There are two types of government-initiated monopoly: a government
monopoly and a government-granted monopoly.
LEARNING OBJECTIVE [ edit ]
Discuss different types of monopolies initiated by government
KEY POINTS [ edit ]
Government-granted monopolies and government monopoliesdiffer in the decision-making
structure of the monopolist. In a government-granted monopoly, business decisions are made by
a private firm. In a government monopoly, decisions are made by a government agency.
In a government-granted monopoly, the government gives a private individual or a firm the right
to be a sole provider of a good or service.
In a government monopoly, an agency under the direct authority of the government itself holds
the monopoly.
In both types of government-initiated monopoly competition is kept out of the market through
laws, regulations, and other mechanisms of government enforcement.
TERMS [ edit ]
Government monopoly
A form of monopoly in which a government agency is the sole provider of a particular good or
service and competition is prohibited by law.
Government-granted monopoly
A form of monopoly in which a government grants exclusive rights to a private individual or firm
to be the sole provider of a good or service.
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Monopoly Creation
There are instances in which the
government initiates monopolies, creating
a government-granted monopoly or a
government monopoly. Governmentgranted monopolies often closely resemble
government monopolies in many respects,
but the two are distinguished by the
decision-making structure of the
monopolist. In a government monopoly,
the holder of the monopoly is formally the
government itself and the group of people
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who make business decisions is an agency under the government's direct authority. In a
government-granted monopoly, on the other hand, the monopoly is enforced through the
law, but the holder of the monopoly is formally a private firm, which makes its own business
decisions.
Government-Granted Monopoly
In a government-granted monopoly, the government gives a private individual or a firm the
right to be a sole provider of a good or service. Potential competitors are excluded from the
market by law, regulation, or other mechanisms of government enforcement. Intellectual
property rights such as copyright andpatents are government-granted monopolies.
Additionally, the Dutch East India Company provides a historical example of a governmentgranted monopoly. It was granted exclusive trading privileges with colonial possessions
under mercantilist economic policy.
Government Monopoly
In a government monopoly, an agency under the direct authority of the government itself
holds the monopoly, and the monopoly is sustained by the enforcement of laws and
regulations that ban competition or reserve exclusive control over factors of production to the
government. The state-owned petroleum companies that are common in oil-rich developing
countries (such as Aramco in Saudi Arabia or PDVSA in Venezuela) are examples of
government monopolies created through nationalization of resources and existing firms. The
United States Postal Service is another example of a government monopoly . It was created
through laws that ban potential competitors from offering certain types of services, such as
first-class and standard mail delivery. Around the world, government monopolies on
public utilities, telecommunications systems, and railroads have historically been common. Postal Service
The postal service operates as a government monopoly in many countries, including the United States.