Monopolies are often blamed for high prices or poor service, as some companies, when free from competition, may charge more or deliver less. The typical argument is that introducing competition will automatically lower prices and improve service. But is competition always beneficial? In this article, we explore the different types of monopolies, their origins, and whether competition is always the best solution.
What Are Monopolies?
A monopoly occurs when a single company or entity controls the supply of a product or service, limiting choices for consumers. This control allows the monopoly to set prices, often higher than they would be in a competitive market. In Namibia, we see different types of monopolies:
1. Selling Monopolies: A company is the only supplier of a product, forcing customers to accept the prices it sets.
2. Producing Monopolies: A company controls the entire production process or source of supply, giving it significant influence over the market.
3. Trading Monopolies: A company controls the distribution or marketing channel between the supplier and the customer, dictating the terms under which products are sold.
These monopolies can be either national (operating countrywide) or local (limited to a particular area).
How Do Monopolies Gain Power?
Monopolies typically acquire their power in one of three ways:
1. Political Monopolies: These are created by government regulations or special grants, where only one company is permitted to operate. Examples include state-controlled utilities like electricity, water, or telecommunications. Such monopolies exist to ensure universal access to essential services, particularly in areas that private companies might avoid due to lack of profitability. These monopolies often require a Universal Service Fund when they are deregulated, ensuring services reach all citizens.
2. Economic Monopolies: These arise when a company gains control over a scarce natural resource, allowing it to dominate the market and set prices. Many of these monopolies could have been avoided with better foresight or regulation.
3. Trading Monopolies: These occur when a company owns subsidiaries that operate both at the wholesale and retail levels, allowing it to control the market and reduce competition. By "sharing costs" between different parts of the business, these monopolies are able to undercut competitors.
Government Policy on Monopolies
How do ordinary citizens perceive monopolies versus competition? Most people agree that competition is generally positive because it leads to lower prices. However, views change depending on individual circumstances. For example, many may welcome lower prices but also worry that foreign competition could drive down wages, as seen with Zimbabwean labourers in Namibia.
The question then becomes: When is a monopoly acceptable? The answer lies in government regulation. Monopolies are often necessary in industries that require significant infrastructure investment, such as utilities. In such cases, competition would be impractical, as it would require duplicating expensive infrastructure. Therefore, some monopolies are tolerated as long as they are effectively regulated by the government.
In Namibia, we accept that monopolies are essential for developing and maintaining national infrastructure—such as roads, electricity grids, and telecommunications networks. However, competition should be encouraged in the provision of services that utilize these infrastructures.
Conclusion
Monopolies play a crucial role in Namibia’s development, especially when it comes to essential infrastructure. However, it is important to ensure that these monopolies do not engage in anti-competitive practices. One way to address this is by separating the ownership of infrastructure from the provision of services. For instance, Telecom Namibia could be split into two entities: one that manages the physical infrastructure and works in partnership with the government to ensure universal access, and another that operates as a commercial company competing with other service providers. This would promote competition in the services sector while ensuring that essential infrastructure continues to serve all Namibians.
