Monopoly in Qatar - Case Study Example

Monopoly in Qatar al Affiliation: Table of Contents Table of Contents 2 4 1Definition of Monopoly 5 2.1 History of monopoly 5 Monopoly in Qatar 6 3.1 Types of Monopoly 6 3.1.1 Natural Monopoly 6 3.1.2 Regulation 6 3.1.3 Railways as a natural monopoly 7 3.2 Geographic monopoly 7 3.3 Technological Monopolies 7 3.4 Government Monopoly 7 4.1 Reasons why Monopoly exist 8 4.1.1 Ownership of a Key Resource 8 4.1.2 Government Franchise 8 4.1.3. Intellectual Property Protection 9 4.1.4 Barriers to entry 9 4.1.5 Economic barriers 9 6.1 Monopoly in Qatar 10 6.1.1 Car dealership industry 11 6.1.1.2 Regulation 11 6.1.3 Exclusive distributors monopoly in Qatar 11 6.1.3.1 Regulation 12 6.2 Challenges facing government regulation 12 7.1 Conclusion 12 7.1.1Recommendations 13 References 13 Abstract Monopoly refers to an existing situation where a definite person or company is the sole supplier of a product or service with the exclusive control or control of the supply or trade in a commodity or service. Some monopolies have a positive contribution to the economy while others promote unfair competition in the market .When examining the different types of monopoly, questions arise for the rationale of their existence. Is the monopoly providing essential goods? Is it a government agency that is aimed at restricting fair competition? These questions will be covered in this paper. Additionally, monopoly in Qatar will also be covered. Therefore, the research paper will analyze the concept of monopoly. Further insights will be provided in the paper on some of the monopoly practices in Qatari and laws that aree intended for monopoly regulation. There may be limitations of regulation but in whichever place or country monopolies exist, it is better to regulate them. 1.1 Definition of Monopoly There are many different perspectives that describe the term monopoly. The general definition of monopoly refers to an existing situation where a definite person or company is the sole supplier of a product or service (Sharkey, 1983). The legal perspective defines monopoly as an economic edge that a person or company hold as a result of special power to do business; thereby repressing competition and permitting such businesses to exclusively control market prices. It was established in the case of Standard Oil Co. of NJ v. United Sates, 221 U.S. 1, 31 S. Ct. 502, 55 L. Ed. 619 (1911) that for a given type of product or service, the monopoly owns all or virtually all of its market. Monopoly has led to exploitation of monopoly powers thereby necessitating establishment of competition law. From the above definitions, monopoly is illustrated by lack of competition, substitutes and presence of high market prices of a good or service. Monopolies are normally created by governments especially when supplying imperative goods and services. 2.1 History of monopoly Monopoly has been understood to exist throughout the history of mankind. For example, in England, the King had the powers to grant monopoly powers to a person or business to offer a designated good or service. These businesses dominated the market until the early seventeenth century where English courts commenced invalidating monopolies on the grounds that they were hindering the free market. English parliament enacted a law to prohibit most of the monopolies with an exemption of a few (Statute of Monopolies). Monopolies spread in the entire world and in the nineteenth century, countries such as the USA had incorporated it under common law. Contracts in the US that had provisions that were inconsiderate were not enforceable by courts as in the case of United States v. Grinnell Corp., 384 U.S. 563, 86 S. Ct. 1698, 16 L. Ed. 2d 778 (1966). Monopoly in Qatar 3.1 Types of Monopoly The basis for distinguishing the types of monopoly stems from determining reasons why the monopoly exists. 3.1.1 Natural Monopoly Natural monopoly arises where the factors of production and distribution are relatively high, thereby many business entities evade competition. Natural monopoly also arises because many companies find distribution of the product financially unfeasible (Sharkey, 1983). Such high-cost distribution businesses include supply of electricity, crude oil and oil product supply and railway services (Clifton, et al, 2011). Distribution of these products or services involves high investment costs in infrastructure. For example, electricity supply requires advanced infrastructure of electric cables and grid while gas and water supply requires extensive and well designed pipeline networks. Sunk costs are also associated with development of sophisticated infrastructure such as railway network deterring entry and exit of businesses to the market. Natural monopoly allows efficiency in the economy as it prevents wastage of resources which is the case in competition. Natural monopoly enjoys economies of scale, economies of scale in providing essential public products or services. 3.1.2 Regulation If provision of essential public products or services is controlled by private companies, the companies regularly have their own special regulator to guarantee that they do not abuse their monopoly status. For example in the UK, railway services during the 1980s were privatized and hence had regulators as ruled in the case of English v. General Elec. Co., 496 U.S. 72, 110 S. Ct. 2270, 110 L. Ed. 2d 65 (1990). Energy regulating bodies in Great Britain include Ofgem, an energy regulator media regulator Ofcom. 3.1.3 Railways as a natural monopoly Railways involve very high costs construction, purchase of trains which prohibits competition as the society views constructing another network a wastage of resources. 