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In economics, a government-granted monopoly (also called a "de jure monopoly") is a form of coercive monopoly by which a government grants exclusive privilege to a private individual or firm to be the sole provider of a good or service; potential competitors are excluded from the market by law, regulation, or other mechanisms of government enforcement. As a form of coercive monopoly, government-granted monopoly is contrasted with a non-coercive monopoly or an efficiency monopoly, where there is no competition but it is not forcibly excluded. Amongst forms of coercive monopoly it is distinguished from government monopoly or state monopoly (in which government agencies hold the legally-enforced monopoly rather than private individuals or firms) and from government-sponsored cartels (in which the government forces several independent producers to partially coordinate their decisions through a centralized organization). Advocates for government-granted monopolies often claim that they ensure public control over essential industries; opponents often criticize them as political favors to corporations and as distortions of the free market.

Under mercantilist economic systems, European governments with colonial interests often granted large and extremely lucrative monopolies to companies trading in particular regions, such as the Dutch East India Company. Today, government-granted monopolies may be found in public utility services such as public roads, mail, water supply, and electric power, as well as certain specialized and highly-regulated fields such as education and gambling. In many countries lucrative natural resources industries, especially the petroleum industry, are controlled by government-granted monopolies. Franchises granted by governments to operate public transit through public roads are another example.

Copyright

Copyright gives the author of an original work exclusive right for a certain time period in relation to that work, including its publication, distribution and adaptation, after which time the work is said to enter the public domain. Copyright applies to any expressible form of an idea or information that is substantive and discrete and fixed in a medium. Some jurisdictions also recognize "moral rights" of the creator of a work, such as the right to be credited for the work.

An example of the intent of copyright, as expressed in the United States Constitution, is "To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries".

Patent

A patent is a set of exclusive rights granted by a state or national government to an inventor or his/her assignee for a limited period of time in exchange for a public disclosure of an invention.

The procedure for granting patents, the requirements placed on the patentee, and the extent of the exclusive rights vary widely between countries according to national laws and international agreements. Typically, however, a patent application must include one or more claim defining the invention which must be new, inventive, and useful or industrially applicable. In many countries, certain subject areas are excluded from patents, such as business methods and mental acts. The exclusive right granted to a patentee in most countries is the right to prevent others from making, using, selling, or distributing the patented invention without permission.

Trademark

A trademark or trade mark is a distinctive sign or indicator used by an individual, business organization, or other legal entity to identify that the product or services to consumers with which the trademark appears originate from a unique source, and to distinguish its products or services from those of other entities.

Trademarks can act as a form of consumer protection that lowers the transaction costs between a buyer and seller who are not personally acquainted.

Directly mandated

Governments have granted monopolies to forms of copy prevention. In the Digital Millennium Copyright Act, for example, the proprietary Macrovision copy prevention technology is required for analog video recorders. Though other forms of copy prevention aren't prohibited, requiring Macrovision effectively gives it a monopoly and prevents more effective copy prevention methods from being developed.

Criticism

Opponents of government-granted monopoly often point out that such a firm is able to set its pricing and production policies without fear of breeding potential competition. They argue that this causes inefficiencies in the market place, such as unnecessarily high prices to consumers for the good or service being supplied (government-imposed price caps might avert this problem, however, it is still possible that competition would supply the good or service at a lower price). One historical example of this is the government-granted monopoly in steamboat traffic operated by Robert Fulton. The New York legislature granted Fulton the privilege to be the sole provider of all steamboat traffic for thirty years. Competition was forbidden by law. Thomas Gibbons, a steamboat entrepreneur, hired Cornelius Vanderbilt to ferry passengers for a cheaper fare in defiance of the law in an attempt to compete with Fulton for about six months. In 1824, in Gibbons v. Ogden, the Supreme Court struck down Fulton's government-granted monopoly ruling that states cannot legally regulate interstate commerce. Steamboat fares almost immediately dropped from seven to three dollars after the decision and traffic increased dramatically. Fulton was unable to successfully compete with the low fares offered by Gibbons and Vanderbilt, which resulted in his bankruptcy. (The Myth of the Robber Barrons, by Burton W. Folsom Jr.)

"Intellectual property" monopolies - particularly copyright - inflate the cost of a work from its marginal cost ofproduction (currently about $0 to copy a file) - to a much higher price. This reduces the aggregate utilitysubstantially. It has been argued that this is necessary to incentivize artistic creation however several counterarguments are often made :

  1. Many great works of literature and music were created before copyright protection. Many classical composers were far more prolific than their modern counterparts (for example: Handel, Mozart, and Bach). When someone is paid millions of dollars (or in some cases a billion dollars (Billy Joel)) for their work, the incentivizing capacity of money to spur subsequent work decreases (due to decreasing marginal utility). (This fact is also often overlooked in top executive compensation).
  2. The costs of manufacturing and distributing intellectual property has decreased (eg. Internet), but the duration of copyright has - paradoxically - increased.
  3. Many actual producers of intellectual property are paid on salary or contract and have to sign over their rights as a pre-condition of employment or of a distribution contract. Many artists and scientists actually see very little of the rewards of their work - (for example, inventors of statins, PCR, transistors, integrated circuits (Jack Kilby), windows (Xerox Parcmarker), to name a few). The benefits accrue instead over many years to the corporations who hired or contracted with them. People early in their careers are often in a position of negotiation weakness and are near an absorbing state of having little money so they cannot haggle well. They also have difficulty signaling to the markets the value of their ideas and therefore face a classic asymmetric information / market for lemons problem.
  4. Intellectual property can serve as a strong deterrent to freedom of artistic expression, and a barrier to entry. Someone who wishes to use allusion or create works that refer to or derive from other pre-existing works in their culture - better first be able to hire themselves a lawyer. Since copyright now tends to last longer than most nations, artistic works from one's culture almost never effectively enter the public domain anymore. (The eventual expansion of the public domain has been one traditional argument in favor of such monopolies).
  5. There are numerous examples which demonstrate that people do not need monetary incentive to create and share intellectual or artistic works (eg. Wikipedia, MySpace, WorldWideWeb, Internet). Plenty of work gets created and shared for free - creative people who can create and have the resources to do so often enjoy developing and sharing their creations.
  6. Granting excessive monopolies can also distort incentives - inefficiently drawing excessive people and resources into an area. Their human capital and financial capital are then less available for other important areas that may be underprovided - for example housing, infrastructure, food, medical care. The subsidy provided by the extension of copyright dwarfs the magnitude of farm subsidies or many other common forms of welfare or charity. In a free market, the cost of COPIES of existing work would be at their marginal cost of production, which is currently approximately zero.
  7. Intellectual property monopolies can lead to severe price discrimination. A poor person in the United States, for example, might pay significantly more for the same textbook, software program or medication than a wealthy person in another country where the same goods are often sold for a fraction of the price. Reimportation is often difficult or even prohibited.
  8. Much of the work of corporate promoters of intellectual property is focused on gaining market share, brand recognition or focality (cf. Thomas Schelling). Resources spent promoting existing program libraries shout down new artists, and in general provide little Pareto improvement to the economy, since time spent listening, watching or reading well promoted copyrighted works generally substitutes for time spent experiencing new work or work in the public domain.


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