Monopolies

[LovePrevails]

My leftie friend wants to debate with me on monopolies so I was just going to post some of his positions here to see if I could learn from you wizards.

 

"Well the terminology and the theory aren't arbitrary and the historical evidence can be tapped into at any point, so ... I would suggest examining the new phrase which keeps coming up from the American end of the internet, "government granted monopoly". A lot of people are using this phrase as if only governments grant monopoly, or as if that's all governments do, or indeed, as if that is the only problem with the economy at all. None of this fits with any of the general understanding of what monopolies are or how they interact with the rest of the economy, so I suggest we take that phrase as the theme.

 

What Monopoly Means and How it happens

Acquisition

Horizontal Acquisition - Competitors buy each other up to grab more of the market share.

Vertical Acquisition – A company starts to occupy more of the supply chain, either from the production or the distribution side.

Aggressive Competition – If Coke drive Pepsi out of business, they will monopolise the soda market and can set whatever prices and standards they want. This is effectively the same as Merging, because employees who lost their jobs, patents which just went on the market, factories which just went bust, will all get bought up by Coke if they’re any use.

Expansion – I grab market share by opening new branches or franchising.  The larger my market share, the less customer choice there is.

Price Fixing – Competitors agree to keep sales prices high or their buying prices low.

Tie-Ins – a competitor pays a supplier for exclusive supply of their product or service.

This stuff happens all the time and you see it in the news every week. 

It happens among small, large and global businesses.  You could call it all “government granted”, if by that you mean “It’s legal”. That doesn’t mean ‘Obama waved his scepter and gave away a piece of free-market to his cronies.  Sometimes it’s happening like that, but please observe that all of these moves are textbook busuness strategies.  Apple make Apple Stores instead of selling through mainstream outlets – vertical integration.  Clarks Shoes build a Clarks Shoe soe factory – Vertical Integration.  This is all very normal business strategy. Drug dealers cut out the middle man by buying in Aghanistan?  - Vertical integration. 

Just taking unionization as a ubiquitous example, governments have often fought against unions, even with police brutality and army intervention. They don’t have a remote control over them.  So unionization is only government granted (legal) bcause they often have no choice but to accept them. 

Many of these practices are effectively versions of each other.  Likewise reducing one kind of monopoly automatically results in in another kind of monopoly by their competition. E.g., If you reduce union’s monopoly of the supply of labour, you grant management monopoly of jobs and salaries  - exploitation.  You can have one kind of freedom or the other. If oil companies forestall the production of high efficiency cars, (and they do,) that deprives the customer of that technology. The real issue here is whether the car producers see themselves as part of the car industry or the oil industry.  If the oil industry can fore the government to raise trade tarrifs (and they often can, and they often do,) they can maintain their revenues.

 

What am I saying? 

1)   First of all, there’s nothing ‘left-wing’ about any of this. It’s there in any economic dictionary or introductory textbook. Google it, Wiki it, there it is.

 

2)   It’s only “government granted” in the sense that it’s legal. Now sometimes Bush or Obama do just wave their scepter and grant monopoly to one party or another. But if they allow unions or price fixing between competitors to exist, (even Marx called these a monopoly,) that doesn’t man they want it to exist.  Governments often oppose all f these above listed phenomena. They’re only “government granted because the government has limited powers to prevent them. No way could they shut down unions or stop executives having drinks together and making deals.

 

3)   There’s only so much ‘freedom” to go around between these factions and that limit is defined by what the customers will pay for the product or service. To the extent that you deprive one faction of a monopoly of that market, the remaining factions rush to absorb the rest.  In this sense ‘monopoly’, means ‘market share’, but it also just means ‘money’ or ‘revenue’.

 

4)   In no sense can you reduce monopoly by removing government interference. This kind of Ayn Rand science fiction appeals to a ‘live-free-or-die’ 

 

Some forms of monopoly, yes, are granted, indeed created by government. But likewise, the creation of new markets, as a very, very general point of historical fact, also involves the involvement of government.  Name any market you like – cars, computers, cattle – and you’ll find the government allowing or supporting it, regulating it, funding technology research, choosing to police it or ignore it. We can trace this right from the earliest forms of writing in Sumerian conform, because one if the first uses of writing is accountancy.  There never has been, in any society, at any point in history, a meaningful distinction between government and ‘legitimate competitive business’. Every market, like every monopoly, was created with government assent and support."

 

[Daniel Unplugged]

This is going to be a long post.

I would suggest examining the new phrase which keeps coming up from the American end of the internet, "government granted monopoly". A lot of people are using this phrase as if only governments grant monopoly...

Not true, free market thinkers use this term to differentiate between monopolies that occur in a free market, and those that are enforced by the government.

 

It should be pointed out, that, with the bear minimum of exeptions, free market monopolies do not exist. Try naming one. Cars? No. Houses? No. Hamburgers? No. Cellphones? No. Mechanics? No. Bakeries? No. Coffee? No. Light globes? No. Software? No.

 

The whole notion of corporations monopolising products in a free market doesn't fit with reality, either through observation, or analysising economic theory. As I understand it, there has only been one monopoly of any significance in recent times, The De Beers diamond cartel.

According to economic theory, this is (one of the reasons) why monopolies do not last long in a free market: A monopoly will take advantage of the lack of competition by increasing its prices. The increase in prices encourages new competitors to enter the market to get a cut of the exorborant profits being made in the industry. Whoalla, monopoly gone.

 

I should also point out that 'lefties' do not 'oppose' monopolies or cartels. They might say they do, but they are lying. A 'leftie' will always support labor cartels (unions), and always oppose a business cartel. Given that, it cannot be true that 'lefties' either support or oppose cartels. Their support or opposition of cartels is exposfacto bullshit. They will always take the position that benefits their goals (standard socialist stuff), regardless of its monopolisticness (I so know that's not a real word).

