t was dissolved in the 1980s, AT&T was treated largely as a utility delivering a basic need, telephone service, to consumers.
Adam Smith had three primary criticisms of monopolies, the first was that monopolies result in higher prices that reduced the overall welfare of consumers. Smith believed that competition would cause suppliers to sell their goods cheaper; if one continued to maintain higher prices, consumers would purchase from those who offered lower prices. So long as additional customers could be gained from lowering prices slightly, competition would result in driving the price toward an equilibrium level (Smith, 1937, p. 342).
Smith also argued against monopolies on the grounds that they result in inefficient management. Again, this was a result of the lack of competition that characterize monopolies. Lacking the incentive of competition, monopolies evolve into slothful organizations that do not need strong management because they are protected from having to actively compete (Smith, 1937, p. 147).
Smith objected to monopolies on a third principle: that monopolies resulted in the arbitrary increase in the inequality of incomes for individuals. According to Smith, monopolies could exist not only in the commercial goods sector, but also with regard to labor. The labor system of the time, which required that apprentices serve long periods before being licensed, effectively limited the number of individuals who could participate in a trade. Effectively limiting entrance to the labor market, guilds created a monopoly in their trade resulting in a shortage of some skilled workers, enabling them to charge more for their services than if entry were freely permitted (Smith, 1937, p. 119).
In a perfect monopoly, the competitor does not concern himself with the reaction of other competitors to pricing strategy because, by definition, there are no other competitors. Because of this, a monopolist's pricing strategy c...