What causes market monopoly Essay Example | Topics and Well Written Essays - 2500 words

What causes market monopoly - Essay Example This is a normal behavior because it works. In general, the government regulation that helps create monopoly conditions falls into one of three categories: Barriers to Labor. Licensing or other regulation impeding the mobility of labor. Barriers to Resources. Examples include natural resources, wireless spectrum. Barriers to Operations. Examples include casino gambling, illegal drug trade. The stated purpose of the legislation is always to protect the public, but interested parties usually write the legislation to suit their own agenda. In many cases, the legislation that purported to protect the public actually harms the public. An example is barbers. Why does a barber require a license to cut hair, and why does the license to cut hair require a lengthy period in a beauty college? The answer is that the legislation is purely to protect the markets of existing barbers. During hard times, setting up a private barbershop or beauty salon is not difficult for anyone with some skill, whic h presents competition to the existing barbers and beauticians. The clip-joint owners went to the state legislature and worked out a deal. It was in the public interest to cut the deal because the state is always worried about taxes and someone who receives cash for cutting hair in a private shop may forget to pay their taxes on the income. Likewise, the clip-joint owners wanted to make sure it was difficult to get into this business, but not so difficult that the labor supply dries up. They wanted limited competition in good times and high barriers to entry in bad times. The solution was to require a license and make the requirements of getting a license be a three to six month course at a beauty college. This is an example of barriers to entry into the labor markets, which we shall discuss. Barriers to Labor Markets As illustrated by the story about the barbershop protection societies, many different groups have formed protective associations. The public face of the protective ass ociation is always to ensure compliance to the highest ethical standards, but the real agenda is always ensuring that their turf is staked out and defended. We shall say now, we have never seen a protective association of theoretical physicists. We have never heard specious claims of how the public must be protected from all that high-powered thinking and the only solution is to license and regulate them. Perhaps the reason is that not many people are capable of becoming a theoretical physicist. Realtors, however, are a different story. Like barbers and the business of cutting hair, if the market looks good and a person has sales talent, real estate looks good. Especially if that person is a â€Å"connector† who collects contacts and likes to stay in touch with many different people. Realtors are just as intelligent as barbers and they formed a protective association that has been very successful in placing a very high barrier to entry into that field. The barrier to entry is so high in many areas that it hurts the public. We shall explain: After the realtor’s protective association convinced the state legislature to pass appropriate legislation and license the realtors subject to an industry oversight board with regulatory powers granted by the legislature, along came the Multi Listing Service (MLS). Now that everyone was a member of the union, the idea was to make it easier for everyone to share pieces of the pie. Few understand this, but it hurts consumers because a disincentive has been created: there is no