Free Markets and Monopolies are Mutually Exclusive

[kavih]

As the title states, I believe free markets and monopolies can not exist at the same time. To have exclusive control over a commodity, service, or good means that a monopoly has no competition; not even a startup or mom and pop shop (hence, "exclusive"). In other words, monopolies only exist because an authority figure (government) prohibits all competition or regulates the industry in such a way that the competition can not exist. So, I don't see how a monopoly could exist in a free market, since in a true free market, there exists no authority figure to regulate things.

 

Do you see any holes in my logic?

[Alan C.]

A market monopoly may appear if economies of scale provide a cost advantage to a firm because it arrived first on the scene, or because a firm offers excellent service at a price low enough to discourage competitors.

 

However, neither of these can prevent a competitor from entering the market.

[FreedomPhilosophy]

Suppose a business own all of a scarce resource?

[AncapFTW]

Suppose a business own all of a scarce resource?

Then multiple groups will try to find more of it or create/discover an alternative.  They would also probably have other companies trying to buy it from them, but there's no guarantee that would work.

[Alan C.]

Is there a real-world example of situation in which a company owned all of a scarce resource?

[tasmlab]

This may be semantics, but every company has a monopoly on its brand.  E.g., McDonalds has a monopoly on McDonald's brand hamburgers.  But then not one in the category of hamburgers, and not one in restaurants and not one in food.  In Peter Theil's book "Zero to one*" he advocates every company building a monopoly.

 

Mises explains that there can be 'limited space monopolies and they can be frequent.  There might be one cement company in a region, but they can't gouge beyond what the product would cost + shipping from a distant competitor. 

 

A more direct limited space monopoly is the concession stand at a movie theatre.  Since you are trapped in the building, the concession stand can inflict gouge pricing.  And they do.

 

In general, I agree with the OP's idea, but I would probably say that monopolies, esp if you include category competition, in a free market are extremely rare.  Probably not mutually exclusive IMO.

 

* Great book BTW.

[Omegahero09]

Is there a real-world example of situation in which a company owned all of a scarce resource?

 

Even if there isn't, it's possible that one could. You see this a lot in fiction; for example Vibranium in the Black Panther comics, or even Rearden Steel in Atlas Shrugged.

 

If it were to happen, so long as the NAP is respected, I don't see an issue with it at all

[Romulox]

The problem is absolutely in the semantics.  The commonly accepted definition of monopoly today is essentially sole production of a class of goods or services; however, the classes of goods and services are completely artificial (as stated in the McDonalds example above).  The only logically consistent conclusion you can make from that definition is that every individual person has a monopoly on whatever goods and services they are able to produce.

 

I find it interesting that the state intervention was specifically included in the common law definition of monopoly.  As Rothbard points out, the 17th century common law definition of monopoly is generally summarized as "a grant of special privilege by the State, reserving a certain area of production to one particular individual or group". 

 

In the free market, the fact that there is a monopoly at any given time is a result of consumer demand and the costs of production.  The fact that they are selling a product that people want at a price that is low enough to discourage anyone from competing should be praised, if anything.  If there is no state violence restricting entry, the threat of additional competition and availability of alternatives will always put downward pressure on prices. The terms "monopoly price" and "competitive price" are completely meaningless in a free market; there are only "prices". 

[kavih]

However, neither of these can prevent a competitor from entering the market.

Exactly and as soon as a competitor enters the market, it is no longer called a monopoly, since all definitions I've read have used the word "exclusive" when defining the relationship between a monopoly and the product, good or service they generate.

 

This may be semantics, but every company has a monopoly on its brand.  E.g., McDonalds has a monopoly on McDonald's brand hamburgers.  But then not one in the category of hamburgers, and not one in restaurants and not one in food.  In Peter Theil's book "Zero to one*" he advocates every company building a monopoly.

 

Mises explains that there can be 'limited space monopolies and they can be frequent.  There might be one cement company in a region, but they can't gouge beyond what the product would cost + shipping from a distant competitor.

