Legal Monopoly

Accounting Conservatism

What is a legal monopoly?

A legal monopoly refers to a business that operates as a government-mandated monopoly. A legal monopoly offers a specific product or service at a regulated price. It can be independently managed and regulated by the government, or managed by the government and regulated by the government. A legal monopoly is also called a “legal monopoly”.

Operation of legal monopolies

A legal monopoly is initially ordered because it is seen as the best option for a government and its citizens. In the United States, for example, AT&T operated as a legal monopoly until 1982, since it was considered essential to have a cheap and reliable service accessible to all. Railways and airlines have also been operated as legal monopolies, at different times in history.

A legal monopoly differs significantly from a “de facto” monopoly, which refers to a monopoly that is not created by a government entity.

The dominant idea behind the establishment of legal monopolies is that if too many competitors invest in their own delivery infrastructure, prices at all levels in a given industry would rise to unreasonably high levels. Although this idea has merit, it does not continue indefinitely, because in most cases capitalism ends up prevailing over legal monopolies. As technology advances and economies evolve, the rules of the game generally stabilize on their own. As a result, costs go down and barriers to entry go down. In other words: competition ultimately benefits consumers more than legal monopolies.

Examples of legal monopolies

Throughout history, various governments have imposed legal monopolies on a variety of products, including salt, iron and tobacco. The very first iteration of a legal monopoly is the Statute of Monopolies of 1623, an act of the English Parliament. Under this law, patents are derived from letters patent, which are written orders issued by a monarch, granting title to an individual or a company.

The Dutch East India Company, the British East India Company and similar national trading companies have obtained exclusive trading rights from their respective national governments. Independent traders working outside the scope of these two companies were liable to criminal sanctions. Consequently, these companies fought wars in the 17th century, with the aim of defining and defending their monopoly territories.

Legal alcohol monopolies remain fairly common, both as a source of public revenue and as a means of control. Meanwhile, the opium and cocaine monopolies – once important sources of income – were converted or re-established during the 20th century, to limit the abuse of controlled substances. For example, Mallinckrodt Incorporated is the only legal supplier of cocaine in the United States.

Gaming regulations in many places include a statutory monopoly, as far as national or state lotteries are concerned. When private operations are authorized with companies such as horse racing tracks, off-piste betting sites and casinos, the authorities can authorize only one operator.

Key points to remember

  • Legal monopolies are companies that operate as a monopoly under government mandate.
  • Legal monopolies are created with the aim of offering a specific product or service to consumers, at a regulated price.
  • Various governments have imposed legal monopolies on a variety of products, including tobacco, salt and iron.

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