HOW MONOPOLIES RUIN THE FUNCTIONING OF THE MARKET ECONOMY – BY PRITAM BHOWAL

After the onset of COVID pandemic, public gatherings were restricted and thus schools were shut. To fill the gap several online learning platforms emerged like BYJU’s, Unacademy etc. As this market grew, BYJU’s went on a shopping spree, acquiring many of its peers all around the world. This act makes us question about the future of online learning.

Literally, a monopoly is a situation wherein one party exclusively provides a particular product or services, dominating the market and exerting control over it. This pure form of monopoly is not usually seen in a market economy but dominant companies indulge in oligopoly, where a small group like a cartel, sets the terms of that sector. OPEC is one such example, where all the oil producing and exporting nations meet and decide the market price of the oil by altering its production and supply.

All companies begin as a startup but with the passage of time it receives funds from venture capitalists, who invest on the potential of the idea that the company is working on. This way a company grows in size. To keep ensure its presence in the market, it keeps on checking on smaller companies or startup, who have the potential to adapt with the changing times, by acquiring them. It also helps them to finish the completion with other firms.

Also, when smaller companies are unable to clear off their debts, the promoters try to sell their stake and get rid of the loss making venture.

Sometimes even government policies indirectly help a company to become dominant like Nestle in FMCG sector. Altering the baby food related laws favoured Nestle.

An acquisition makes both the sides are satisfied as in the case of Flipkart, where Bansal brothers sold their stake to Walmart, before creating another startup, Navi insurance. But the major brunt is faced by the employees and the consumers.

After an acquisition, there is enormous pressure on the employees cut the excess labour by pressurizing the employers to satisfy consumers and gather as much clients as possible. Soon it results in unemployment. This has big impact as more number of overqualified people would be lined up for already deficient job opportunities. It would soon degrade the already poor human development index(HDI). Then political parties would play with the emotions of people. This would lead to policy instability, thus discouraging multinational companies, FDIs and FIIs from entering India, which would be a big setback for our economy.

Consumers, on the other side, face serious challenges like lack of choices. Even if there are choices, people have trust issues as big companies have a brand name. with brand comes high prices, thus exploiting the consumers. These monopolies also provide security to companies which discourage them from making and significant improvements as they know people have to buy whatever they sell. Over the time there may be quality issues as well, thus halting the development of the sector.

These would make the scenario similar to the pre- LPG reforms, where PSEs dictates the terms of market.

Being an open economy, government has taken and is taking several steps to prevent market monopolies. Government had set up CCI to check the acquisition process so that the completion is market is kept intact. Recently government has bought over 35% shares of VI (Vodafone idea merger) and extended the loan moratorium till 2024, so that all companies are able to participate in the upcoming spectrum auctions. Several companies are coming for with IPOs to attract crowd fund and advertise brand name.

Other than that, EXPOs can be organized where companies would showcase their potential to venture capitalists and get monetary support. This would provide them a fighting opportunity in the market.

Market economy is an economic system where supply and demand direct the production of goods and services. So, with the above stated steps, monopolies must be restricted to satisfy the ideal definition of market economy.

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