By: Maria Pesick
Artificially manufactured monopolies in the US are illegal as they are a threat against local businesses, and thus would allow the market price to be raised dramatically to a price that would be hard for consumers to pay. However, in some industries, natural monopolies can occur when resources are limited and the products being produced are far superior to those of competitors. (Beattie 2018)
An example of a modern day monopoly in the US would be WEC Energy Group, or what we know as We Energies. Most utility companies today are monopolies locally because the services they provide require resources that can be limited to a region once they are bought up by a firm. In the case of WEC Energy Group, the brands of We Energies, Wisconsin Public Service, Peoples Gas, North Shore Gas, Michigan Gas Utilities, Minnesota Energy Resources, and Upper Michigan Energy Resources cover the electricity and natural gas production over four states. (We Energies 2018)
Because this company owns such a complete part of the market, if another company were to attempt to open in this same market, they would face barriers to entry. It would be expensive for another firm to match the prices set by We Energies and still make a profit, and this could cause them to shut down. Also, We Energies is in control of a lot of the resources that go into electricity and natural gas production. It would be difficult for a new firm to come into possession of enough resources to keep up with quantity demanded. We Energies themselves have been raising the price for their services as natural gas is becoming a harder product to come by, which is affecting other local businesses. (Milwaukee Magazine 2017)
The industry of electricity and natural gas seems to be covered, at least in the Wisconsin area. It would be unwise for a new firm to try and enter this market unless government intervention was to take place. However, since We Energies is a natural monopoly and has not created one with licenses, patents, or other forms of intellectual property, the government cannot accuse them of violating any antitrust laws. (Kramer 2018) Because We Energies has been in business for a long time now and is in high demand as a necessity, they are aware of what consumers are willing to pay and what is the highest they can charge without changing that quantity demanded. If for whatever reason, the firm had to raise their prices and would lose quantity demanded, only then would it maybe be possible for a new firm to enter the market.
“About We Energies Foundation.” We Energies, We Energies, 2017, www.we-energies.com/foundation/aboutus.htm. Accessed 12 Nov. 2018.
Beattie, Andrew. “A History Of U.S. Monopolies.” Investopedia, Investopedia, 17 May 2018, www.investopedia.com/insights/history-of-us-monopolies/. Accessed 12 Nov. 2018.
Kramer, Leslie. “What Are Common Examples of Monopolistic Markets?” Investopedia, Investopedia, 19 Oct. 2018, www.investopedia.com/ask/answers/041415/what-are-common-examples-monopolistic-markets.asp. Accessed 12 Nov. 2018.
“Monopoly Power.” Milwaukee Magazine, 21 Mar. 2017, www.milwaukeemag.com/monopolypower/.
The issue of utility monopolies in most places are under heavy restriction with anti-corruption laws ans anti-trust laws being the main tools against corporate power. These laws, for example, prevent WE energies from shutting off your lights if you forget to pay your bills, however, it wouldn't surprise anybody if we said, for example, that We Energies was a large benefactor towards certain lawmakers' campaign funds, and those lawmakers laxed those regulations that keep the monopoly in check, which resulted in an inevitable increase in price.
ReplyDeleteIt's interesting that one of the barriers to entry present is control over scarce inputs; when you think about this sort of monopoly, the presence of an economy of scale is typically the first barrier that comes to mind. However, the existence of other substantial barriers often go less recognized by consumers who don't completely understand the true difficulty of breaking into the market. This oversight is a good example of the difference between economic happenings and consumers' perception of them.
ReplyDeleteIn economics class this year, we’ve discussed We Energies as a local monopoly, but seeing how monopolizing it actually is is crazy. If another electric company wanted to start up in Wisconsin, it would be hard and practically impossible to survive in the market. Since it’s a natural monopoly as well, the government cannot intervene quite yet, due to them not breaking the law or doing anything wrong. That’s impressive to me, but I feel bad for other electrical companies that could have real potential and even surpass We Energies, but because the market is monopolized it’s nearly impossible to survive.
