Are monopolies actually a good thing?

[ianlippert]

I've been reading a lot of the pro capatilist posts in this forum lately and have really become interested in the workings of free markets. Coming from a more Canadian socialist point of view, I've really started to question many of the assumptions I've held about capitalism. On a recommendation from another thread, I bought and read How Capitalism Saved America and have really just started my inquiry into free market capitalism.

The end of this book really deals with monopolies, and makes a strong case for the legitamacy of monopolies. The standard arguement against monopolies is that, although they may lower prices in the short term, once they have market control they will jack up the prices again. The arguement the book makes is that monopolies are anti-competitive because no one can compete with them. If a corporation were to actually succeed in gaining market dominance through lowering prices and then proceed to gouge consumers, the former companies that were sent out of business would just spring back up with lower prices.

This leads me to accept the idea that unchecked capitalism always leads to a monopoly. If capitalism is the most effecient system for distributing wealth, then an existing monopoly must be the most effecient producer in the market that it produces for.

Does this make sense? Anyone know of any cases where monopolies were good/bad?

[nietzreznor]

[ QUOTE ]
The end of this book really deals with monopolies, and makes a strong case for the legitamacy of monopolies. The standard arguement against monopolies is that, although they may lower prices in the short term, once they have market control they will jack up the prices again. The arguement the book makes is that monopolies are anti-competitive because no one can compete with them. If a corporation were to actually succeed in gaining market dominance through lowering prices and then proceed to gouge consumers, the former companies that were sent out of business would just spring back up with lower prices.

[/ QUOTE ]

Some of this depends on what you mean by 'monopoly.' I haven't read this particular book, but knowing who the author is, I would imagine that his definition of monopoly is similar to my own, ie a monopoly being when other competitors are forcibly restricted from entering a given market. Under this definition, monopolies are always bad, since competitors cannot 'spring up' when the monopolistic company jacks up prices, since the other competitors aren't allowed to compete.

However, if monopoly is meant as "only one company", then this could be good or bad, depending on circumstances. However, it is certainly true that this tyoe of monopoly does not have the luxury of jacking up prices, since there is nothing stopping competitors from stepping in and undercutting the monopoly.

[theweatherman]

[ QUOTE ]
here is nothing stopping competitors from stepping in and undercutting the monopoly.

[/ QUOTE ]

This may be fine if you are running an ice cream cone stand monopoly. In real life there are many things which prevent competitors from entering the market.

If the monopoly owns all the infrastructure then it becomes insanely expensive ot open a new firm (as this new firm will have to lay new train tracks, bulid new factories, dig new mines, etc.). This is not a garrenteed barrier to entry, however it does lessen the incentive to open a new firm greatly.

Scarce resources could make a new firm impossible. If I own 100% of all the gold mines in the nation, then it becomes impossible to open a new firm since there is no more gold to mine. (This of course ignores the ideas of international trade blah blah blah.)

[Borodog]

[ QUOTE ]
[ QUOTE ]
here is nothing stopping competitors from stepping in and undercutting the monopoly.

[/ QUOTE ]

This may be fine if you are running an ice cream cone stand monopoly. In real life there are many things which prevent competitors from entering the market.

If the monopoly owns all the infrastructure then it becomes insanely expensive ot open a new firm (as this new firm will have to lay new train tracks, bulid new factories, dig new mines, etc.). This is not a garrenteed barrier to entry, however it does lessen the incentive to open a new firm greatly.

[/ QUOTE ]

I.e., you have to make a huge capital investment . . . in order to achieve economies of scale and low enough unit cost to compete. Boo hoo. I could start building cars by hand, but my per unit cost nor my quality will be able to compete with Ford's billions in factories, robots, engineers, etc.

[ QUOTE ]
Scarce resources could make a new firm impossible. If I own 100% of all the gold mines in the nation, then it becomes impossible to open a new firm since there is no more gold to mine. (This of course ignores the ideas of international trade blah blah blah.)

[/ QUOTE ]

Why even bring up pathological hyphetical objections that do not exist in the real world?