 

A more direct limited space monopoly is the concession stand at a movie theatre.  Since you are trapped in the building, the concession stand can inflict gouge pricing.  And they do.

 

In general, I agree with the OP's idea, but I would probably say that monopolies, esp if you include category competition, in a free market are extremely rare.  Probably not mutually exclusive IMO.

However, a free market most likely would not manifest copyrights or patents, so since the State is involved to give companies a "brand," this is no longer a free market. The movie theater is a great example of a situational monopoly, which is making me think of many more. And after reading Alan Champman's post, I think you are correct that they may not be mutually exclusive in theory, but I doubt monopolies would last very long in a true free market, since they are no longer a monopoly as soon as a competitor enters their space.

 

I find it interesting that the state intervention was specifically included in the common law definition of monopoly.  As Rothbard points out, the 17th century common law definition of monopoly is generally summarized as "a grant of special privilege by the State, reserving a certain area of production to one particular individual or group".

I also found that very interesting. Dictionary.com defines a monopoly in it's 2nd definition as "an exclusive privilege to carry on a business, traffic, or service, granted by a government." I found that very interesting, which is why I started thinking free markets wouldn't let monopolies last long enough to call them monopolies; hence the theory of my OP.

[utopian]

I believe a free market can never truly exist. 

 

First, because any situation in which freedoms exist which perpetuate a free market,  also allow for freedoms which an individual or institution could form a monopoly.

 

Second, if you or someone else created an institution which upheld principles of a free market, the institution itself would be targeted by men looking to create monopolies, and eventually infiltrated, as we have seen with the U.S. government and the Federal Reserve.

 

The best we could hope for is something Jefferson talked about, and I can't remember the quote exactly, but he said something along the lines of we should create an institution with the idea in mind that corrupt men WOULD eventually infiltrate it, and put plans in place for the institution to then be torn down.

[kavih]

First, because any situation in which freedoms exist which perpetuate a free market,  also allow for freedoms which an individual or institution could form a monopoly.

But a monopoly isn't a bad thing in a free market, since it's monopolization probably won't last very long (competitors) or if it does, it's because it's a monopoly on something without much demand by the market.

 

 

Second, if you or someone else created an institution which upheld principles of a free market, the institution itself would be targeted by men looking to create monopolies, and eventually infiltrated, as we have seen with the U.S. government and the Federal Reserve.

Will you please provide an example?

[utopian]

 

But a monopoly isn't a bad thing in a free market, since it's monopolization probably won't last very long (competitors) or if it does, it's because it's a monopoly on something without much demand by the market.

You mean, the monopoly you said cannot exist in a free market?

 

Stephan himself talks about a monopoly that exists (the Federal Reserve and its dollar) the attempt to install competition for it through Bitcoin,

and the dangers it poses to the monopoly. Stephan is a proponent of Bitcoin BECAUSE the monopolization of the dollar has created bad things for people. 

Steph's video here;

 

 

Will you please provide an example?

 

http://free.yudu.com/item/details/430875/The-Creature-From-Jekyll-Island

 

I have read the entire book "The Creature from Jekyll Island" which you can read free here online, which outlines the history of America escaping from the monopoly of paper currency time and time again. Britain first enforced the monopoly, which Washington freed us from. But we were in debt for the cost of the war, and so Alexander Hamilton returned us to monopoly. Congress then removed us, and Britain returned us with the war of 1812 and another private central bank. Jackson then freed us, and over 50 years later, we were once again returned to monopoly by the Federal Reserve, blamed for recessions and depressions including America's latest.

 

Every time we have freed ourselves from monopoly, the banks have targeted our government officials, and got them to return us to it. As long as there has been monopoly on our money supply, we, and the rest of the world, have suffered for it. 

[kavih]

I just thought of a cool way to tell the story of "monopolies and government" to the average ignorant person. It would be a short video that describes how, in nature, trees are freely competing for sunlight and they all race to the top of the forest canopy. The ones that get to the top first are more successful than the ones that don't. However, the ones at the top also become very large and top-heavy. If during a windy storm, their roots aren't deep and strong enough in the soil, those large trees will fall over and die. Immediately, other trees grow to fill in the new gap of sunlight created.

