CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

In the United States monopoly was introduced by the colonial administration. Public works companies obtained contracts exclusively from the colonial administration. This had an impact on the economy since the firms did not have someone to compete with. This meant that the companies that were given the contract had the freedom to operate freely and set the prices for the goods and services they provided, so there was no economic freedom.Economic freedom is one of the aspects of modern economics as it helps a company to carry on its activities without interference (Arnold, 2011). The freedom arises from the lack of existing obstacles in the market which ensures that the company can enter and stay in the market where there is no competition.

Freedom to compete is good for the economy as the entities can engage in contracts and both suppliers and consumers can enter and exit the market at any moment without any barriers (Arnold, 2011). When the government imposes laws and regulations discouraging firms from venturing in a particular sector, the monopolistic firm sets the prices. Oil and gas are one of the industries where OPEC fixes the prices of the products for all the countries which makes the products expensive since the alternatives do not exist or are limited.

Measures such as reduction and elimination of tariffs are used to foster competition in the market (Gur, &Bjørnskov, 2017). International trade is also facilitated by the creation of zones that encourage free trade. However, international practices are challenging to implement without the support of the respective governments. In the 19th Century, the US government established laws that were aimed at discouraging corporate trusts which were increasing at an alarming rate (Isser, 2016).

1.2Main Objective of the Research

The prime aim of the research is to find out the impact of monopoly on the growth of the economy.

1.2.1 Other Objectives

• To investigate the contribution of competition policy in preventing exploitation of consumers by trusts companies in the United States.
• To investigate the impact of monopoly on consumer spending behavior and demand.

1.3 Research Scope

The study will be conducted in oil companies to determine how the industry was before the introduction of policies that encourage competition in the market. The consumers of the products will also be conducted to find out how monopoly affects their spending behavior

1.4 significance of the Study

The findings that will be obtained from the research will aid students who might consider researching on monopoly in the oil industry. The study can also be used by potential oil investors as well as investment bankers to forecast what is likely to happen in the future if the activities of mergers and acquisitions increase.

CHAPTER TWO

LITERATURE REVIEW

In a monopolistic economy, there is an absence of competition which translates to high prices of goods and services and inferior quality products(Arnold, 2011). Monopoly was under threat when competition policy was introduced in the United States. The monopolistic companies were exploiting consumers who made them appeal to the government to check the price fixing of the companies. The government responded by introducing the Sherman Antitrust Act in 1890 to ban trusts and combinations which are aimed at controlling the market.If a particular company has a monopoly, it will set the prices, and the consumers will be forced to purchase it because they are short of alternatives.

Despite the introduction of Anti-Trust Laws the oil and gas sector continued enjoying monopoly because the products produced by one company named Standard oil were not common (Gur, &Bjørnskov, 2017). John D. Rockefeller and his partners took advantage of the products’ uniqueness and the enormous profits earned to ensure that they remained the giant of the sector even without the help of the banks. Monopoly, however, is not a completely bad thing as it is associated with some positive consequences.

When numerous companies are producing similar products, there is an advantage of price flexibility and increased chances of getting high-quality products (Stigler, 1956). However, when the market had numerous companies,they pumped the waste into the rivers instead of investing in research to find the proper means of waste disposal. Additionally, the pipelines used did not meet the standards so leakages could occur often.  When Standard Oil attained 90% of production and distribution, they had known how to dispose of their waste effectively. The company used the waste to manufacture Vaseline which is a product that is used globally. This shows that monopoly helps in environmental conservation especially when the firm invests in research and innovation.

The monopoly of Standard Oil was achieved after the company established adequate infrastructures to the degree that they did not depend on trains (Stigler, 1956). Although the company broke up in 1911, its achievements made the government realize that there is a positive side of monopoly. Unlike several small companies, a monopolistic firm can establish excellent infrastructure and provide goods and services to a large group of consumers. The monopolistic company is also beneficial as it can manage the waste as compared to small companies which may not be able to effectively manage waste due to lack of adequate resources and innovation.

References

Arnold, R. A. (2011). Principles of economics. South-Western, Cengage Learning.

Gur, N., &Bjørnskov, C. (2017). Trust and delegation: Theory and evidence. Journal of Comparative Economics, 45(3), 644-657.

Isser, S. (2016). The Economics and Politics of the United States Oil Industry, 1920-1990: Profits, Populism and Petroleum. Routledge. Kenton, W. (2019). Monopoly. Retrieved from https://www.investopedia.com/terms/m/monopoly.asp

Stigler, G. J. (1956). The statistics of monopoly and merger. Journal of Political Economy, 64(1), 33-40.

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