Economics‎ > ‎Competition‎ > ‎


Do monopolies exist?

True monopolies are very very rare.
A monopoly such as a aluminium maker, might have the full market to themselves, but is restrained in prices by the substitutes.

Are monopolies a problem?

If you are getting big, usually it is because you are doing something right.

Sometimes monopolies are a problem, but sometimes they are not. Some industries do not act well when there are multiple players. The cost of having competition in those industries are more expensive than the higher profit a monopoly will take. Think of the example of having 2 separate water companies supplying your home.

Image is a problem, if prices are too high, companies are seen as gouging the public, the prices are similar, then there is collusion, if prices are too low they are trying to kill the competitors. It is very hard for a company to do right.

State monopolies are almost always always worse than private monopolies.

Where do monopolies come from?

Monopoly is a problem, but we don't need the anti monopoly laws
The source of monopoly is governmental power. If we are against monopoly we should be making sure government doesn't protect them.
In the US 95% of all antitrust cases are not brought forward by government. Ususally the defending firm is agressively competitive.

Antitrust laws can be used in a perverse way

  • It is very hard to draw up a contract today without government interfering
  • The laws are arbitrary and unjust
  • Some laws are difficult to enforce or cause as much problems as they solve
  • Unfortunately when a law is bad people call for reform of the law instead of repeal
  • Regulation can hurt competition
  • Government regulation is like domino's, because one act is passed another must be passed to clean up the holes the first creates.
  • It is not always consumers who demand regulation, sometimes its businesses (such as price fixing)
  • In a competitive economy the consumer is king, where the Government makes monopolies, Government is king

Negative aspects 

It is often argued that monopolies tend to become less efficient and innovative over time, becoming "complacent giants", because they do not have to be efficient or innovative to compete in the marketplace. Sometimes this very loss of psychology efficiency can raise a potential competitor's value enough to overcome market entry barriers, or provide incentive for research and investment into new alternatives. The theory of contestable markets argues that in some circumstances (private) monopolies are forced to behave as if there were competition because of the risk of losing their monopoly to new entrants. This is likely to happen where a market's barriers to entry are low virtual. It might also be because of the availability in the longer term of substitutes in other markets. For example, a canal monopoly, while worth a great deal in the late eighteenth century United Kingdom,was worth much less in the late nineteenth century because of the introduction of railways as a substitute.

Good but old video where Ron Paul talks about monopolies

Ron Paul on Monopolies