Economics‎ > ‎Markets‎ > ‎Competition‎ > ‎


Quote 1012

Unlike commercial enterprises, which survive only if they continue to serve their consumers, governments can simply vote themselves monopolies – as they have done in the past for salt, telephones, broadcasting and much else. 

   --  Dr Eamonn Butler

Monopoly types

 Public sector quasi-monopolies
 An exclusive licence.
 Reduced competition by-product from the government giving advantages to already existing firms. 
Subsidies, bailouts, strict regulations - help incumbents squeeze out outsiders

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.

 Decisions can become politicised by the government of the day.

Monopolies quite often are upsurped by technology and changing market conditions.

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. Usually the defending firm is aggressively 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

Government Monopoly

“Power tends to corrupt and absolute power corrupts absolutely.” -- Lord Acton

The Single Power Principle:
Somewhere in society should exist:
  • A single institution per unit of geography (a “monopoly”)
  • That is charged with authorizing the use of force (“power”)
  • The monopoly itself must be preserved by force (“coercively”). 
The Single Power Principle involves a belief in the need for a coercive monopoly of power. Unlike Left and Right, however, classical liberals have been more realistic in readily acknowledging that the coercive monopoly of power is itself the source of danger, even tyranny. The Single Power Principle serves as a throwback to the security of childhood where father and mother provided an assurance that all would be taken care of. For these persons institutions of power perform a paternalistic role.
Whatever the functions it is believed necessary to perform, the Single Power Principle leads to a serious problem of enforcement abuse that, while not unknown, is normally ignored. Perhaps these problems are almost never discussed because a coercive monopoly of power is so widely thought to be necessary that any difficulties it creates—even those of the most fundamental and serious nature—must simply be accepted as inevitable problems of social life, like “death and taxes” as the saying goes.
Given their capacity for corruption and advantage-taking, bad human beings are more dangerous with power than without it. The Single Power Principle, then, appears to aggravate the very problem it was devised to solve.  
The rule of law stipulates that precepts specifying the requirements of justice should be of general application and should apply equally to the persons who make and enforce the law. Yet by virtue of their monopoly status, at the very least those who are given a monopoly of power have the power to put competitors out of business, a power that would be a wrongful violation of rights if exercised by so-called “private” citizens.
Most schemes accord those who hold the coercive monopoly of power the further power to collect taxes to fund their activity—that is, to seize the property of others by force without the prior consent or wrongdoing of the property owner—another violation of rights if exercised by anyone else.
A formal separation of powers is unquestionably an improvement over other versions of the Single Power Principle—witness the experience of the United States—but eventually similar results are reached
-- Randy Barnett.