Why monopolies aren鈥檛 a game鈥攁nd how they shape your life today聽
Two Simon Business School experts explain how market power impacts consumers, workers, and innovation in the modern economy.
When people hear the word 鈥渕onopoly,鈥 they often picture a single company dominating a market鈥攎aybe even the board game version, with one player scooping up all the properties. But in today鈥檚 economy, monopoly power is both less obvious and more complex. At the 鈥檚 , , the Fred H. Gowen Professor of Economics and Management, and , an assistant professor of , study how businesses gain, maintain, and sometimes abuse that power鈥攁nd why it matters for everyday life, from buying plane tickets and grabbing lattes to downloading apps and securing jobs.
鈥淔or a long time, antitrust law in the United States has codified the idea that monopolies are bad for consumers,鈥 says Prager. 鈥淲e worry about prices going up, we worry about product quality degrading and people having fewer choices and being able to buy less. But that鈥檚 not the only set of harms that can happen.鈥
What is a monopoly?
Strictly speaking, a monopoly is a market with just one firm selling a particular good or service. But in practice, this does not happen often. In most real鈥憌orld markets, the concern is less about a single, pure monopoly and more about firms that hold substantial monopoly power鈥攁lso called market power鈥攂ecause customers lack enough good alternatives.
Economists, therefore, spend at least as much time thinking about monopoly power as they do about one鈥慺irm monopolies.
Even where multiple companies exist, warning signs of monopoly power include:
- Higher prices than seem justified by costs or technology
- Lower quality or chronically poor service
- Lack of innovation over time, where a firm seems comfortable and unmotivated to improve its products
Modern markets provide a range of examples of monopoly power鈥攕ome rooted in history, others unfolding now:
- Standard Oil. In the late 19th and early 20th centuries, Standard Oil controlled nearly the entire US oil-refining market, aided by control of pipelines, rail shipping rates, and aggressive tactics toward rivals, until the Supreme Court ordered its breakup in 1911.
- AT&T and the 鈥淏aby Bells.鈥 For decades, AT&T operated the US telephone system as a regulated monopoly; antitrust action in the 1980s eventually broke the company into regional 鈥淏aby Bells.鈥
- Big tech platforms. Companies such as Google, Apple, Amazon, and Meta dominate search, mobile ecosystems, e鈥慶ommerce, and social networking, often leveraging network effects, data advantages, and app鈥憇tore control to maintain their positions.
鈥淚n practice, what鈥檚 more likely is that a handful of companies have a dominance and grip on a market,鈥 Prager notes. But big, she emphasizes, does not automatically mean monopolist: 鈥淲hat really matters is what you are big in.鈥
Prager highlights Amtrak as an example. It is by far the biggest passenger rail system in the US, and for long鈥慸istance rail travel, it鈥檚 the only game in town. 鈥淏ut taking Amtrak is not the only way to get from point A to point B,鈥 Prager says. Travelers between 91原创 and New York City, for instance, can drive, take a long鈥慸istance bus, or fly. 鈥淚t鈥檚 really how easily consumers can switch from the product that you sell to some other product that meets the same needs or a similar set of needs.鈥
Multiple companies can act like a monopoly
Sometimes a group of firms can behave as if they were one dominant player. A classic example is a cartel, where companies that are supposed to compete instead coordinate their strategies鈥攆or instance, by fixing prices, allocating customers, or carving out geographic markets among themselves. 鈥淚f they鈥檙e making strategic decisions together, they鈥檙e functioning like a monopoly,鈥 Mikl贸s鈥慣hal explains.
Cartels are illegal in most jurisdictions because they undermine genuine competition and hurt consumers. Famous cases have involved international cartels in chemicals鈥攕uch as the lysine cartel featured in the 2009 Hollywood movie The Informant!鈥攐r the global air cargo cartel colluding to fix fuel surcharges instead of truly competing.
Free does not always mean fair
鈥淚n many digital markets, the problem isn鈥檛 high prices for consumers,鈥 Mikl贸s鈥慣hal notes. 鈥淚nstead, the problem can be weak privacy and consumer protection, or high prices charged to advertisers on the other side of the platform.鈥
Even though consumers still pay for internet access and devices, many large online platforms鈥攕uch as search engines or social networks鈥攐ffer free services on the user side while exercising substantial market power over advertisers, app developers, or sellers. 鈥淚f a tech firm has a very dominant position,鈥 Mikl贸s鈥慣hal explains, 鈥渃onsumers may not have a real choice, even if their data is being used in ways they dislike.鈥
How monopoly power emerges
Sometimes a company simply builds a much better product or service and pulls away from competitors. 鈥淎 firm may come up with a great invention that鈥檚 hard to copy or just offer exceptionally good service,鈥 Mikl贸s鈥慣hal says. A local grocery chain that consistently outperforms rivals can reflect this kind of success.
鈥淢onopoly 鈥榦n the merits鈥 is not something we want to discourage,鈥 she emphasizes. 鈥淲e want firms to be allowed to gain market power by innovating and serving consumers well.鈥
On the other hand, some industries are shaped by substantial fixed costs that make it inefficient to have many competing providers. Economists call these natural monopolies. Examples include:
- Railroads and subway systems. It is extremely expensive to lay tracks or tunnels, and duplicating entire networks would be wasteful.
- Electric utilities and water systems. Building parallel grids and pipe networks is rarely practical, so a single provider often serves a region under regulatory oversight.
