Monopoly
Table of contents
Introduction
BECM …………………………………………………………………………………….1
Tutor Report……………………………………………………………………………….4
Engaging…………………………………………………………………………………..10
Contextualizing……………………………………………………………………………. 11
Managing………………………………………………………………………………….12
Applying SSM method……………………………………………………………………13
Conceptual Model………………………………………………………………………….14
Debate with Stakeholder……………………………………………………………………16
Implementation……………………………………………………………………………..17
Logistical Framework……………………………………………………………………….18
Ethicality Statement ……………………………………………………………………….19
Client Report……………………………………………………………………………….19
Project Log ………………………………………………………………………………..22
Summary……………………………………………………………………………………25
Introduction
Monopoly
A general understanding g of the term monopoly points to a situation in which a particular thing has a ultimate control because of its ability to completely control the supply of a needed resource. It explains a situation in which an individual , a business or an enterprise almost solely controls the supply of a certain resource , or controls the majority of the supply to a very high degree in a particular geographical region or industry. In business and management , monopoly can be better described as a situation in which an enterprise or an individual commands complete or majority of the control over the supply side of a particular much needed resource thus giving that enterprise or individual control over the resource price marker. The basic characteristic of a monopoly situation is where a particular person, enterprise or firm has control over goods which are unique and are not easily substitutable. The main issues and problems linked with monopoly include; inefficiency lack of equity in the market and the challenge of vulnerability of the system to abuse either through political interferences otherwise.
This paper analyses the problems created by monopoly with relevance to the context selected. Using relevant and authentic sources the problem of monopoly will be discussed and mitigation strategies suggested. The relationship of development to a monopoly will be explored. for development to b sustainable it need to be able to be self sustaining and it need to be established in such a way that it goes hand in hand with financial, economic, social, environmental and other major areas of development. The impact of monopolies needs to be examined in terms of their impact to sustainable development of a region.
The paper will deal with three parts including a tutor report which shall be analyzed through the BECM methods. A client report will also be presented using the selected client. A project log will be outlined. Diagrammatic illustrations, tables and figures as well as SSM will serve as a guiding process in the treatment of the subject at hand.
In my Client report I will introduce to the client a definition of the problem situation and the possible ways to mitigate problems brought about by monopoly.
Tutor Report
Monopoly and its Resultant Challenges
The main issues and problems linked with monopoly include; inefficiency on the part o f the firm due to the lack of competition to encourage a particular enterprise to better its product s and services. Since there is no threat of loosing the customer, there is resultantly no impetus for the suppler to better his products, the delivery of them and the services associated with the resource .the second problem that comes about in a monopolistic market structure ins inequity in the market. This is a situation where by resources, especially financial resources are not equitably distributed among the population of that particular region. Instead a large part of the financial and other resources are controlled by only a few individuals who own the monopoly. A third challenge that presents itself in a monopolistic market structure is the vulnerability of the system to abuse either through political interferences otherwise.
The main objective of this paper is to study closely monopolistic market structures as well as monopoly it self as a concept. It will include the exploration of causes and resultant effects of monopoly as well as the impact it has on various area of development , especially in light of desired sustainable development.
In the exploration and analysis of monopoly an economic issue , I will employ the use of the systemic learning cycle BECM, going through each tenet o f the BECM as a systems practitioner.
The situation must be examined and considered in the light of desired sustainable development.
Sustainable development: Sustainable development can be described as “bringing environmental and development issues together with the future in mind”. This is development that meets the needs of the present without compromising the ability of future generations to meet their own needs. Sustainable development is also where ecological, economic and social aspects overlap. Sustainable development does not focus only on environmental issues. More broadly, sustainable development policies encompass three general policy areas: economic, environmental and social.There are many types of sustainability – ecological, economic, financial, social, political, and institutional, depending on what is being sustained. Any solution suggested to the challenges of monopoly must be in tandem with sustainable development goals.
