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)

Answer 1

A power loom is a mechanized loom powered by a line shaft, and was one of the key developments in the industrialization of weaving during the early Industrial Revolution. The first power loom was designed in 1784 by Edmund Cartwright and first built in 1785. It was refined over the next 47 years until a design by Kenworthy and Bullough made the operation completely automatic.

By 1850 there was 260,000 power looms in operation in England. Fifty years later came the Northrop loom which replenished the shuttle when it was empty. This replaced th