Monopoly: When Economics is all fun and games

When Elizabeth Magie invented Monopoly in 1902, it was a scathing review of capitalism and not made to be fun. Now, it is a household board game if you have 35 hours to kill. There are 2498 different versions of monopoly from Aberdeen Monopoly to Edna Krabopoly.

Definition of Monopoly

  1. the exclusive possession or control of the supply of or trade in a commodity or service.
    “the state’s monopoly of radio and television broadcasting”
    • a company or group having exclusive control over a commodity or service.
      “passenger services were largely in the hands of state-owned monopolies”
    • a commodity or service in the exclusive control of a company or group.
      “electricity, gas, and water were considered to be natural monopolies”
    • the exclusive possession, control, or exercise of something.
      “men don’t have a monopoly on unrequited love”
  2. trademark
    a board game in which players engage in simulated property and financial dealings using imitation money. It was invented in the US and the name was coined by Charles Darrow c. 1935

The game is literally about buying and selling and making money. Therefore there is plenty of economic analysis to consider.

Rules

Firstly, before I start I need to tell you an honest truth. You’re playing Monopoly wrong. I know everyone varies it up, but they do it wrongly. The official rules require the following:

  • Free Parking: Don’t put tax under free parking. It is against the rules. Give it to the bank.
  • Auctions: If a person doesn’t buy a property, then it is up for auction for everyone else in the game and the money goes to the bank.

free-parking

I will be using these rules in this analysis.

Scarcity

When I started studying economics three years ago, my teacher said that economics was the study of scarcity. How we use our scarce resources. When played right, monopoly does include scarcity. As the game goes on and you are taxed more and you lose more money in auctions, there is less money in the game (Which actually speeds up the game). There are also only a finite amount of houses in the game as well, therefore, not everyone can build their houses as they wish. Monopoly is basically about accumulating land and scarce resources, just as capitalism is about accumulating capital

houses

Rent

This game was made by Magie to demonstrate the effects of David Riccardo’s  theory of rent. The basics behind this theory is that as our population increases, those with more land (or landlords) will gain a higher share of income. Therefore as property landlords, you will expect to be very rich at the end.

Ricardo.jpg
This is either an image of Magie or Riccardo. I’m not telling you who

Price Doubling

One rule in monopoly that is realistic is that you can double the rent when you have all of the properties in one set. This is the same as in real life because if one company owns a monopoly in an industry they can charge an extortionate amount as there is no rival to them. A common example of a monopoly is National Rail who can charge ridiculous amounts for trains and leave people with no alternative.

 

Cartel

Sometimes, when playing monopoly as a group, people decide to join forces.

“I wont charge you for rent if you don’t charge me for rent”. “I will give you properties cheaply is you give me cheap properties”. “I will build houses for you, then we can get Joe out of the game, because he is so amazing”.

This almost ruins the game as some people have a monopoly. Thus, the point of the game. This also happens in real life. A cartel is when firms collude to keep prices high. These firms come to agreements so that they can all benefit more than if they were competing. This is at the expense of other players. The most common example of a cartel is OPEC, who keep their oil prices artificially high.

monopoly

Shocks

In economics it is incredibly difficult to predict a shock. THey can be positive or negative. Brexit is probably the biggest recent example of a shock as was then financial crisis in 2008. Those who prepare for the shocks survive, those who don’t go bankrupt. This is represented as well by chance and community chest cards.

How high!?!?!monopoly

There is obviously going to be game theory within this game. A common example is the cartel above. You buy Mayfair from someone for £500, they ask you for Bond Street. How much do you mark up. You can either go for £1,000 knowing that they won’t show any mercy in the future and that your cartel will break down or you can accept £400 and know you have an alliance. Firms in cartels are constantly threatened by the idea that one may deviate, leading to short term gains for the traitor, however long term losses for all. They have to consider their discount rate for the future. Basically if the game is ending in 5 minutes, screw over your ally. Otherwise, if you place lots of weight on the future, then keep them close.

 

Property Investment

So how accurate is monopoly in real life? Well this is mayfair and the purple and red buildings have all been bought by foreign companies.

london property

And no, trickle down doesn’t really work.

Also, I am aware that there is going to be a hard brexit, ut I have written about all of that before: The EU & I: After Brexit

-Swift Economist

Links:

  1. List of Monopoly editions: Source 1
  2. World Champion of monopoly: Source 2
  3. Source of Mayfair image: Source 3
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