Coercive monopoly

In economics and business ethics, a coercive monopoly is a firm that is able to raise prices, and make production decisions, without the risk that competition would arise to draw away their customers.[1] A coercive monopoly is not merely a sole supplier of a particular kind of good or service (a monopoly), but it is a monopoly where there is no opportunity to compete with it through means such as price competition, technological or product innovation, or marketing; entry into the field is closed. As a coercive monopoly is securely shielded from the possibility of competition, it is able to make pricing and production decisions with the assurance that no competition will arise. It is a case of a non-contestable market. A coercive monopoly has very few incentives to keep prices low and may deliberately price gouge consumers by curtailing production.[2]

Whether coercive monopolies can arise in free market, or whether they require government intervention to institute them is a point of some disagreement. Advocates of free markets argue that the only feasible way that a business could close entry to a field and therefore be able to raise prices free of competitive forces, i.e. be a coercive monopoly, is with the aid of government in restricting competition. It is argued that without government preventing competition, the firm must keep prices low because if they sustain unreasonably high prices, they will attract others to enter the field to compete. In other words, if the monopoly is not protected from competition by government intervention, it still faces potential competition, so that there is an incentive to keep prices low and a disincentive to price gouge (i.e., competitive pressures still exist in a non-coercive monopoly situation). Others, such as some business ethicists, believe that a free market can produce coercive monopolies.[3]