3.2 Geographic monopoly Geographic monopoly comes about due to presence of a company that offers a specific good or service in a geographic location (Allen, 2013). For example, in a rural area where there is only one small business entity such as a grocery, the area can only support the business. The business supplies more than adequate to the area hence entry of another supplier of the same product would prove unviable. Entry of other suppliers to the region is hampered by the financial unfeasibility of the business entry. 3.3 Technological Monopolies When a particular firm has special rights of a manufacturing methods or technology that produces a product, then that firm becomes a technological monopoly. According to ( Merhav, 2013). The firm enjoys legal protection by obtaining a patent or copyright. For example, a company that develops a drug to cure AIDS cure may obtain a patent to cure HIV then that company enjoys legal monopoly over the drug it manufactures. 3.4 Government Monopoly This type of monopoly occurs when a government body solely provides a particular product or service and subsequently exercises its coercive power by making competition illegal (Jenny, 2003). The government passes laws securing an explicit good or service for a government agency. Governments may also confer monopoly status by awarding a single firm the exclusive right to supply a particular good or service. Government monopoly is also common in provision of public utility goods and services such as railway services and distribution energy goods. Governments may create a monopoly by granting a firm patent rights and converting it into a state corporation. Consequently, this limits competition and allows the licensed firm to exercise monopoly power. In other instances, such as the case of Fuentes v. Shevin, 407 U.S. 67, 92 S. Ct. 1983, 32 L. Ed. 2d 556 (1972), government use physical force to restrict entry of businesses to a particular industry. 4.1 Reasons why Monopoly exist A monopoly exists because of various reasons. The reasons may be economic in nature or legal reason. The reasons why monopolies exist are detailed below; 4.1.1 Ownership of a Key Resource A monopoly exists in the market where one company exclusively controls a resource that is essential for the manufacture of the markets product. 4.1.2 Government Franchise Governments create monopolies by restricting competition and employing barriers entry barriers. The government then created a firm and controls it in the form of government monopolies. The government reserves certain business ventures that it deems fit and unfitting for private investments. It passes laws to allow the state company explicitly supplies a product or service as in the case of Lafayette v. Louisiana Power & Light Co., 435 U.S. 389, 98 S. Ct. 1123, 55 L. Ed. 2d 364 (1978). 4.1.3. Intellectual Property Protection The government can extend intellectual property protection to private companies by granting them patents and rights. By doing this they create monopolies with such companies. The justification of intellectual property protection is to award incentives to companies who engage in research and development aimed at innovation of new products (Lerner, 1934). Intellectual property protection hence is another reason for existence of a monopoly 4.1.4 Barriers to entry In a free market economy, competition in businesses is cutthroat. However, monopoly is an excellent example of capitalism. The main reasons why monopoly exist is existence of barriers to entry (Marx and Fleming, 2012). The reasons why a monopoly exists is attributable to three types of barriers. 4.1.5 Economic barriers Economic barriers prevent new entrants to provide substitute products or service offered by the monopoly. This is as a result of high initial capital requirements, sophisticated technology and economies of scale. Production costs make a single manufacturer more efficient than large number of producers Control of an essential resource Government monopoly in particular exists to control essential national resource (Naughton, 1992). The justification behind this is that competitors can exploit the resource quickly by lowering prices of products manufactured from the resource. This results to depletion of the resource. Natural Monopoly Monopolies may exist because it is more lucrative for a single company to serving a whole market than many firms competing as ruled in the case of Kelo v. New London, 545 U.S. 469, 125 S. Ct. 2655, 162 L. Ed. 2d 439 (2005). Economies of scale is also associated with natural monopoly because their size enable them lower product prices, limiting new entrants to the market. 5.1 Exemptions Monopoly mainly exists due to regulations in the market. However, it is important to note that there are exemptions to regulations such as legal prohibitions of new entrants. In this regard, the reason why exemption may apply encompasses; regulation is limited to some government monopolies, and such other particular monopolies, which may opt to operate but at the same time consider consumer protection. In the case of Town of Hallie v. City of Eau Claire, 471 U.S. 34, 105 S. Ct. 1713, 85 L. Ed. 2d 24 (1985), it was ruled that the business was exempt from state antitrust laws. 6.1 Monopoly in Qatar Monopoly in Qatar manifests in various industry in the country. Qatar being a manufacturing dependent, the government protected monopolies in areas of the economy from foodstuffs, detergents, clothing and even drugs until a decade ago. The Qatar government is, however, now working round the clock to ensure there is fair competition in the market and consumers are protected from influential traders. For instance, to ensure the government