ReplyDeleteMonopolies are a both a benefit and downfall to an economy. They benefit the company itself since they are generating all the revenue in a particular market; however, they are downfall to the community because there is no choice for the consumer. I agree with your point of view, most companies won't try and compete for a natural resources because the products that WE Energies produces specifically are far superior to those of competitors. That being said, there are other ways for people to produce their own energy; solar panels, for example, convert sunlight into electrical energy. The only cost involved is maintaining the solar panels, but it is an alternative of utility company energy. I disagree with what you said about a decrease in quantity demanded as prices increase. In a monopoly, prices are controlled by the company but there are also laws in place so that naturalistic monopolies can't overprice their products.
ReplyDeleteIf another firm wanted to enter the business of providing energy, besides the fact they have to compete for resources and prices with we energies, it is still hard to build up a power plant and the capabilities required to be able to send electricity to all the homes in the area. So besides it being hard for firms to enter the energy game due to competition between a monopoly, it is also hard for them to join due to monetary difficulties. I think that if another firm really wanted to join the energy market, one thing they could do is produce power through more renewable means. Even if they have slightly higher prices, many of the people in the area would be more inclined to pay for that energy over what WE energies provides.
ReplyDeleteWE Energies is actually a public monopoly, which means it is a monopoly that can raise/lower its prices without worrying about competition because it is protected by law. The government is allowing this to be the sole provider of electricity in the area. Even if WE Energies did raise their prices to a point where competition would usually step in and take the customers, the only barrier to entry is the law.
ReplyDeleteWE Engergies is a natural monopoly, and that is exactly what it needs to be. It is a natural monopoly because the economy operates most efficiently when it is the only company in the market. It is also protected by law, but that also means they cannot raise their prices too much, as that is what some corrupt monopolies would attempt. Also, it is very hard for a company to build a power plant capable of supplying power to thousands of homes in a market that is already dominated by one local company.
ReplyDeleteMonopolies are illegal because they shouldn't be able to charge at a higher price than others for the same product. However without WE Energies, many people would not have the power they need for their jobs or at home. Since this company has become notable and popular, it is hard to create another company that is able to compete with WE Energies.
ReplyDeleteElectricity is an interesting business. Besides the price of acquiring resources to produce electricity a company also has to set up the power lines (both above and below ground), transformers, and other necessary devices of transferring AC/DC from one place to another. Not only do these things cost a lot of money but they also take up a lot of space. If there were two competing energy companies in the Waukesha area that would mean two separate electrical grids, more power lines, homes and offices needing to be connected to both grids or changed from one gird to another depending on which electrical company the owners pay for power. Such a conundrum would be extremely inefficient and a waste of resources and manpower and ultimately increase prices for consumers rather then decrease them. WE Energies is a natural local monopoly not just because of the high capital cost of the power industry but also because of the practicality of having only one electric grid for a given area. I'd even wager there can never be a true competitor to WE Energies. If WE Energies were to start failing or fail completely, then either another firm would simply take up the slack and replace WE Energies with a similar natural monopoly, or a richer firm could buy them out.
ReplyDeleteWE Energies is a great example of a monopoly, even though it is not illegal. WE Energies is a natural monopoly, where it just so happens that much of the resource control as well as the barriers of entry into this industry are high enough in control by the company. It is protected by the government because many startup companies do not have the money or resources, as well as influence, to compete with WE, one which already provides power to much of our present day life.
ReplyDeleteIt is interesting how WE Energies is a monopoly, even though monopolies are illegal in the United States. Even if there was a start-up business that held some customers over WE Energies like regular monopolies, WE Energies would probably just buy that company out and incorporate it into it's own. It is like Luxottica. When Luxottica offered to buyout Ray-Ban they declined, and so Luxottica stopped selling Ray-Bands in their store until Ray-Bands finally suffered from not having enough sales and sold themselves to the monopoly. The only difference is that WE Energies is government managed and has government placed restrictions on it.
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