MONOPOLIES

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The number of sellers and buyers, the availability of substituteproducts, and the ease of entering or exiting the market defines amarket structure. Monopolies represent a market structure that shouldexist. The paper seeks to define a monopoly and provide reasons whyit should exist. It shall then discuss the appropriateness of theCanadian government to allow monopolies to exist in certainindustries while disallowing their existence in other sectors.

A monopoly refers to a market structure with only one seller of aproduct that has no close substitutes because the barriers to entryto the market are extremely high. Monopolies should exist because anessential resource may be scarce thus allowing only one company toexert control over the material resulting in the firm being amonopoly. Secondly, they allow the government to participate indecision-making and monitor their operations. The government can alsoeliminate unnecessary competition by providing intellectual propertyprotection for patents, copyrights and licenses. Finally, monopoliesshould exist so that they can enjoy economies of scale that increasea company’s profit margin.

The Canadian government did a good job in controlling the existenceof monopolies in particular industries. Allowing the existence of amonopoly was appropriate because it ensured the single firm servedthe market at low costs while disallowing mergers in other industrieswas good as it encouraged competition among the firms. The Canadianfinance minister rejected the merging of Royal Bank of Canada withBank of Montreal and Canadian Imperial Bank of Commerce withToronto-Dominion Bank based on reduced competition, excessive poweramong the banks and increased issues with the government. Thegovernment’s rejection was appropriate because it discouraged otherfirms from joining the industry because of the level of competitionamong the current banks. It was also helpful especially during the2008-2009 financial crises because the government could spread theincreased costs across the banks.