 

Note: As a voluntarist, I have no ethical issues at all with monopolies/cartels, so long as there is no coercion involved.

 

"This stuff happens all the time and you see it in the news every week"

 

Again, can you name a free market monopoly or cartel? Of all the businesses in your area, how much evidence do you have that they are fixing prices, or otherwise behaving monopolistically? FYI I don't consider Starbucks opening a new shop to be anti-competitive or monopolistic.

Note: The definitions of monopoly provided are incorrect. (Without even needing to look it up) the definition of monopoly is:

 

"A good or service for sale that is absent of competition."

 

Be aware that it is a common leftist trick to misdefine things in order to manipulate you. Remember that it was not beyond them to redefine "voluntarily engaging in paid work for a business" as "being exploited".

...governments have often fought against unions, even with police brutality and army intervention.

While I'm no fan of governments, or the police, the above statement must be rebutted. I could spend 1000 words analysing it's inaccuracies, but I'll just restate it accurately.

 

"Occasionally, police use force to evict union workers when they are trespassing on private property."

 

I would write more, but mr sandman is calling. Maybe tommorow.

[WasatchMan]

You may want to review some of Mises work on monopolies, which is also discussed at length in Ayn Rand's book: Capitalism: The Unknown Ideal.

 

"A “coercive monopoly” is a business concern that can set its prices and production policies independent of the market, with immunity from competition, from the law of supply and demand. An economy dominated by such monopolies would be rigid and stagnant.

 

The necessary precondition of a coercive monopoly is closed entry—the barring of all competing producers from a given field. This can be accomplished only by an act of government intervention, in the form of special regulations, subsidies, or franchises. Without government assistance, it is impossible for a would-be monopolist to set and maintain his prices and production policies independent of the rest of the economy. For if he attempted to set his prices and production at a level that would yield profits to new entrants significantly above those available in other fields, competitors would be sure to invade his industry." Ayn Rand's Capitalism: The Unknown Ideal.

[J. D. Stembal]

Expansion – I grab market share by opening new branches or franchising.  The larger my market share, the less customer choice there is.

 

You forgot to address cartel breaking.

 

[LovePrevails]

thanks for the responses guys

 

I would also add that patents are a statist source of many monopolies

as well as erecting other barriers to entry

 

and that I don't know if the DeBeers would really be able to corner the market on diamonds without the states in those countries protecting their interests

[Pepin]

When I did a lot of research on this topic back in the day, I found that there actually have been no natural monopolies ever. Most mainstream economists agree that the idea of the robber baron age did not exist because it doesn't fit the data.

 

The issue with bringing up this point though would be that it could be ignored or laughed at. The idea of monopolies of the past is quite hammered in during school, that it seems dumb to question it, regardless of the current economic research.

[shirgall]

Burton Folsom wrote on this. http://www.amazon.com/The-Myth-Robber-Barons-Business/dp/0963020315

[LovePrevails]

Burton Folsom wrote on this. http://www.amazon.com/The-Myth-Robber-Barons-Business/dp/0963020315

 

can you summarize some of his key points?

[shirgall]

can you summarize some of his key points?

 

Basically that there were two types of entrepreneur in the late 19th century, true market-builders and political players. These two types conflicted (one benefits from a freer market, the other benefits from government-manipulated markets). The rise of progressivism and the denigration of the market entrepreneurs by labeling them as "Robber Barons" was caused by the political types doing everything they could to secure and grow their position.

[WasatchMan]

and that I don't know if the DeBeers would really be able to corner the market on diamonds without the states in those countries protecting their interests

 

One thing that is important to this discussion is the difference between monopolies and coercive monopolies.  This is because a monopoly isn't bad as such. No one has the automatic right to compete with other businesses by the virtue of their desire to compete.  Also, not every market has room for more than one provider. Monopolies are only bad when they are implemented and maintained through force. This is also why anti-trust is immoral because it does not distinguish monopoly through merit from monopoly through force.

 

So for something like DeBeers, it could be a monopoly just through savoy business practices.  It could be that it was so good at selling diamonds that no one could compete with it for a long time, and there is nothing wrong with that.   I am not sure about the DeBeers specifics, but one would have to demonstrate it was 1. a monopoly 2. a coercive monopoly 3. a coercive monopoly without using the states monopoly on coercion in order to demonstrate that it is a free market coercive monopoly.

[Daniel Unplugged]

So for something like DeBeers, it could be a monopoly just through savoy business practices.  It could be that it was so good at selling diamonds that no one could compete with it for a long time, and there is nothing wrong with that

Seconded.

[LovePrevails]

http://fff.org/explore-freedom/article/the-misplaced-fear-of-monopoly/

[LovePrevails]

The De Beers diamond cartel.

 

 

One thing that is important to this discussion is the difference between monopolies and coercive monopolies.  

 

 

From Tom Woods:

What about the DeBeers diamond cartel? Surely that is an example of free-market “monopoly,” defying the economists’ assurances that cartels on a free market tend to be unstable and short-lived. In fact, there has been no free market in diamonds. The South African government nationalized all diamond mines, even ones it hadn’t yet discovered. Thus, a property owner who discovers diamonds on his property finds ownership title instantly transferred to the government. Mine operators, in turn, who lease the mines, must get a license from the government. By an interesting happenstance, the licensees have all wound up being either DeBeers itself or operators willing to distribute their diamonds through the DeBeers Central Selling Organization. Miners trying to distribute diamonds in defiance of government restrictions have faced stiff penalties.

[Alan C.]

My previous posts on natural monopoly and market monopoly.