(In case you were ever wondering, most of my subject material comes from conversations I have either with readers or with my friends or students. In this case, a former student of mine had the following as his Facebook status: “Just got a fortune cookie that said ‘You can’t learn less.’ I should give this to the Dean.” I pointed out that, at the very least, he learned where the mud on major league baseballs came from, since he called me out on my story in the middle of class. For the record, he had a laptop in front of him at the time, so I told him to Google it. He eventually acknowledged that I know my random baseball facts.)
The economics of monopolies is taught as a part of most introductory economics courses (“principles” courses in academic lingo). In introducing such a topic, we generally explain that a monopoly occurs when there is only one seller but many buyers in a market for a product. (Technically in order to truly be a monopoly there has to be a lack of close substitutes for said product. Also, if you are a huge geek like me, you will be entertained to know that a firm in a market with one buyer and many sellers is referred to as a monopsony.) Now, it is helpful to think about why there could be a market with only one seller, and we list off a number of potential reasons:
- One firms owns the key resource necessary to make the product
- The government licenses only one firm to provide a product or service (eg. Amtrak, the US Postal Service, sort of)
- Economies of scale make one large producer more efficient than a number of small producers (This is called a natural monopoly, and you can think of a cable or land line provider as an example.)
To begin an example of the “key resource” case, I ask if anyone has ever caught a ball (foul, home run, or chucked into the stands by the ball boy) at a major league baseball game. Luckily, I usually get at least one positive response, since otherwise the storytelling gets awkward. I then ask the respondent what is on the ball when he or she catches it. This is apparently a confusing question, and I usually get a blank stare in response. I prod with “It’s all dirty, right?” and typically am rewarded with a timid nod. But how can this be? If you pay close attention, you will notice that a ball is usually discarded when it hits the dirt. (Balls are replaced after 6-8 pitches in general.) So how would that ball be as dirty as it is when it gets to the fan?
The balls are dirty because the umpires (I am told it is the umpires, but I imagine that this isn’t necessarily literally the case) rub mud on some 70 or so balls before each game. This is done simply to make the balls less slippery and shiny and thus easier to handle.
At this point, you are probably wondering where on earth I am going with this in regards to monopolies…you see, the only mud that has been deemed acceptable for such purposes comes from a certain spot in the Delaware River somewhere in New Jersey. Furthermore, only one organization knows where this spot is, so this organization has a monopoly in the market for baseball rubbing mud. Boom. It is interesting (at least to me) to note in this case that the key resource owned is not the land that the mud comes from, but rather the knowledge of where said land is.