I’m a newcomer to this school of thought (and pretty new to economics in general). I’m currently reading Israel Kizner’s essay collection “The Driving Force of the Market” and I’m stuck on a point that he brings up in the first essay (called Entrepreneurial) about competition and, in particular, about anti-trust laws.
The claim is that antitrust laws block entrepreneurial entry into the market and thus anti-competitive in nature.
But, surely, in theory and in practice, monopolies through mergers are more likely to restrict the competition necesary for a free market to function.
I understand the essence of the claim, which is that government inteference in the free market tends to reduce the freedom of a market, but I’ve always considered loose antitrust laws to be the exception to that rule.
Kirzner then brings up advertising as an example of an imperfectly competitive industry which “are precisely the kinds of entrepreneurial initiative which make up the dynamic competitive process.”
So, my question is, in the Austrian view, are antitrust laws not supported? And could somebody offer me a clearer explanation of why what is? It may just be my lack of economics background, but I just don’t understand his point in the way he’s explaining it.
The government’s interference in the market just ends up creating tons of artificial barriers to entry which creates monopoly conditions in the market. Without the government’s barriers to entry, competition would be much freer and thus most monopolies would be unable to persist.
Antitrust laws make no sense because making one law to fix a problem created by another law is generally a bad idea. Also, antitrust laws are very selectively enforced based on who currently has the most political pull.
by a merger, veritcal or horizontal integration. Without antitrust laws, couldn’t any two companies merge, reduce competition between them and set prices above market value? If their selling a valuable enough commodity, they could jack up prices without losing too many sales (and increase profit margin for both of them).
I would recommend you read Dominick Armentano’s Antitrust and Monopoly: Anatomy of a Policy Failure. From a historical perspective, every single case brought about by either the Sherman Antitrust Act (1890) or the Clayton Act has always been to the detriment of the consumer. All the cases demonstrated that the government’s claims of “monopoly” were blatantly absurd. Prices were continuously falling, there was no collusion and price fixing, not a huge market share, etc. I don’t want to go through every case specifically but Aremantno does an amazing job with that book going through the cases in detail.
As the above posters correctly stated, monopoly is only possibly with the assistance of the State creating barriers. In a truly free market you’d be hard pressed to find a monopoly. First of all, there would be nothing to hinder one from entering an industry. Second, if one company did acquire a huge market concentration this is possible because they are meeting the demands of consumers at prices that are generally accepted. The company is operating efficiently and people are satisfied with their products, so why is this a bad thing? Now if the company begins to raise prices, and we understand that prices provide substantial information as far as investment, this will attract competition. People see high prices and they want a piece of the pie, so they enter the industry as well and offer lower prices than the competitor obviously to get their business. The first company now has to compete back; you get the idea. Seriously though, check out that book it’s an excellent read!
The only way a monopoly could prevent competition from forming is by pricing below any potential competitors. This is, contrary to what your government school teachers would tell you, competition in practice.
If a monopoly can price lower than anyone else there is no economic gain to having more firms, one firm is the most efficient accolation of resources for that specific product.
If a single firm is not the most efficient, then competitors will be able to out compete the monopolist and gain entry; either through price or some other differentiation.
You can’t have it both ways. If they raise prices other firms will enter the market, if they lower prices to prevent entries they are not “exploiting” anyone.
But all this is based on a subtle assumption that there is such a thing as an unfair price. But, sorry, there is not.
If some people can not afford to pay a certain price, why is that bad? I can’t afford a LearJet. Why has the government not intervened to fix this market failure?
I’m just saying it is possible, even probable, that one firm will outperform all the others without the State ensuring a ‘competitive market’ through penalizing the most efficient providers to benefit the less efficient ones.
Where people run into a problem is buying into the monopoly=bad propaganda that the statists use to justify market intervention.
There are so many problems with monopoly theory that I’d recommend a study of the relevant chapter in Rothbard’s Man, Economy and State. It’s dubious in the extreme that a firm could continue “monopolizing” markets and continue to be able to calculate effificiently. Like a socialist state, it’d continuously sink deeper into calculational chaos. This alone precludes the possibility of massive, all-expansive monopolies. The fact that, if successful, they briefly earn high entrepreneurial profits simply hastens their demise, unless the firm is efficient enough to maintain a large share of the market.
Governments create monopolies through patents and copyright because its good for the economy. Governments also break up monopolies through anti-trust laws because its good for the economy.
The more correct question is: why on earth assume that there won’t be entrepreneurs? If the firm is simply buying up competitors, it might be the most efficient firm in the market. If it isn’t, it is prone to being taken over. As for “muscling” out competitors, depending on what that means, it’d probably be illegal.