Case: Raheel & Co. was the only manufacturer of shuttle box for power loom in Pa
ID: 414807 • Letter: C
Question
Case:
Raheel & Co. was the only manufacturer of shuttle box for power loom in Pakistan and has monopoly for the last 60 years. The company was founded in 1958, and established the market of manual loom shuttle boxes. With the passage of time, they started to make electronic and later smart shuttle boxes which were controlled by computer. These shuttle boxes are very complicated their technology is inimitable. Back in 1998, Mr. Raheel Ashraf died with cancer and the company owned by his two sons, Mr. Aqib and Mr. Suhail. Bother brothers had decided to take their legal shares and make two more companies, with their own names. As the business was owned by their family for many years, they had an advantage to have trust in the market and the emerging business of power loom was at the boost at that time. These two factors supported them and they made two manufacturing units; one in Karachi and second in Faisalabad to support the local demand of power loom. By 2013, government had imposed Value addition tax on textile sector and many people suffered. These two brothers, who were actually doing separate business but in different geographical location faced setbacks and reduction in demand. Along with other textile stake holder, they had gone into dialogue with government officials and with the ministry to trade and development Pakistan. Response was not good, they had been threatened by government that if they did not reduce the price, government will subsidized import of shuttle box from China, which resultantly put positive impact on the price of production. But the idea totally malicious and projected bad impact was disastrous. Both brothers took decision to visit China and signed agreement with almost all big suppliers of shuttle box. After that they came back and made a cartel to save their businesses. They had continued their “soft” monopoly in the market as import from European countries was far much expensive for the owners of power loom factories. Government tried so much to break that cartel, but remain unable to do till now. Ministry had also decreased duties for the import of all parts used in power looms, but it did not put a single dent in the business of two brothers.
Question: In your opinion, is decision taken by brother ethical as they create monopoly against government? Support your choice while giving 2 supportive arguments.
Special Note: You are also required to consider the fact that both are sole supplier of Shuttle box and getting maximum profit over decades.
Note: Keep in consideration the following concepts:
1. Economical models and their implications (Free market, controlled and mix economy)
2. Right of business (Adam Smith)
3. Law of protection of Local Manufacturer
4. Monopoly / Cartelization is ethical or unethical
5. Porter Five force model (by creating barriers for new entrants)
Explanation / Answer
The decision taken by the two brothers is unethical as the monopoly they created against government was a bad monopoly. Monopoly is the control over the market for the supply of product or service. It can be ethical or unethical. Good or ethical monopoly is when a businessman maintains a monopoly in the market by delivering standard products better than others. And bad or unethical monopoly is when they maintain monopoly by stopping the other competitors from entering the market or challenging position of other bodies. Here the case is where the two brothers tried to maintain their monopoly by forcing down the policies of the government which will categorise under unethical way of maintaining monopoly. Also they are practicing ways to restrain new competitors from entering the market. These practices of maintaining monopoly in the market are unethical as they are harming other bodies in some way.
Though if seen the factors like business rights and law of protection of local manufacturers, the two brothers did not act unethically and did what is best for the security and growth of their business. The right of business includes behaviours that will avoid any competition from emerging in the market to safeguard the position of our product in the market. The law of protection of local manufacturer also signifies of letting the local manufacturer of a country or state emerge by refraining the international product to enter the market and compete local manufacturers. Analyzing the case from this prospect can make the practice of the two brothers ethical and right for their business survival.
The practice of the two brothers can also be proved that right if seen from the prospect of Porter's five force model. They have created barriers for the new entrants to create a monopoly for their product in the market. This is a way used by manufacturers to strengthen their position in the market and hence will not be considered unethical.