I’m just posing a hypothetical scenario. (playing the devil’s advocate. It helps me understand the austrian position)
Antitrust laws are backed by force, ergo a big gun. Monopolies can be taken down by any “David” with a better idea.
Kirzner is saying that advertising is tool our proverbial “David” uses to compete; itis a product of entrepreneurial initiative or human action.
To add to what Chris said about Dom Armentano, here is a video of him on Ron Paul’s old show discussing Anti-trust laws:
The Austrian position is praxeological. There are fundamental things that we know a priori about human action which tell us what will follow from any given set of circumstances. In this case, we can extract from our knowledge that people act to lessen perceived wants and that people prefer more goods to less goods, that where there is profit, entrepreneurs will follow.
If a monopolist has low prices and delivers a product efficiently, then there doesn’t seem to be any problem with the monopolist in the first place.
On the other hand, if the monopolist charges a high price, that indicates economic profit. Entrepreneurs will go where there is economic profit; they will drive the price down in their drive to gain market share. In a free market, the number of firms who will compete are theoretically without limit. So long as economic profits remain high, someone will be there to grab a piece of it. They can only do this by either doing it better or cheaper.
Thus in a free market, the threat of monopoly is completely unwarranted - unless we assume a world in which there are no entrepreneurs, which in Austrian theory is just as relevant as an assumption that 2 + 2 = 5. Austrian economics is a priori economics. We consider only that which logically follows from basic truths about human action.
So to address your hypothetical scenario, which assumes things that are contrary to reality, we would have to leave Austrian theory entirely. In that situation, the monopolist will exploit everyone to the point of starvation, because it would seem that he is the only one who posesses the basic human trait of rational self-interest, and/or the ability to act upon that trait.
If there are no entrepreneurs, potential monopolies won’t be an issue anyway. Fortunately that’s not an issue, all men are entrepreneurs.
Nonsense. They’d have to pay the start-up more money than they would expect to earn by competing with the monopoly.
How do you suggest a firm is going to keep its monopoly position by handing out money to those people most able to compete with it?
Excellent point. Thank you, and everyone for explaining. I understand the larger point now, I think.
This is a common enigma I run into with Libertarians where ideology trumps practicality. It comes down to this bottom line: When one idea you believe in is in conflict with another idea you believe in, you have to prioritize which one will win out. I believe the number one ideology of Libertarianism is individual liberty. Those of you who argue that monopolies only drive out competition by being more efficient with lower prices are providing a naive point of view. Remember, there are two types of power: Political and Economic. Both can be abused to the detriment of society.
Let’s use Microsoft as an example. I think Even Coyne Maloney put it best in two articles:
http://brain-terminal.com/posts/2001/08/22/the-microsoft-conundrum
http://brain-terminal.com/posts/2003/01/13/
Here’s a conundrum: Microsoft tells Dell that they have to only offer PC’s with Windows operating system and Internet Explorer and, if they choose to offer any competing OS (like Linux) or browser (like Netscape), they will pull their license to sell Windows completely. Does Dell have a choice? Sure, but the practical reality is that MS is holding an economic gun to Dell’s head. “Do as we say or we’ll put you out of business.” Another tactic was to only temporarily lower prices. Microsoft has offered software for free until their competitors either go under or sell out to them at fire sale prices, then they come out with “new” versions and charge whatever price they want. Possible future competitors got the message and didn’t even bother trying to go up against them.
So here we have a company using their economic might to stifle competition not through better efficiency, but through pure coercion. Sound familiar? The only way to curb this detrimental use of economic power is to use political power, in the form of anti trust legislation, to stop it.
Microsoft is almost like a government. They are doing whatever they can to govern the internet, that is why Yahoo refused to be bought by them.
interesting application to a real life scenerio. I’d like to know what the “Austrian” rebuttal would be.
I.e. when a person is too principled to give up their ideology based on what (some) perceive to be bad consequences?
Gee, what a novel critique! Also a naive and uninformed one. Dominick Armentano, for one, has contributed loads of material criticizing the usual rubbish advanced in favour of monopoly claims, including this.
Who is this “society”?
If you insist on using a firm with a large government-based clientele and protected by IP privileges, sure.
Yes, Dell has a choice. No, MS is not holding an “economic” gun to Dell’s head. The only crime MS is guilty of is using IP laws in its favour.
And yet MS still has competitors. How much worse would it be for MS if its software could simply be “pirated”? Yeah…
Only if you’re going to conflate an act of choice (i.e. not to do business with MS) with physical force. So no, it doesn’t sound familiar. Cute attempt though.
Right, by instituting a monopoly to “curb” a monopoly, as opposed to providing a convenient medium for other firms to crush competition. Aha. We’re the naive ones. Peddle this crap to the ignorant, please.
-Jon
What???
They use patent law and copyright to stifle competition. The State handed them their monopoly on a silver platter.