obtains its objective, the Amiri Decree No. (19), 2006 was issued to prevent monopoly practices and encourage competition. The law’s clause 3&4 have, for instance, helped to define what monopoly is and defined monopolistic practices that are outlawed whether adopted or exercised through contracts and agreements. In conjunction with this, for instance, the Ministry of Economy & Commerce swung into action recently and closing showrooms of renowned foreign car dealers for exploiting and manipulating buyers by selling them local cars that were repaired and painted to look as new. This marked the first time the CPD was taking action against scrupulous and exploitive car dealers for breaching the law by charging customers high prices for their cars (Acharya, 2015). Moreover, in the late 2014 draft bill had been prepared and was in the pipeline for passage to regulate all any form of monopoly in Qatar to protect the consumers. 6.1.1 Car dealership industry The car dealership industry is an industry in Qatar that has over the years been monopolized by famous car dealers. This has resulted in consumers purchasing cars at very high prices leading to exploitation. Countries bordering Qatar such as the EAE also have monopolies in car dealership. Car dealership in Qatar enjoys exclusive rights that the Qatari law of regulating the trade forbids and discourages non-Qatari investment in the industry. 6.1.1.2 Regulation Regulation of monopoly in Qatar is a current trend. The government of Qatar plays a crucial role in ensuring it suppresses unfair competition from market players. To begin with, the government of Qatar has laid plans to eliminate unfair competition as in the case of Deutscher Tennis Bund v. ATP Tour, Inc., 610 F.3d 820 (3d Cir. 2010).. The plans are aimed at allowing foreign car dealers carry out business in Qatar. Therefore, consumers are given an opportunity to have many options when it comes to purchasing vehicles. 6.1.3 Exclusive distributors monopoly in Qatar Car servicing in Qatar has been touted as an exclusive distributor’s monopoly. Moreover, lack of competition contributes to high inflation rates of car servicing. Centralization of car servicing has tremendously contributed to deterioration of the quality of car servicing offered to customers. 6.1.3.1 Regulation There are laws that have been proposed to decentralize car serving in Qatar. The laws further provide for cessation of distributor’s monopoly (Qatari Law No. 8 of 2002). 6.2 Challenges facing government regulation Regulation is an important tool of protecting consumers in any part of the world. However, a challenge emanates from the fact that when Qatari government imposes or tries to open up the Qatari car dealership trade, it remains unclear how the already established car dealers will terminate their contracts; especially with foreign car manufacturing companies. This may result in high government spending in compensating car dealers with long-term contracts. Government regulation in Qatar has also led to creation of laws that specify standards for cars to be imported which differs with other Arabian Peninsula countries (Phipps, et al, 2003). Car dealers in these countries might be discouraged to invest in Qatari since they will be obligated to import cars that meet Qatari specifications and standards. This undermines and dissuades competition in the country (Nafi, 1983). The Qatari government’s efforts to end distributors’ monopoly may compromise quality of car services provided to the consumers. 7.1 Conclusion Monopoly has existed, and will continue to exist in the entirety of the human history. The reasons for its existence are of essence to the society; such as to facilitate provision of public utility goods which are viewed as non-viable businesses by private investors. However, in cases of unhealthy competition that arises due to monopolies needs to be regulated by carefully formulated laws that provide provisions that will curb consumer exploitation. In the case study of Qatar, trading in automobile needs to be regulated and the government has taken measures of ending car dealership monopoly. Though there are challenges of imposing regulation laws, it remains clear that such laws will promote competition the market. 7.1.1Recommendations This research concentrated on monopoly, Qatari monopoly and regulations. It’s recommended that a further research be conducted incorporating other countries. Since monopoly exists and will continue to exists, those monopolies should provide information to potential competitors to provide them with information to use to determine whether to enter the market. In the case of Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d 263 (2d Cir. 1979), it was established that Berkey suggested that Kodak had a duty to disclose limited types of information to certain competitors. References Acharya. R. (2015).Trade and industry sources say it’s time for monopolies in Qatar to go. Retrieved from http://www.bqdoha.com/2015/02/monopolies-in-qatar Allen, G. C. (2013). Monopoly and restrictive practices. Routledge. Baumol, W. J., & Willig, R. D. (1981). Fixed costs, sunk costs, entry barriers, and sustainability of monopoly. The Quarterly Journal of Economics, 405-431. Berg, S. V., & Tschirhart, J. (1989). Natural monopoly regulation. Cambridge Books. Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d 263 (2d Cir. 1979). Clifton, J., Lanthier, P., & Schröter, H. (2011). Regulating and deregulating the public utilities 1830–2010. Business History, 53(5), 659-672. Deutscher Tennis Bund v. ATP Tour, Inc., 610 F.3d 820 (3d Cir. 2010). English v. General Elec. Co., 496 U.S. 72, 110 S. 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