A Negative Impact Of Monopolies On The Economic Development Essay

Monopolies have a negative impact on the economic development because they undermine the fair competition. As a result, consumers are virtually deprived of the choice of products or services, while economy faces the problem of the decline of business activities since monopolies can rip off maximum profits. The development of monopolies is destructive for economy. This is why governments tend to dissolve monopolies to stimulate the economic growth and fair competition. At this point, it is possible to refer to the case of Chinese salt monopoly, which the government has decided to dissolve recently and which opens the way to the fair competition in the industry and emergence of private companies that may challenge the position of the government-controlled corporation.

Historically, Chinese government held the tight control over salt production and trade. The salt industry brought considerable benefits to the government. However, steadily China Salt National Industry Corp, the government-controlled monopoly, became more and more bureaucratized, while revenues from the salt industry declined. The deterioration of the China Salt National Industry Corp’s performance was the result of the monopolistic position of the company in the market. China Salt National Industry Corp did not need to enhance its performance, increase the efficiency of production, or introduce any other changes to improve business operations and effectiveness of its performance (Samuelson & Marks, 2005). The company was the only producer and supplier of salt to the domestic market. Another reason for the ongoing deterioration of the China Salt National Industry Corp’s performance was the excessive bureaucratization of the company. As a result, the complex bureaucratic structure increased costs of the company and decreased revenues. In addition, the company could not take decisions fast and effectively to respond adequately to changing business environment and economic situation. In such a situation, the company could not perform successfully.

The deterioration of the performance, high bureaucratization and overall ineffectiveness of the China Salt National Industry Corp resulted in the government’s decision to dissolve the monopoly. The government also intended to attract foreign direct investments and stimulate business activities in China. The monopoly prevented the fast development of business activities in the salt industry of China that encouraged the government to refuse from the monopoly in the industry to enhance the growth of the salt industry in the future. In such a context, the government has taken the reasonable decision to shift toward the dissolution of monopoly that will stimulate the economic development and growth of the industry (Negbennebor, 2001). Therefore, the decision is reasonable as long as this decision stimulates the development of business activities in the industry and boosts the economic growth in China.

In fact, the decision to dissolve the monopoly in the salt industry of China aims at the optimization of the industry and leads to considerable changes in the industry. To put it more precisely, “local salt producers will soon be able to market salt directly, including in other provinces, rather than having to sell to China Salt” (Hornby, 2014, 8). Therefore, the growth of the competition will stimulate companies operating in the industry to focus on the quality of products. In addition, the growing competition will affect the pricing policy. Researchers (Hornby, 2014) forecast that “prices will be liberalized from 2016 while new licenses to enter the salt business will be granted from 2017, according to Chinese state media reports” (Hornby, 2014, 8). Therefore, the dissolved monopoly is likely to bring positive changes in the pricing policy and stimulate the overall improvement of the development of the salt industry.

Thus, the dissolution of the monopoly in the salt industry of China will stimulate the consistent improvement of the competition in the industry, while the competition will stimulate the growth of business activities, better pricing policies, and higher quality of products offered by companies operating in the industry to customers.

 

References:

Hornby, L. (2014). China Ends World’s Oldest Monopoly. FT. Retrieved from http://www.ft.com/cms/s/0/a666643c-7150-11e4-818e-00144feabdc0.html#axzz3jFIUHJ8a

Negbennebor, A. (2001). Microeconomics: The Freedom to Choose. CAT Publishing.

Samuelson, W. and Marks, S. (2005). Managerial Economics (4th ed.). New York: Wiley.

The terms offer and acceptance. (2016, May 17). Retrieved from

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"The terms offer and acceptance." freeessays.club, 17 May 2016.

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freeessays.club (2016) The terms offer and acceptance [Online].
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"The terms offer and acceptance." freeessays.club, 17 May 2016

[Accessed: March 28, 2024]

"The terms offer and acceptance." freeessays.club, 17 May 2016

[Accessed: March 28, 2024]

"The terms offer and acceptance." freeessays.club, 17 May 2016

[Accessed: March 28, 2024]

"The terms offer and acceptance." freeessays.club, 17 May 2016

[Accessed: March 28, 2024]
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