BECM Balls
BECM is a system learning cycle that helps to properly analyze a particular situation
In the sense analyzing and understanding the complexity of monopoly, we should see the situation as a juggler, juggling the BECM balls. BECM is an acronym that stands for Being, Engaging, Contextualizing and Managing. These four tenets are used in the process of analyzing a certain complexity, formulation solution sand implementing then and managing that implementation.
B-Being
This phase requires that one immerse themselves in the situation, this is the B ball that refers to being .it points to being in the situation of monopoly and understanding the challenges that result from it right from inside the situation.
Monopoly like defined above economic situation in which only a single seller or producer supplies a commodity or a service. For a monopoly to be effective, there must be no practical substitutes for the product or service sold, and no serious threat of the entry of a competitor into the market. This enables the seller to control the price. One or more of the following elements are of great importance in establishing a monopoly in a particular industry: (1) control of a major resource necessary to produce a product, as was the case with bauxite in the pre-World War II aluminum industry; (2) technological capabilities that allow a single firm to produce at reasonable prices all the output of a particular commodity or service, a situation sometimes described as a “natural” monopoly; (3) exclusive control over a patent on a product or on the processes used to produce the product; and (4) a government franchise that awards a company the sole right to produce a commodity or service in a given area ( Microsoft Encarta, 2007).
Economic monopolies have existed throughout much of human history. In ancient and medieval times dire scarcity of resources was common and affected the lives of most human beings. When resources are extremely scarce, little room exists for a multiplicity of producers for many products and services. The medieval guilds, for example, were associations of merchants or artisans that controlled output, set terms for entering a trade, and regulated prices and wages.
However the expansion of production in the industrial era greatly decreased the rule of monopolies (Microsoft Encarta , 2007).
A picture showing oil drilling in UAE Dubai which olds a monopoly for the UAE inAsia
An oil platform perches over the Persian Gulf off the coast of Dubai, one of the seven constituent states of the United Arab Emirates (UAE). Oil revenues, mainly from Dubai and neighboring Abu Dhabi, have brought great prosperity to the UAE. Dubai is working to diversify its economy by developing a free-trade zone and a dry dock to service ships.
Oil and Gas Reserves of the World
From the viewpoint of society, monopoly leads to effects that are less desirable than those resulting from economic competition. In general, monopoly results in a smaller output of goods or services as compared with competition, and also in prices that are often higher than those in competitive industries. Another practice associated with monopoly is price discrimination, which involves charging a different price for the same goods or services to different segments of the same market. Among the various kinds of economic monopolies are public utilities, trusts, cartels Any understanding of monopoly in any place has to consider the different stakeholders involved in it and this includes corporation owners , workers and employees in those corporations, the government which retains ultimate claim over resources in a given country, the customers, relevant members of the international community and various interest groups, and industrial mergers.The main problem in a monopoly is that due to the lack of competition, the suppliers often set a higher price than marginal cost. This has the effect of distorting trade offs in the economy .The fact that there is no competition creates loopholes for monopolies to operate without efficiency in the market place. This means that most monopolies will not pay as much attention to perfecting their goods or services as they do not have any one challenging their position in the market. In addition monopolies are more likely to dishonor corporate social responsibilities such as duties to keep the environment and communities surrounding their plants clean. They are more likely to ignore their duty to the community in which they function. They are therefore more likely to pollute the environment.
Because monopolies are almost largely dictatorial, the system is usually open to a lot of influence and manipulation, both by the suppliers and other interested third parties, who in most cases include governments, the political class, religious influences, all which leave the customer exposed to suffer the ultimate increased costs that usually result. The other large problem associated with monopolies Is the fact that wealth is not equitably distributed in the population sin which it operates. Instead, a vast amount o f the wealth is controlled and owned by those who control the monopolies. The larger populations may end up impoverished by those very monopoles. The fact that pricing is largely left to the suppliers almost always leads to an inflation of that price hence subjecting buyers to prices that are higher than the marginal price. However because the goods or services dealt with in monopolies are usually essential, the customers have got no choice but to buy them. This leads to a decreased spending capacity for the consumer and ultimately affects an economy.
