Ever wanted to work for a waste disposal company? I sure guess not! It may seem boring to invest your money into trash, but it can actually be profitable. The waste disposal market has transformed trash to treasure.
Our nation’s waste disposal is a monopoly controlled by Waste Management. More specifically, Waste Management is a natural monopoly, or a monopoly that exists due to high starting fixed costs of conducting the industry. It fits the qualifications of a monopoly : it owns its resources, has strong customer base, and no competition.
Waste Management has hundreds of landfills, transfer centers, recycling centers and collection routes all across the country. They also have many customers: 21 million in US and Canada. Because the US is known to waste a lot of materials, Waste Management is able make profits off of tipping fees from waste. Furthermore, Waste Management lacks competition in the market because it is very difficult for others to get a properly regulated landfill and keep up the customer base. In 2011, Waste Management claimed to be able to convert 100% of their waste into energy, which excited a lot of investors and boosted their revenue from a previous $12.3 billion to $40 billion. They are able to differentiate themselves and hence crush any possible competition.
Waste Management is extremely successful at a mundane operation such as collecting trash because they have the resources (land), they have the customer base (revenue), and they practically have no competition due to the high entry barriers. And this isn’t for no reason either; Waste Management is a legal monopoly. A legal monopoly offers a specific product at a regulated price and can be either independently run and government regulated or government run and regulated. By being a legal monopoly, there are laws set in place to prohibit or severely limit competition.
So, think twice next time before saying no to investing in waste management.
Waste management isn't cheap either: in Santa Clara, one garbage bin collection per week can cost up to $30/month. But the waste management monopoly can charge such high prices because demand is inelastic. People generate waste and they have to get rid of it by paying waste management.
ReplyDeleteBut waste management is also a price-discriminating monopoly. Different households/businesses generate different amounts of waste, and because waste management is generating enough profit, it can charge people different rates for different amounts of waste removal. For example, people with little waste can have a small bin that costs $21.76. They could also have a larger bin that costs $27.77, or they could have multiple bins: two large bins for $41.48, three for $55.19.
source: http://santaclaraca.gov/home/showdocument?id=58334
Such an interesting post Sarah, who knew that even trash is profitable and can become a monopoly?! The part you wrote about how Waste Management is “convert[ing] 100% of their waste into energy [has] excited a lot of investors and boosted their revenue from a previous $12.3 billion to $40 billion” made me not only think about other natural monopolies, but also the environmentally friendly industry as a whole. Particularly, goods like cars. Elon Musk of Tesla for example has invested and expanded a lot from electric vehicles to solar paneled roof tiles that power homes to teaming up with SpaceX to colonize mars. Now that I think about it however, Tesla could also be an example of monopolistic competition because of their high budget for advertising in order to differentiate their product, being a price maker, and the low barriers for entry and exit…
ReplyDeletehttps://www.businessinsider.com/tesla-stock-price-berenberg-note-2017-6