Wonks: a New Monopoly

Wonks: A New Monopoly

Larry Reeves, Jr.

ECO204: Principles of Microeconomics

Instructor: Harvey Criswell

7/23/12

In the world of business, there are three market structures that are available to businesses – monopolistic competition, oligopoly, and monopoly. Some structures are determined by the industry that the business is in. For example, a restaurant will likely always be considered monopolistically competitive due to the large number of restaurants and the ease of entrance into that market. However, an industry doesn’t always have to stay static, especially in a particular area. In 2007, the potato chip industry in the Northwest was monopolistically competitive; however, two smart lawyers went around purchasing all of the individual firms within this industry. By doing this, they created a monopoly that they named “Wonks”. Whenever these kinds of mergers and acquisitions take place, there are impacts on the market due to different strategies between monopolistically competitive firms and monopolies. These different strategies have various effects on the shareholders, the price of the products, and the outputs for the products. Also, the market structure that is best for the business is not necessarily the best one for the consumers.

As with any other market structure, one of the main aims of a business is maximizing the shareholder wealth. Essentially, shareholders are any people or groups that have a vested interest in the success of the business. If the business does well, the shareholders do well. This could include employees, investors, stockholders, etc. For the internal shareholders, such as the previous examples, the goal is wealth maximization. In a monopoly, the business has more options available to maximize wealth without having as much fear of losing customers based solely on the control it has on the market. “When much of a nation’s industry is monopolistically organized, maximizing shareholder wealth would maximize the monopolist’s...