Stake holder chart
Stake Holder Perception Value & Belief
Corporation owners (monopoly controllers ) They enjoy monopolies The sustainace of the monopoly lead to continued high profits for them
Customers Do not generally like monopolies and view them as exploitative The en dup paying higher prices for goods and services
Workers/employees in monopolistic corporations -May enjoy the monopoly if treated well .
– may resent the monopoly if mistreated and not well remunerated – that if the monopoly prospers then so do they
-that they do not benefit whether the monopoly prospers or not.
Government Do not generally like monopolies – monopolies discourage competition in, compromise economical growth and lead to inequities.
– Benefit from tax revenues from the firms.
Stake Holders Power table
High Impact Low Effect
Corporations controlling the monopoly ( they benefit greatly and are not negatively affected).
High Impact High Effect
Workers of the corporations ( they may benefit from increased remuneration abut are affected in pricing ).
High Effect Low Impact
Government ( they are impacted moderately due to tax revenues from the firms , but also negatively affected due to damaged economies Low Effect Low Impact
customers ( They do not benefit an dare greatly affected negatively)
Systems Map of main Stake Holders in a monopoly
E- Engaging,
It is necessary for the systems practitioner to identify a mess or where the key problems, taking multiple perspectives and understanding how different stake holders view the problem of monopoly in the oil industry. A system map may help to create a better understanding of the monopoly in a region. The geographical region of the mess we are dealing with is duly considered and the mess being dealt with is the challenges that come about as a result of monopoly which are inefficiency on the part of corporations or firms, especially when it comes to social responsibilities such as care of the environment, the vulnerability to interference o f the market by political class or other self-interest groups. Frequent interference of the industry by politically instigated agendas usually leads to fluctuation of prices. The final challenge to engage with is the inequitable distribution of financial wealth accruing from the oil resources where there is an extremely wealthy upper class corporation merchants and a large population of people to whom that wealth does not necessary trickle down to them . The oil monopoly in the UAE for instance has been very exposed to political interference. The lack of competition has led to high prices. Because there is a lack of competition when it come to this resource, oil companies in collaboration with the government are free to exert a strong influence on the prices of fuel and oil-based energy sources as there no competitive market forces to determine the price. as a result the price for many years has tended to be whatever the key owners decided it to be, putting the entire population of the region at the mercy of these decisions. Political decisions concerning the oil resources have been known to exert an influence on the operations of the oil industry in the region and has caused price fluctuation.
The Inequitable Distribution of Wealth in a monopolistic Economy
C- Contextualizing
The third Ball C refers to contextualizing in which attempts are made at finding solutions to the mess identified in B. Solutions in the a monopolistic sector usually requires involvement a united effort from different stake holder in the industry. This will include the development of regulatory agencies to control pricing and ensure that prices are not exposed to the interference of political processes and are not carelessly inflated by corporations in search of higher profits .The nationalization of key corporations and the purchase of large international corporations operating in the region so as to give the government a higher stake in the resources, which will benefit the citizens is encouraged. To deal with the problem of inefficiency especially in social responsibility where environmental safety is neglected, it is possible to institute policies that require corporations to function within pre-set efficiency standards when it comes to the environment. this efficiency should go across a;; areas of its functioning including proper treatment and remuneration of works, provision of proper working conditions, embracing social responsibility of the communities around it and so on.Legislation should be enacted to compel corporations to ensure that their processes are compatible with sustainable development environmentally, politically and socially. The government should also encourage research into other possible sources of energy so as to create a substitute for goods that have a monopoly so as to encourage competition and diversification. This would go a long way in stabilizing the market and reducing monopoly. Polices should be set to ensure that benefits of monopolies , especially in places where we are dealing with natural resources, trickle down to citizens .
