Non-government monopolies-- is government regulation needed?

[henher3]

I have heard the argument that there has never been a real monopoly without government involvement. However my friends have told me otherwise (although I cannot remember their exact examples), and a good friend of mine put forward the case why we need government regulation of business in order to avoid monopolies. I was wondering if you could help me evaluate his reasoning, so here goes.

 

My friend used the example of an airline company in Norway-- which is a small country where you can fly most places within an hour on domestic flights-- in order to explain why regulation is needed. Let us say that airline company "X" does really well and becomes a really big company, and virtually drives out all competition on domestic flights. Then, my friend says, this company can charge high prices for a flight that used to be cheap.

 

"Nonsense", I say, "then competitors will rush to the field and offer flights that are cheaper, which will attract consumers". Then my friend says that all this big powerful company has to do is to dump the prices until they drive their competitors out of business. They will be able to do this because of the surplus they have from being successful for some time. This way they can become monopolists by dumping the prices to such a low level that nobody can compete with them, whenever competition arises. When competitors again are out of the way, they can go back to their high prices.

 

Thus, my friend says, we need government to regulate so that no company becomes big enough to do this.

 

Have anyone encountered this "price dumping argument" for government regulation before? Or seen this happen in real life? Any good counter responses to this argument?

[Mike Fleming]

Who is to say the competitors that come into the market won't have a huge amount of investment money behind them?

 

I remember the early days of the cable TV companies in Australia where they were just burning millions of dollars of cash just to stay in the market.  They'd never made any profits, it was just massive losses year after year.  

 

If the monopoly is serving the customers and no-one feels like they can compete because they give the customers what they want it will become a natural monopoly.  But as soon as it starts to abuse it's relationship with it's customers it creates an opening in the market.  Reputation is everything.  Once lost, they'll never get it back so abusing your customers just because you can, in a free market, will get you short-term gains at the expense of long-term gains.

[Dux Galt]

Hello, 

 

This is just my thoughts on it. But his reasoning is if there is competitors they will dump the price, that is a good thing we want cheap airfare. Why it is government that is responsible for there being no competitors is that I'm pretty sure they do not own the airport, nor could competitors just build one, as well there are tons of government regulations that control the barrier to entry like plane safety stuff an security.

 

Also if your friend does not like monopoly why does he want to give the government one? The government is in complete control over many important things. It also has the power to control business and is in most cases paid off by big monopolistic company to keep them. 

 

Hope that helps.

[PatrickC]

Then my friend says that all this big powerful company has to do is to dump the prices until they drive their competitors out of business. They will be able to do this because of the surplus they have from being successful for some time. This way they can become monopolists by dumping the prices to such a low level that nobody can compete with them, whenever competition arises. When competitors again are out of the way, they can go back to their high prices.

 

Yes. I've heard this argument before. I recall Thatcher deregulating the bus service and within a day you had almost 10 different companies providing similar services in my local area. One bigger corporate company did some crazy price cutting over the months and years that proceeded this deregulation. All this whilst they lobbied govt for re-regulation, which they finally got some several years later.

 

The thing is a company with corporate or PLC status has so many advantages over a smaller medium sized company. They have more access to loans and liquidity, as banks look on these companies more favorably. As you know banking and statism go hand in hand these days. So this is an important state privilege handed out to corporations.

 

Without these privileges they would only last so long price cutting so exuberantly. They can defer profits with clever (legal) accounting and future promises to share holders as they then embark on getting the industry re-regulated.It's not the easiest explanation to give your friends, but it is the most pertinent one.

[_LiveFree_]

An airline company doesn't just compete with other airlines. The purpose of airlines is to facilitate the demand for travel. There are other ways to travel such as by car, bus, train, boat, feet, caravan, horse, or wakeboard. 

 

There are a few fallacies all tied up in your friend's response. 

 

1. There is no such thing as the naturally occurring monopoly. (your friend's argument hinges on this one mistake)

   - If one company goes around buying up all other companies, each company they buy will be more expensive until the final remaining company is just way too expensive to purchase (even for a massive company). Why? Because the competitors will realize what the larger company is doing and, therefore, will price their company higher and higher in a buy out. The only way for a very large company to undercut other very large companies (which will also be buying up small companies) is to use government subsidies. This is why companies are always lobbying Congress; they want laws that will pay part of the cost of producing their goods so that they can sell them cheaper than their competitors. In a stateless society, this would be impossible. Therefore, naturally occurring monopolies are a myth. (a myth created by government to justify more government. But if the government is being lobbied by companies to write law to outlaw monopolies...???) You see? Large companies want to undercut their competitors. They need government law to subsidize the production of their products. Governments can't pass a law without the "support" of the people. Support comes in the form of people being afraid of some threat. The threat presented is large companies becoming monopolies. 100% Twisted!

 

2.  A large company "dumps their prices". 

   - We've already established that a large company can't just go buy everybody out, so this step has no basis in logic or reality. If a large company tries the "dump prices" thing when it has competitors, it will get hammered big time. Most people think that large companies get that way because they make a huge profit on each individual transaction. This is false. A large company is based on millions of tiny transactions where the profit margin is below 4%. If a company saves up enough money in order to maintain a deficit, that means they weren't spending that money on ads, research and development, expansion, bonuses to it's hard working employees, and other things that are necessary to maintain a healthy company. Large companies don't get large by saving most of their profits. If a company is saving when they should be expanding, then they are not keeping up with their competitors and will not be in a position to offer lower prices in the future. They are setting themselves up to be undercut by their competing large company who will be able to offer lower prices without taking a loss. Profits are not made because you can charge a high price, they are made because you can make a product cheaper than the other guy (or you're the only one offering a particular product, i.e. scarcity). This is another reason why monopolies simply do not occur in nature; in the words of Stefan Molyneux, just when you think you've got something special, there's always some asshole out there who can do it better than you. (I'm paraphrasing.) 

 

3. "Walmart is huge and that's why it has lower prices, which drive out small business - and this is because of the free market" fallacy. 

   - Walmart can charge lower prices because it has outsourced manufacturing to China where labor is much cheaper. Why is labor cheaper in China? Wrong question. Why is labor so expensive in the U.S.? Because laws have been passed that require an employer to WAY OVERPAY their employees. Who benefits? Not the employee. He has to turn around and pay higher taxes. The only beneficiary is the government. After all the laws passed to raise wages, the worker is actually making LESS than he used to. (so he should be thanking Walmart for providing goods he can still afford!). In a stateless society, Walmart would be on equal footing with every other business. Small businesses that can't afford to pay high wages (think health care, workers comp, safety codes, taxes) would be able to compete with larger companies much more easily. 

 

Your friend is thinking of monopolies occurring in the current political environment. Tell him/her that they do!! The biggest monopoly is the government! Get rid of the big bad and they all fall down!

 

 

Anyway, a really short reply would be that private individuals would start offering their planes as rides like taxis. This would explode if a large company jacked up the prices. Hell, I'd move to Norway, learn to fly, buy a plane and make epic coin. 

 

 

also,...

http://www.youtube.com/watch?v=-q1fSNzYNhg