The only thing stopping someone from busting the MS monopoly is they would be in violation of unnumerable copyrights and software patents. The only thing stopping Dell from shipping winders is copyright law.
Their last attempt to go after Linux was by claiming they were in violation of a hundred plus software patents. Unnamed patents that is because if they named them the devs could engineer around them and it would become a non-issue.
I can’t believe that this is a ‘verified answer’ when the answer is to use government force to correct the problems that are a direct result of past usage of government force.
Yeah, I love how MS is always their first target, one of the worst offenders when it comes to availing itself of government force. I didn’t even know IP laws protected MS that much, which sort of makes the use of MS to make a point againt markets, kind of pathetic.
-Jon
I’ll try to discard all ad hominem attacks and only get to the substantive argument.
How do you base that it’s Microsoft’s IP laws that gave it its monopoly, and not the fact that they made themselves the ubiquitous standard in operating systems and mainstream office software? Please provide an example of how said IP laws kept, say, Apple from being able to become THE standard.
Sure, Microsoft still has competitors today (minor ones) because the DOJ threatened to break them up. If not, innovators like Java and Mozilla would no longer exist today.
Why do you only equate coercion with physical force? You don’t see Microsoft’s threat to render Michael Dell’s company insolvent because he plans to offer other people’s software as coercion? Here’s a definition to help you out: Coercion (co-er-shion) is the practice of compelling a person or manipulating them to behave in an involuntary way (whether through action or inaction) by use of threats, intimidation or some other form of pressure or force. Also, do you think Microsoft’s bullying was constructive to our economy or destructive?
You still seem to refuse to believe that excessive economic power can bastardize the free market system, when it’s been demonstrated that, like any other form of excessive power, it most certainly can. Do you really believe that? Because this amassing and abusing of power is part of the human condition, the best we can do is strive for a system that keeps both economic and political power as separate as possible and use them to keep each other in check. Unfortunately, every system I’ve seen seems to result in a collusion of power.
I certainly have my issues with our current patent laws but, without any sort of patent system, we basically render things like, for example, software development as value-less, since it can so easily be reverse-engineered and copied by any hack out there. Where would the incentive be to create new software?
Wait. I said such a thing? No, I don’t believe so. What I did say is that you’re using a company that benefits heavily from IP laws as an example of a monopoly. Even the example you gave (licencing) is an IP-based issue. Check Anonymous Coward’s response as well.
How about you actually prove that? D. Armentano has argued that it is through clever definitions that MS is labelled a monopoly, not economic fact.
Dell has a right to use MS products? I had no idea. If there is no right being infringed via coercion, there is nothing to complain about. Dell is having its rights infringed by MS, but not in quite the way you suggest (and no doubt Dell is engaging in its own IP-based rights infringement.)
Nice, a dictionary definition. So when I lie to someone and “manipulate” them into believing something, should I be coercively punished for it? I think so. By that definition of coercion I definitely should be. Or when someone insults me. That’s coercion. Or if my loved one chose to leave me, that’s psychological coercion! Sarcasm aside, MS’s usage of IP laws is definitely destructive.
Nope. I refuse to believe nonsense. There’s no such thing as “excessive” economic power (did you calculate that in your head maybe?) All that has been demonstrated is that MS is willing to wield IP laws in its favour, and only in this connection does MS’s economic power become “excessive”.
Especially “anti-trust” laws.
-Jon
Your argument is hinging on IP laws. Do you believe they should not exist at all?
I’m not sure any of that was actually correct.
First, you trying to use a present day example to prove something about how the market works. News Flash: We don’t have a free market. Any apparent flaw in today’s economy is most likely to be caused by the innumerable government interventions.
If an employer says to an employee “Work on Saturday or you’re fired,” is this holding an “economic gun?” Theft is bad because a person has the right to keep his property. An employee does not have the right to never be fired. Sorry, the only naive person here is the one comparing social influence to coercion.
False. Internet Explorer is still free.
You are trying to say “Monopolies are bad because they raise prices” while at the same admitting that they don’t raise prices.
Again with the naivety. Once government has the power to destroy companies, which companies do you think its going to wield this power against? The small, politically unconnected business, or the large, rich, politically influential one? Just take a look at the economic landscape and you’ll have your answer.
Government is for sale, which is exactly why the more power it has, the better rich people like it.
Duh!
A very good argument that cannot be refuted since it is non-falsifiable (unless I can transport to a parallel universe – haven’t figured that one out yet…)
Your “government is for sale” is quite telling, however, in that a true free market system is incompatible with human nature or, more accurately, only partially compatible. The problem is that it is in our nature to seek power. Economic power (the “rich people”) begets political power, etc, etc. Since we’re in such an imperfect system, I still contend that anything that pits one type of power against the other works against collusion and slows down the inevitable negative progression. Better to have our government fighting MS rather than continuing to grant them more power.