M-Managing
The management of the solutions requires that the solution suggested are implemented in way that is sustainable and that does not create more problems. Solution should also be in line with sustainable development and should wholly work for the benefit of all stakeholders. In most cases solution swill require compromises from some stake holder and the process need to be managed in such a manner as to ensure that all stakeholders cooperate.
Applying the SSM (Soft System Method )
This method a tool that can be used to analyze and come up with solutions to certain complexities. It typically involves seven steps. The first step in Soft Systems Methodology ( SSM ) is to formulate the Root Definition of the System you are studying, analyzing or designing. This is a structured description of a system. It is a clear statement of activities which take place (or might take place) in the organization being studied. It usually comprises of the what, how, why. The first Is to properly define the situation at hand . Information is therefore gathered about the problems resulting from monopoly which includes fluctuations in prices as a result of political interference of the, the lack of efficiency in environmental protection processes which exposes the population to health dangers , lack of efficiency in other areas such as worker treatment and remuneration and the inequitable distribution o resources among the population. Secondly, the whole situation is viewed in its entirety with all its components and interactions. A rich picture situation may illustrate more clearly all the components to be considered. In the third stage, the CATWOE is applied to help to better review the situation. CATWOE is a tool that helped planners and analysts to think and to plan, in situations where analysis has to be dOne and solutions formulated.
CATWOE analysis table for Mitigating against monopolistic structures
Customer The customers in this case are the larger population who will get reprieve.
Actors The main stakeholder, mainly policy makers, the government and the corporations
Transformation Process The process required to change the situation to mitigate against negative monopolies.
World view The worldview in support of ths is the fact that societies should have equitable distribution of resources and an amount of fairness in business .
Owners These are those who own and control monopolies as well as the government
Environmental Constraints Those factor sin the environment that encourage monopolies to thrive by making it hard for competition to enter the market.
In the relevant system there must be regulatory institution formation to control pricing, formulation of policies by policy makers to protect the environment, formulation of legislation to protect the citizen against harmful practices by corporations as a result of the monopoly they enjoy in the region and formulation policies aimed at improving the equitable distribution of resources that accrue from oil in the region to the citizens of the region. Policies that seek to ensure sustainable development in all sectors o f the economy in the region should be formulated and protected through legislation and protective institutions should be formed.
Conceptual Model
Stage four involves formulating a conceptual model that is representative of our theoretical view of how the situation should be solved. A transformational model is later formed to link the various issues within the system and provide ways in which they influence or affect each other. Apendix 2 is a conceptual map of the theoretical view adopted when dealing with monopoly in the oil industry.
In stage 5 , the conceptual frame work and real picture are compared and we come up with an agenda of what needs to b done to bridge the gap between the conceptual frame work and the real picture. The agenda will help in the debate with key stakeholders in the industry. This forms stage six. Suggested solutions are checked to see whether they are systemically desirable and culturally feasible. The real picture can be found as an appendice.
Comparison Between Conceptual Model and Rich Picture Analyses (monopoly of oil in the UAE)
CONCEPTUAL MODEL RICH PICTURE
Restricted political interference in oil industry Present political influence of oil industry processes and decisions
Formation of regulatory institutions and boards Few or dysfunctional regulatory boards to institute price caps
Formulation of protective policies and legislation in environmental protection Environmental neglect and degradation
Formulation of laws that ensure equitable distribution of wealth in the region Gross Inequitable distribution of wealth in the region
Encouragement of research into alternative oil sourcesin theregion Overdependence onoil-bsed energy sources.
Activities in conceptual framework Present in rich picture Rich picture situation -reality To include in agenda?
