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Monopolistic control over a market by virtue of location. The usual meaning of monopoly is that one firm or individual sells the entire output of some commodity or service. This is normally the final outcome of a competitive process taking place under capitalist market conditions, in which one supplier is able to produce and sell the commodity at a price favourable enough to consumers to force other suppliers out of business. Spatial monopoly is a special case, in which distance from competitors or ways of bounding space give a producer monopolistic control over a section of the market.
Spatial monopoly can arise when a producer is distributing a commodity from its point of origin, and also when consumers travel to the point of origin. In the first case, the operation of an f.o.b. pricing policy, whereby the cost of transportation is passed on to the consumer (see pricing policies), will increase delivered price with distance from the production point, so that consumers close to the production point can purchase the commodity relatively cheaply, i.e. more cheaply than from alternative suppliers. The greater the elasticity of demand, or the sensitivity of the consumer to price, the greater the likelihood of local monopoly. The area within which monopoly control exists (assuming that consumers buy from the cheapest source) is bounded by a locus of points where delivered price from the supplier in question is equal to the price charged by a competitor (see market-area analysis). In the second case, consumers will tend to travel to the production point which is closest in time, effort or cost. In this case, too, the area of monopoly control will be bounded by a locus of points of consumer indifference as to whether to purchase from one point or another.
Spatial monopoly can also arise from collusion between otherwise competing firms, who may agree to a \'carve-up\' of the market among themselves. As in other situations of spatial monopoly, this will enable suppliers to raise prices and exact above-normal profits in the area over which they exert exclusive control. Distance provides no absolute protection of a market, however, for some consumers may choose to purchase from high-cost sources or to travel to more distant outlets, out of preference, ignorance or other behavioural considerations.
There may be other strategies for protecting space over which monopoly control is exerted. These include the imposition of tariffs, and restriction on the use of means of transportation: suppliers may use coercion to prevent competitors from entering a particular city to sell their goods, for example, as has happened in the former Soviet Union since the collapse of socialism.
In some instances, spatial monopoly may be a case of so-called natural monopoly, where the market in question is best served by a single firm because of the nature of the production process. Some public utilities are of this kind: for example, local water supply. Such public spatial monopoly may be turned into private monopoly by privatization. (DMS)
Suggested Reading Smith, D.M. 1981: Industrial location: an economic geographical analysis, 2nd edition. New York: John Wiley. |
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