11/30/2009

The Power of Monopolies

This article is a little dated but I thought it applied well to monopolies and their power, only on a larger international scale. The article, from Business Week, is entitled, “Gazprom and Ukraine Settle Gas Dispute.” It basically outlined how much power the Russian government had over Ukraine because of their dependence on the gas that was produced by the state-controlled monopoly at Gazprom in Russia. The dispute arose over debt that Ukraine claimed they would be unable to pay so Russia threatened to cut off their gas supply and are requiring Ukraine to pay-up by transferring some of their gas from storage facilities to Gazprom. Not only did this worry Ukraine, but the European Union as well since a quarter of their gas comes from Russia and eighty percent of the gas is transported through Ukraine.
So here we see a monopoly run by a country exercising power over another country to get them to repay debt and act in a way that they desire. While government run enterprises tend to be inefficient, in this case, it gives them greater power on an international level. For further information, click HERE to visit the article.

3 comments:

Leah said...

It is very informative to realize the power of monopolies grow exponentially in many cases. When a firm or country has the ability to dictate what the competition does, they will obviously use this for their own benefit. This is the danger of having monopolies. Monopolies tend to exploit the competition unfairly. As their power increases they will have an effect on more companies.

Robert said...

This move sounds like an old Soviet Union tactic. Russia definitely had the leverage and played it in order to force Ukraine to get going. Russia not only has the monopoly for gas in Ukraine but is willing to do anything to get its way. Good mix of economics and politics.

Dr. Tufte said...

I think you've all missed the big picture.

This bad behavior is from a government that has monopoly power.

Can you remember when a private monopoly acted this way?

If not, perhaps we should spend less time worried about monopolies, and more time worried about governments.