Flamingo Vs Usps Monopoly Case Study

A monopoly is a market where the supply of a commodity is controlled by one firm who then becomes the single seller. Monopolies hold power over the market, meaning they can either set a fixed price or determine an output and then sell this output at the highest price the market will bear. The United States Postal Service is a natural monopoly, meaning they have large economies of scale that limit their costs of production and are large enough to efficiently supply the country with mail. Since a monopoly is the only seller of a good in the market, the demand curve is the market demand curve. Therefore a monopoly has a downward sloping demand curve, in contrast to the horizontal sloping demand curve of a firm in a competitive market. (Mankiw, …show more content…
Technological increases in the second half of the 20th century caused competition from the telecommunication industry (Brennan, 2005). Another reason why the USPS continues to hold monopolistic power is that it is not subject to antitrust laws, which are laws that the government puts in place in order to ensure fair competition within the market. In the court case Flamingo v USPS, Flamingo Industries provided USPS with sacks that drivers used for mail, but filed an antitrust law against USPS after the contract was terminated to import cheaper sacks from Mexico, claiming the USPS was colluding with the Mexican sack manufactures to monopolize the sack industry (Brennan, 2005). Flamingo argued that USPS violated antitrust laws, but in 2004 the Supreme Court unanimously sided with USPS (Brennan, 2005). The main takeaway from this court case were since the USPS is regulated and cannot set prices without the approval of the Postal Regulatory Commission, the USPS is not noticeable enough to be subject to antitrust laws (Brennan, 2005). Since the USPS is classified as a government entity (Brennan, 2005) this shows that it is quite unlikely for the government to try and dilute the power of the United States Postal