 

Now, this is analogous to how companies succeed and fail in the free market. Replace "tree" with "company," "sunlight" with "money," "windy storm" with "unforeseen market changes or bad mistakes," "roots" with "reputation," and "soil" with "customers." Once the analogy is easily understood for the viewers, the video would introduce the government into the forest. Without over-complicating it with lobbying and whatnot, the video would simply depict the government building reinforcements around the biggest trees, not allowing them to fall from a "windy storm;" hence allowing for those trees to monopolize the sunlight in that area of the forest.

 

The video would then ask the question: "Since a forest deals with monopolies naturally, allowing for new trees to grow in the place of old ones, shouldn't our economy also be run "naturally," allowing for huge companies to fail, so that new companies can grow up in their place?"

 

And then the video would follow up with the examples of how the government bailing out the big banks keeps their oligopoly going, rather than allowing them to fail and for new banks (or different financial institutions) to grow in their place.

 

I'm sure there are other, possibly more straight-forward analogies for government induced monopolies, but I was randomly thinking about this one and thought I would share it here. Thoughts? Do you think this would be received well?

[utopian]

That sounds right. Though I dont think it would be received well, until the next recession. I was at a couple of occupy rallies during the last one, and people wanted to learn what I was learning, but at the moment times are "good" and people don't wanna hear it. 

 

According to this;

http://www.amazon.com/The-Crash-2016-Destroy-America/dp/0446584835

and a couple of other sources, there should be another recession between 2016 and 2018, and the time will be right for people to receive it.

[kavih]

... but at the moment times are "good" and people don't wanna hear it. 

Oh yes, I completely agree. And that is why so many people that know the next collapse is inevitable should prepare to try and grasp the attention of so many unfortunate souls when it happens.

[D-Rex Naptime]

Second, if you or someone else created an institution which upheld principles of a free market, the institution itself would be targeted by men looking to create monopolies, and eventually infiltrated, as we have seen with the U.S. government and the Federal Reserve.

 

The best we could hope for is something Jefferson talked about, and I can't remember the quote exactly, but he said something along the lines of we should create an institution with the idea in mind that corrupt men WOULD eventually infiltrate it, and put plans in place for the institution to then be torn down.

[Matthew Ed Moran]

What's relevant is your definition of "monopoly" and what it entails. The Austrians (specifically Rothbard) have gone to great lengths to show that to the extent a monopoly can be defined as existing on a free market, according to the information conveyed through the price system, it is not in contradiction to the preferences of consumers. And to say any REAL WORLD situation on a free-market in which there is a single provider is not ideal for consumers is to claim knowledge that is unknowable and un-provable.

 

It's been a while since I've given attention to this topic, but I would check out Rothbard's chapter(s) on monopoly in "Man, Economy, and State." Free pdf on Mises.org

[D-Rex Naptime]

This is an excellent example of what actually happened with the western liberty experiment. As long as an institution exists, which has the means of mass coercion, it will become a government and therefore favor businesses and industries which are in their best interest. A possible way to thwart this would be to have multiple institutions, like states, which would compete for the privilege of protecting you. Unlike states, your patronage would not be dependent on your location and it would therefore be much easier to transfer to preferable system with maximum liberty. Does this require central planning? I think not - only anarchy, technology, and the means available to us today that we did not have 300 years ago.

 

On monopolies, perhaps economies of scale might actually lead a sole owner of a scarce resource to sell their raw resources to other businesses rather than producing something out of it themselves. That would maximize profit and minimize work, while also conserving the resource. The pricing mechanism would then create the demand for an alternative, or an adjustment in living standards.

 

As long as people do not direct their dollars to states that favor the owners of this resource, by preventing alternatives from entering the market, there would be no inherent threat which a monopoly would pose to consumers.

**this post was in response to Utopian's comment which I quoted a few posts back. Sorry for the confusion, Utopian.