Industrial Economics: Monopoly in Islamic Perspective
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Prof. Dr. Wan Sulaiman Bin Wan Yusoff
Prof. Dr. Wan Sulaiman Bin Wan Yusoff Deputy Rector of Student Affair, Internationalization and Alumni INSANIAH UNIVERSITY COLLEGE ALOR STAR KEDAH, MALAYSIA.
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Industrial Economics - Prof. Dr. Wan Sulaiman Bin Wan Yusoff
CONTENTS
Foreword
Preface
Acknowledgements
Chapter One
Monopoly In Islamic Perspective
1.1 Economists’ And Jurists’ Concepts
1.2 Monopoly With Islamic Values
1.3 Pricing Principle Consistent With Islamic Values
1.4 Positive Roles And Sincere Devotion To Islamic Spirit
Chapter Two
Islamic Viewpoints On Market Concentration
2.1 Concentration Of Wealth And Economic Growth
2.2 Reducing Concentration Of Wealth
2.3 Concentration And Profitability
2.4 Shariah Deals With Market Price And Concentration
2.5 Concentration And Market Failures (Negative Internalities And Externalities)
Chapter Three
Merger, Barrier To Entry And Exit In Islamic Perspectives
3.1 Merger Form Of Established Monopoly
3.2 Practical Applications Of Mergers
3.3 Entry And Exit In Islamic Framework
Chapter Four
Ethical Principles And Islamic Perspective In Advertising
4.1 Ethics In Advertising
4.2 Some Ethical And Moral Principles Of Advertising
4.3 Ethical Suggestions For Advertising
4.4 Advertising In Islamic Perspective
Chapter Five
5.1 Some Ethical Views On Price Discrimination
5.2 Price Discrimination In Islamic Framework
5.3 Positive Roles And Sincere Devotion To Islamic Spirit
Chapter Six
The Role Of Ethics, Maqasid Al-Shariah, Morality, And Altruism In Economic Life
6.1 Introduction
6.2 Ethics And Islamic Economics
6.3 Conventional And Ethical Dimensions
6.4 Maqasid Al-Shariah And Islamic Economics
6.5 Morality And Islamic Economics
6.6 Altruism And Islamic Economics
6.7 Conclusion
References
About The Author (WS)
FOREWORD
It is indeed a pleasure for me to write a foreword for this book. This is one of the pioneer books of this nature published during the time the author was in Insaniah University College (KUIN). This work has been completed in the way of books of reading by the others.
In the case of this book, Industrial Economics: Monopoly in Islamic Perspective, it is one step forward in implementing the teaching philosophy of Insaniah University College (KUIN), Alor Setar, Kedah, whereby Islamic perspectives are seriously given a first look in the market structure of industrial economics and organization in order to develop a comprehensive paradigm of Islamic economics, banking, and finance. It is hoped that there will be further progress in the form of materials and textbook to complement this book in the teaching of Islamic economics, banking, and finance in KUIN, as well as in other universities in the country and the academic world at large. It is therefore not expected that this book is one for all solutions to the reading materials and references. Further workshops, seminars, researches, and conferences for the teaching on Islamic economics, banking, and finance need to be held to provide additional informative and educative knowledge. The constructive criticism of the existing materials is also needed to carry on a collective effort towards the development of Islamic economics, banking, and finance as a discipline. In addition, greater efforts in research and empirical exercise will be needed to develop facts of theoretical analyses and practical applications of principles in order to introduce the subject matter cogently.
By starting with this book, it is hoped that this will spark greater attention and interest in scholarly work highly sought after in this university particularly and in the Muslim world in general. Moreover, it is highly expected that Islamic-based institutions will come out with proper funding systems to provide financial and logistical support towards the preparation of this type of materials for teaching and research on Islamic economics, banking, and finance so that further efforts can be undertaken to expedite the production of this kind of material at all levels of education in the Muslim world.
Finally, it is also hoped that the discipline of Islamic economics, banking, and finance would rapidly grow in this university and attain the level of maturity and development sufficient for it to be seriously studied and appreciated, not only in the Muslim world, but also by scholars worldwide, who may find the alternative that it presents to be more pragmatic, viable, and fulfilling to human nature as a servant of Allah Almighty.
Professor Dato’ Wira Dr Hj. Jamil Bin Hj. Osman, DPMK, DIMP
Rector, Insaniah University College (KUIN)
Lebuhraya Sultanah Bahiyah
05350, Alor Setar, Kedah Darul Aman
Malaysia
PREFACE
According to Marshall Hodgson (1977: vol. 3, 441), if Islam can be shown to be capable of providing fruitful vision to illuminate the modern conscience, then all mankind, and not only Muslims, have a stake in the outcome.
In our pursuit of collective struggles in political, social, and economic arenas, we may sometimes ignore our primary religious responsibilities in favour of the ‘higher’ struggle. This statement may help us set our priorities right: the economic endeavour is a duty after the primary duties. And let us remember that in economics, as well as in religion, getting the priorities right is part of being right.
