Two Types of Monopolies
There are only two ways for a business to establish and maintain a monopoly within an industry.
The first is by providing a superior and cheaper product or service over the long term. Building a reputation, gaining market share, consistently delivering higher quality, and maintaining competitive margins all usually take time. There are occasional exceptions—companies that seem to appear almost overnight—but even in those cases, competition remains close behind. As soon as quality declines, or costs get out of control, competitors are ready to capture market share. In this type of monopoly, dominance lasts only as long as the product or service remains clearly superior in quality and price.
The second way to establish and maintain a monopoly is through government intervention. This can take the form of taxation, newly created money, or legislation. Of these, legislation is by far the most powerful and complex, because it can be applied in countless ways.
One example of intervention is direct spending—using tax revenue or newly created money to award contracts to favored businesses. This is common in industries such as defense, pharmaceuticals, and finance. On its own, this provides only a temporary advantage unless such contracts are continually renewed.
Legislation, however, has a much broader and longer-lasting impact. It establishes the rules businesses must follow to operate: licensing requirements, zoning restrictions, minimum wages, compliance standards, prohibited products, and more. All of these rules raise operating costs. As regulations accumulate, businesses are more likely to downsize, fail, or never open at all. Small businesses—often the backbone of the middle class and a key indicator of economic health—are hit hardest. For the average person, this translates into fewer jobs, higher unemployment, and downward pressure on wages.
Businesses often try to offset rising regulatory costs by passing them on to consumers. Sales taxes are a clear example, with businesses explicitly stating how much goes to the government. Less obvious are increases in production costs that lead to higher prices. If prices are not raised, the business becomes unprofitable. However, prices can only rise so far before demand weakens. Once margins are exhausted, even higher prices cannot sustain the business. For consumers, this means steadily rising costs for everyday goods and services.
Legislation also enables governments to create monopolies directly—such as postal services, railways, banking systems, the military, and law enforcement. These monopolies exist not because they provide superior service, but because competition is legally prohibited. With no competitive pressure, there is little incentive to improve efficiency or quality. Demand flows to these entities regardless of performance. The result is often slow service, inefficiency, poor reliability, and high costs relative to quality. For the average person, this shows up as long lines, malfunctioning systems, and substandard service.
Another issue with legislation is how easily it can be influenced. In democratic systems, laws are shaped by whichever group secures a majority. Special interest groups, activist organizations, and corporate lobbies only need to sway that majority to enact favorable rules. These groups are influenced by sponsorship funds, and contract awards. As a result, businesses with significant capital can shape legislation to protect their position, often by increasing the costs or barriers faced by competitors.
This dynamic is visible in industries where a small number of large firms dominate processing or distribution. Regulations that raise compliance costs disproportionately harm smaller competitors, consolidating market power further. For consumers, the outcome is familiar: higher prices and lower quality.
The only legitimate monopoly is one earned through consistently superior quality. Monopolies created or sustained through government intervention are artificial. Without those interventions, they would not exist. The common result of artificial monopolies is reduced competition, declining quality, and higher prices. In simple terms, the more of these monopolies that exist, the more expensive everyday life becomes.