Restricted political interference in oil industry No Present political influence of oil industry processes and decisions Yes
Formation of regulatory institutions and boards No Few or dysfunctional regulatory boards to institute price caps Yes
Formulation of protective policies and legislation in environmental protection No Environmental neglect and degradation Yes
Formulation of laws that ensure equitable distribution of wealth in the region No Gross Inequitable distribution of wealth in the region Yes
Encouragement of research into alternative oil sources in the region no Overdependence on oil-bsed energy sources. yes
Debate with stakeholders for changes
Since the nature of the stake holder in this case is of a high nature, facto face engagement may prove difficult, thus one of the ways chosen to reach the stake holder is in writing to them, explaining the situation , its undesired effect s and proposed solutions. There after forms may be created where representatives of the key stakeholder groups may meet to decide on what decision to take. A systems practitioner who is aware of their role has 3 choices in how they manage their engagement with stakeholders when pursuing any form of purposeful activity. These are the choices are to:
Decide for stakeholders; decide with other stakeholders and to enable stakeholders to decide. Deciding for: When the systems practitioner takes control of the situation and uses their expertise to tell, or recommend to stakeholders what they should do. In this situation the systems practitioner would have the most potential for learning about issue and about their own practice. The disadvantage of “deciding for” however is that however much we might try to put ourselves in the shoes of another, or acknowledge other perspectives, it is never the same as having these stakeholders participate.
Deciding with: When the systems practitioner acts as a facilitator for other stakeholders in the situation and participates in decision making with other stakeholders. In this situation the systems practitioner could facilitate and involve other stakeholders in using the systems approach but he/she may do so in a way that protects ‘rather than share’ their specialist knowledge and skills. In this case the outcome may be owned jointly by the participants but the process to achieve the outcome would not. In the longer term this scenario would be less sustainable .
Creating an enabling process for deciding: When the systems practitioner explains to stakeholders what they see as the strengths and weaknesses of a particular method in a given context so that the stakeholders could choose for themselves. Here, there is the potential for the systems practitioner and stakeholders to become co-learners or co-inquirers. Each of these 3 situations requires a different set of skills for effective practice and will result in different capacities and potentials for learning.
Implementation stage.
After the stakeholders agree on possible solutions and mitigation strategies, they can now adopt them. The solutions agreed upon need to be both relatively manageable in terms of implementation and they also need to be culturally feasible in their contexts. They need to be financially manageable so as to encourage participation. In some places, even though some solutions may be systemically desirable they may conflict the economic cultures of the region and thus compromise their sustainability.
The final ball is M which represents managing of the solutions suggested to ensure sustainability .It ensures that that track of the situation is able to be kept and that changes made can be managed. Key consideration is in this process are three factors :
E1: EFFICACY: consider ration will need to be made and managed as to whether the criteria to be met are recognizable as appropriate for manage the solutions in a watythat ensure sustainable development
E2: EFFICIENCY: the management should ensure that the solution scan be undertaken without loosing the stakeholders’’ commitments. This is to say that the amount of work in out needed and resources used ought to be justifiable and within reasonable limits.
E3: EFFECTIVENESS: management needs to ensure that the ultimate goal is being met and that indeed transformation is occurring
Logistical Frame work
A logistical framework can be very helpful in the process of managing solutions and changes suggested. it will mainly Deal with the activities towards the solution implementation, output, purposes and goals of different activities. It highlights the measures of performance.
The logistical framework below deals with monopoly
GOALS
– ensure formulation of policies to prevent inefficiency
– ensure formulation of policies to protect customers from very high prices
– create alternative sources of the good /service
OVI (objectively Verifiable Indicators)
MOV( Means of Verification)
Assumptions:
-People might not be convinced that they can actually reduce the effect of monopolistic structures.
-Reduced effects of monopolistic structures might not improve people’s lives or the country
PURPOSES
Mitigate against negative effects of monopolistic market structure
OVI (objectively Verifiable Indicators)
MOV( Means of Verification)
-People might not be aware of the advantages or disadvantages of monopolies