Industrial Economics: Monopoly in Islamic Perspective presents the essentials of both modern and conventional industrial economics with an Islamic approach. My principal goal is to educate students about the conventional and Islamic economist’s way of thinking about the market structures and public policy issues in monopoly market in industrial economics and organization. The heart of this process involves the practice of model building, which includes Islamic values and which is a way of contracting rational arguments whose applications are, in principle, empirically verifiable. The text consistently reflects my main belief that both model building and model testing, as well as Islamic injunctions related to economics, are significant. The setting of my analysis is in the field of industrial economics (monopoly in Islamic perspectives). Consequently, I place considerable emphasis on understanding the relationship among firms in an industry or across industries and on the nature of strategic interaction among firms and industries which are governed by shariah principles.
For a variety of reasons, in most conventional textbooks, the modelling of strategic interaction makes only a cameo appearance, and all the modelling details are often relegated to an appendix. Moreover, it is very rare to find moral, ethic, and religious principles discussed in the same model. This is, in our view, a great loss and an inconsistency because a major contribution that economics can make to undergraduate education is instruction in the ability to understand the models and principles and, even more important, to develop an analytical argument. Thus, I have tried to fashion a text that makes transparent the critical role of modelling and the clear picture of moral, ethic, and religious principles in the creation of a coherent economic argument’s confirmation or rejection. That is typically meant when people talk about ‘thinking like an Islamic economist.’
Industrial economics and organization, whether conventional or with Islamic frameworks, is a particularly appropriate area in which to convey the economist’s perspective because examples of the tactical considerations and public policy issues that such a course must, by definition, address can be found every day in the business press. Monopoly power; market concentration; product differentiation; discriminatory pricing; mergers; advertising; economic regulation; moral, ethic, and religious issues; and allegations of predation and/or patent infringement are constantly observed on the corporate battlefield. People in the streets and students in the classrooms form opinions about these events as well as whether any public policy response is appropriate. However, I have kept the conventional models quite simple, working almost exclusively with the Cournot-Nash equilibrium model and Bertrand-Nash model (in my first book) and analysis with relevant Islamic economic principles. In some chapters, I have provided simple numerical illustrations of the model at hand and have consistently related the model to real-world activities. I hope that industrial economics students are able to react favourably to this approach. It will enable them to think and understand both conventional and Islamic economic theories and issues and even relate to the practical reality of the real-life job markets in a new and more meaningful manner.
Goal and Intended Audience
I wish to emphasize that my book is about industrial economics and organization from both the conventional and Islamic perspectives. I have discussed the details of conventional approaches, and at the end of each chapter, I have highlighted the Islamic principles and have given some intuitive comments on the same issues. Wherever possible, I have also attempted to introduce any consensus between conventional and Islamic approaches based on Islamization of knowledge. One of the disappointments with the ‘new IO’ is the lack of empirical examples in these analytical frameworks. Yet I believe that there are enough numerical tables and figures in the text to convince readers that the analysis is far from mere ivory-tower speculation. Indeed, I think that my presentation is a unique approach of Islamic input in this particular discipline and makes clear that those corporations, students, lecturers, judges, and antitrust officials, among others, have ample opportunity to put the insights of contemporary industrial economics into practice.
The book is primarily intended for undergraduate and postgraduate students who have completed intermediate microeconomics and foundation of Islamic economics courses who have a solid ground in the basic models of competition and monopoly. For the most part, I do not assume familiarity with calculus. But I do rely heavily on an ability to work through algebraic equations. The text could also be used in a managerial economics and applied economics class in a graduate business study program. In addition, it might serve as a foundation text for those who are taking a first graduate course in industrial economics and foundation of Islamic economics with the Islamic parts of each chapter. This book may be described as a more accessible version of advanced text in industrial economics and organization along with moral, ethic, altruism, and religious principles.
Organization of the Book
A particular strength of the text is that each chapter attempts to build on the ones that precede it. Thus, chapter 1 begins with monopoly in Islamic perspective. Along the way, I have presented the Islamic viewpoints on market concentration related to wealth, economic growth, and profitability, as well as shariah deals with market concentration, market price, and market failure in chapter 2. Chapter 3 introduces students or readers to the basic understanding of mergers and barriers to entry and exit in Islamic perspective; it relates with merger forms of established monopoly power and monopoly distortions. Practical application is also discussed in this chapter, which involves value-destroying and value-enhancing actions, defensive strategy, and counter-attack strategy and frameworks for ethical analysis of mergers. Entry and exit in Islamic framework is highlighted in the chapter.
Chapter 4 and chapter 5 discuss the theoretical aspects of monopoly power in the economy and how monopolists can create their power through advertising, price discrimination, however, that power limited by ethical principles and Islamic injunction in advertising, whether advertising is permissible or not permissible. Advertising and price discrimination in