[hmkpoker]

[ QUOTE ]
This may be fine if you are running an ice cream cone stand monopoly. In real life there are many things which prevent competitors from entering the market.

If the monopoly owns all the infrastructure then it becomes insanely expensive ot open a new firm (as this new firm will have to lay new train tracks, bulid new factories, dig new mines, etc.). This is not a garrenteed barrier to entry, however it does lessen the incentive to open a new firm greatly.

Scarce resources could make a new firm impossible. If I own 100% of all the gold mines in the nation, then it becomes impossible to open a new firm since there is no more gold to mine. (This of course ignores the ideas of international trade blah blah blah.)

[/ QUOTE ]

As technology improves, monopolies become fewer.

Take, for example, the railroad. The railroad used to be the apex of transportation efficiency; it pwned the hell out of the horse and buggy. People developing the West int he late 19th century needed the railroad and, because it was owned by a single, centralized corporation, had to pay a great amount, and the Supreme Court was brought in to regulate it.

Today, no one really gives two flying [censored] whether the railroad's rates are regulated or not; it has to compete with airlines and tractor-trailers. It is now too hard for a single company to own the entire transportation industry; it is more like running an ice cream cone monopoly.

Cable and telephone providers, made monopolies by the fact that they are utilities, are losing their ability to monopolize thanks to wireless technology. OPEC, feared as having the potential to corner the oil market, is soon going to run into a problem when we, out of the realization that there is a high demand for non-petroleum based fuels, start producing biodiesel and ethanol.

As technology advances, the market will provide more and more checks to would-be monopolists, and the need for the state to intervene will continue to diminish.

[canis582]

"This leads me to accept the idea that unchecked capitalism always leads to a monopoly."

This assumes effiecent markets, which I can tell you they are not.

Also, many monopolies are given to certain companies by the government.

[pvn]

What you're talking about are not monopolies but dominant firms. Monopolies only exist where competitors are *prevented* from entering a market by government regulation (artificial barriers to entry). Low prices are not artificial barriers to entry, since there is no regulatory force preventing anyone from producing at even higher efficiency (and hence, lower prices).

The smart-ass answer: of course monopolies are good, why else would our benevolent governments create them?

[canis582]

Monopolies are great!

Signed,
Calvin Coolidge and your local utilities

[ianlippert]

[ QUOTE ]
What you're talking about are not monopolies but dominant firms. Monopolies only exist where competitors are *prevented* from entering a market by government regulation (artificial barriers to entry).

[/ QUOTE ]

It seems to me that people equate dominant firms with monopoly. I guess the way I described it monopolies are good just by the definition I gave. In his book DiLorenzo gave the example of the railroad 'robber barons', it seems like people just have an aversion to monopolies.

What is so bad about big corporate mergers? Does the fact that oil is controlled by a few large corporations allow them to gouge consumers? What was the deal with the microsoft Anti-trust case?

[Borodog]

[ QUOTE ]
[ QUOTE ]
What you're talking about are not monopolies but dominant firms. Monopolies only exist where competitors are *prevented* from entering a market by government regulation (artificial barriers to entry).

[/ QUOTE ]

It seems to me that people equate dominant firms with monopoly. I guess the way I described it monopolies are good just by the definition I gave. In his book DiLorenzo gave the example of the railroad 'robber barons', it seems like people just have an aversion to monopolies.

What is so bad about big corporate mergers? Does the fact that oil is controlled by a few large corporations allow them to gouge consumers? What was the deal with the microsoft Anti-trust case?

[/ QUOTE ]

Uh, no offense, but did you actually read the book? He goes into great length on specifically the oil and energy industries, as well as the microsoft antitrust case. He also makes clear that the "robber barons" were not capitalists but rather mercantilists, and specifically mentions John Hill, who built his Great Northern transcontinental railroad without a penny of subsidy, paid for every mile of right of way out of his own pocket, including to the native american tribes (where the US government's plan was simply to wipe them out to make way for subsidized railroads), and built a highly profitable transcontinental RR that was the only one to never go bankrupt (where all the subsidized roads did; some as soon as they were built).