It can definitely still happen. A firm may have exclusive control over a resource that prohibits entry from other competitors, or there may be economies of scale. The DeBeers group was a perfect example of a company with market power. By stepping in the government can improve the welfare of consumers.
This is false. They cannot prohibit entry, they can only have total control of a resource.
DeBeers operated via cartelizing and coercion.
This is nonsense. The Soviet Union stepped in absolutely, and ended up driving people to abject poverty and starvation.
At the Austrian School (mises.org) it’s canon that central planning, cannot organize the market. That every intervention leads to a crisis.
As you said, the DeBeers group WAS a group with market power, but there are competitors even for DeBeers,no?. Would you mind to give me “one” historic event where the government improved the welfare of consumers? What kind of resource may a firm have that would prevent entry from competitors? Mind it is not the good that is desired by the consumer, but what the good delivers.
Thanks for the help, everybody.
Hey, I’m having a debate with some other people, and they don’t think government helps corporations create monopolies very often. Is there any site that has a bunch of examples of government-created-monopolies?
The original definition of the word monopoly, was a state granted exclusive privilege in the market. People, in a more enlightened time, knew that only government could eliminate competition, and award monopoly power through regulation. The USPS or any state run postal service is an example of monopoly.
You really just need to think about it. The government has monopoly in law. In security. In national defense. It has a monopoly on the political process. It has a monopoly over which drugs and foods can be sold in the market (and thus the ability to pick winners and losers). It has a monopoly on the communications industry. It has a monopoly on the energy industry. The government exercises monopoly power over banking, credit, money creation.
The government nearly has a monopoly on education. I am in Canada, the government has a monopoly on health care.
Oh yes, there were competitors for DeBeers. The idea of monopoly meaning only a single firm is involved, is useless for real world applications. In the real world, firms exercise market power even when there is small competition, like there was for DeBeers. A good historic example of a successful anti-trust case is the Tobacco Trust in the early 20th century, where there was clear price gouging and after the government stepped in prices fell for consumers.
With total control of a resource, such as raw materials or technology, any potential entrant will have to pay a much higher price in order to set up production. This limits entry, competition, and thus create market power.
Exactly
Is there a website that states the original definition of the word monopoly?
Also, is the health care in Canada really bad? Was the documentary “Sicko” totally false or what?
It wasn’t totally false, but definitely misleading. A better example of a good single-payer system is France.
No. Market power is determined by consumers, not by producers.
Exactly what? A free market is absent coercion.
Have you tried Google?
I didn’t watch Sicko. It’s a lousy system, socialized medicine always is.
The consumers don’t have any power if there’s only one producer.
So there’s no murder or theft in a free market?
Sure they do. The producer is only profitable by trading. A trade takes two parties.
Uhm, no? That’s why it is called a free market. It is absent coercion. All trades are completed voluntarily, or freely.
The nature of an uncompetitive market is that consumers don’t react to price increases by completely dropping out of the market. They do so only incrementally, and the producer can extract surplus from them in the meantime.
Is this the new libertarian pipe dream, a world without murder and theft?
Ok, so they extract surplus. Until they lower their prices, and then consumers return. Consumers vote with their money. Just because you have cornered a market, doesn’t mean consumers will pay any price. That’s a fallacy. Always has been otherwise so-called natural monopolies would be able to oppress people and diminish their prosperity absolutely. I’m not aware of examples of this in the free market. Are you?
Why, do you dream about a world of murder and theft? I’d rather be accused of aiming too high, than settling for too little.
That however, is superfluous to the definition of a free market. Free markets are based on voluntarism, not coercion. Coercion, by definition, is a component of an un-free market.
Ok, than, before we can have a useful discussion we need to define what a monopoly is. I am rather sure though that we end up in defining a monopoly as anything that is a unique market position so basically if one firm sells chocolate covered cereals while another sells sugar coated ones, both have a monopoly. If you go down that road, than we should stop the whole discussion right now, saving you and me a lot of time.
Now to gouging. I do not think that there is EVER a gouging taking place.If gouging was a reality this would imply that there is a “just price”. Who is to decide what price is “just”? On what grounds? Labor? capital goods used up? Or gut feeling?
A price always enters the world if the two parties in a transaction agree to exchange. Now if the consumer is not willing to pay a price than no sale is going to happen. If no sale happens, that is if a consumer doesn’t value the good he gets higher than the good he gives up, than there is no price and the seller sits on his goods until he is willing to lower the price.
The whole idea that some third party can judge about what price is “just” is a fallacy and has its roots in the english economists obsession for labor as the basis for prices.
They won’t pay any price, but the structure of an uncompetitive market is such that by restricting output and raising prices, it is still beneficial for some consumers to pruchase the product, while the others lose out. The firm makes money by doing business with less people. The firm gains in profits, but the consumers lose.
The markets may be “free”, but this doesn’t mean nobody ever exercises coercion. That’s what the threadstarter is asking, essentially. Coercion can arise in the free market, whether it takes the form of murder, theft, or natural monopoly.
There is no need to speak of a just price. What I meant was there is a price that arises from competition, however in the real world that ideal is hardly ever reached. The further you get from that ideal, the more consumers are harmed. When trade does not happen because a firm with market power is restrictign output, the consumers who would have gained now lose out.
How do they lose out by choosing to spend their money elsewhere and avoid this “monopolized” product? Obviously, they are satisfying their most pressing needs based upon the resources they have. As prices go up, demand drops. That’s natural, as people shift their consumption to what is more appropriately priced, and continue to fulfill their needs.
I think we have a fundamental misunderstanding of how consumers order their needs, and why they act (trade).
Once coercion enters a transaction, will you insist upon calling it free? I certainly hope not.
If there was no market power, they would not have resorted to the alternatives. True, substtution can make up some of the losses, but the essence of market power is that there are no perfect substitutes so welfare drops overall.
No, but I would not say coercion will never enter transactions under a free market. If that’s what you mean by free market, then it is a true utopia, uselss for real world theorizing.