鈥淭he question then becomes,鈥 Mikl贸s鈥慣hal says, 鈥渉ow do we design policies so that, even in those cases, consumers are treated well?鈥 Some countries, for example, allow multiple train companies to run services over tracks owned by a single public or private infrastructure operator, creating competition 鈥渙n the rails鈥 even if the physical network is not duplicated.
鈥淓ven without explicit coordination, if several competitors use a common algorithm, it might lead them to set prices more similarly.鈥
Finally, network effects that benefit digital platforms can drive monopolies: The more people use a service, the more valuable it becomes to each user. Social networks become more useful as more friends, family, and organizations join. Smartphone operating systems attract more app developers, which in turn draw more users, reinforcing the leading platforms.
鈥淚n markets with strong network effects, you often end up with a small number of dominant firms or even one,鈥 Mikl贸s鈥慣hal notes. That pattern helps explain why search engines, app stores, and ride鈥慼ailing services tend to consolidate around a few global players.
Economists generally worry less about the existence of market power and more about how it is acquired and defended. 鈥淲e鈥檙e most concerned when market power is gained through mergers that eliminate competition, or maintained through anti鈥慶ompetitive practices,鈥 Mikl贸s鈥慣hal says.
Monopolies and workers: the mirror image
Monopoly power can also shape workers鈥 wages, job options, and bargaining power.
鈥淚n my own work, I spend a lot of time thinking about these less traditional harms of monopolies,鈥 Prager says. 鈥淚n particular, I think a lot about labor monopsony.鈥 Monopsony is the mirror image of a monopoly: Instead of one seller dominating buyers, it is one major buyer dominating many sellers. 鈥淣ow, instead of having one single company selling stuff, it鈥檚 one single company buying stuff鈥攁nd the stuff doesn鈥檛 have to be a physical good,鈥 she explains. 鈥淚t can be something like the labor of a potential worker. If I am the only employer in town, I can offer you pretty lousy working conditions and low wages鈥攁nd you might still come work for me because you have nowhere better to go.鈥
The same competitive pressures that help consumers in product markets apply on the labor side for workers: more options usually mean better pay and conditions.
Why breakups are rare鈥攁nd what regulators can do
In the United States, agencies within the Department of Justice and the Federal Trade Commission enforce a variety of antitrust and consumer protection laws. But in reality, the federal government has relatively few tools to break up monopolies once they exist. For that reason, most modern antitrust policy focuses on:
- Blocking mergers that would unduly reduce competition
- Prosecuting cartels and explicit collusion
- Monitoring dominant firms鈥 behavior for abuses of monopoly or monopsony power
- Ensuring regulators have the resources needed to analyze complex, data鈥慸riven markets
鈥淔irms have strong incentives to increase profits,鈥 Mikl贸s鈥慣hal says. 鈥淪ociety needs institutions in place to ensure that happens through better products and innovation, not by limiting competition.鈥
Algorithms, AI, and the future of monopoly power
With new artificial鈥慽ntelligence tools and pricing algorithms, a major concern is that competing firms may rely on the same software to set prices.
鈥淓ven without explicit coordination, if several competitors use a common algorithm, it might lead them to set prices more similarly,鈥 Mikl贸s鈥慣hal points out.
Early research and enforcement actions are exploring whether this kind of 鈥渁lgorithmic collusion鈥 could undermine competition in markets ranging from apartment rentals to gas stations to online retail.
Why the Monopoly board still matters
So, does the classic board game actually resemble a monopoly?
鈥淚f you had a government in the board game Monopoly,鈥 says Prager, 鈥渋t would likely start to block mergers by players who already own too much stuff.鈥 In other words, no one player would be allowed to completely dominate the board. 鈥淲hat instead happens in this game鈥攚hich of course does not have a government, just players鈥攊s that a particularly successful or lucky player can keep just buying more and more properties until they own the entire block. And that allows them to jack up the rent prices on everybody else in the game.鈥
Monopolies today are less about a single company visibly owning everything and more about subtle forms of power: how it is gained, used, and protected, and whether consumers and workers still have meaningful choices in a dynamic market. If the original Monopoly Man paid homage to the industrial tycoons of the early 20th century, today鈥檚 economy features a shifting cast of platforms, brands, and employers all vying for control of the board. For economists like Mikl贸s鈥慣hal and Prager, the real question is how to rewrite the rules so that competition, innovation, and fairness still have a chance to win.
Meet your experts
Jeanine Mikl贸s-Thal
Fred H. Gowen Professor of Economics and Management
An expert on game theory and advanced pricing, Mikl贸s-Thal conducts research into industrial organization, digital economics, competition policy, and personnel economics. Her work has focused on cartel pricing, pricing strategies in intermediate-goods markets, the impact of marketing strategies on consumer quality perceptions, and reputational incentives in labor markets. Mikl贸s-Thal serves as a contributor and associate editor of Management Science and the RAND Journal of Economics.
Elena Prager
Assistant Professor of Economics
Prager is an economist with expertise in antitrust enforcement, collusion, health insurance design, and healthcare prices. As part of her research on antitrust, she has written award-winning work on employer market power, including the effects of employer mergers on workers and the precursors to employer collusion. Prager鈥檚 research focuses on policy-relevant topics and is frequently cited by the Congressional Budget Office, Department of Justice, and Federal Trade Commission. She has presented at public-facing policy events and been interviewed by news outlets, including NPR and the New York Times.
