issue=2 |pages=831–862|doi=10.1257/aer.103.2.831 |s2cid=53691574 |url=https://repository.upenn.edu/marketing_papers/418 }}</ref>

==See also==
{{Div col|colwidth=16em}}
*[[Alcohol monopoly]]
*[[Coercive monopoly]]
*[[Crown corporation]]
*[[Salt commission]]
*[[Government-granted monopoly]]
*[[Monopoly]]
*[[Monopoly on violence]]
*[[Nationalization]]
*[[Natural monopoly]]
*[[Private police]]
*[[State monopoly capitalism]]
{{Div col end}}

==References==
{{Reflist}}

{{Authority control}}

[[Category:Market failure]]
[[Category:Monopoly (economics)]]
[[Category:Fiscal policy]]