You’re stating this as fact without providing any supporting details or arguments. How does the market eliminate the monopolistic firm that I described that has achieved economies of scale by producing practically all of the demand in a given market? In one of my examples, 700 units needed to be produced to achieve economies of scale, and anyone that tried to produce less would face higher unit costs. So two companies, a monopolistic firm and a new entrant, each produce a total 1400 units/year in a market that demands 1000 units/year (because of increased supply/lower prices). It is highly unlikely both of these companies can survive. Even if the new firm pushes the old firm out, they become the new monopoly, and they can charge the same artificially high prices the previous firm did.
I can agree that a monopoly is formed on the free market because it is better than the alternatives. However, once a firm becomes a monopoly, they no longer need ot sell at market clearing prices, especially in a market with inelastic demand. Once they are the only supplier, they no longer need to be the most efficient supplier.
First, I think you’re misunderstanding economies of scale. Economies of scale are not problematic unless one firm uses them to the extent that they capture all or most of a particular market’s share. At that point, no new competitors could produce at that firm’s costs unless they produced a similar number of units. The problem is, the lone monopolistic firm already has pretty much all of the market share, so the market can’t support both competitors. Regardless of who loses, their will be one monopolistic firm standing when it’s all over, and that firm will have the ability to charge higher prices.
Second, your power plant example isn’t very good. Why can’t the owner of the monopolistic firm contract with a large group of people first? After all, they already have all their equipment in place while the new competitor is putting theirs together. Also, let’s say the new competitor is successful at driving the old firm out. What’s to stop the new firm from raising prices? You’re replacing a monopoly with a monopoly.
The OS example is no good either. Economies of scale are hardly present there. I’m talking about a market where there is only demand for X units, and a monopolistic firm has achieved economies of scale at X units. How can you possibly enter into price competition with this firm if you don’t achieve similar economies of scale? Since demand is only X units, how can two firms producing 2X survive? One of them has to go. In the end, there will be a monopoly left standing.
Entrepreneurs also have an incentive to form a single monopoly. Also, I never said this was going to happen, I’m just saying that its a theoretical example of free market mechanisms being involved in the creation of a monopoly. :deadhorse:
I’ve already answered this several times. And I’m not an opponent of free markets, I’m just pointing out that theoretically, monopolies can be formed in free markets.
This logic deduces to the monopoly firm being a gov’t and how is the gov’t supposed to gov’t itself which the scenario as well has left the free market and becomes about nation-states and global empires, etc… when is this going to be about the free market again.
Not really, unless you’re using a different definition than I am.
A monopolistic firm:
is the only supplier of a particular good
is protected by high barriers of entry from competitors (whether government or free market barriers)
produces a good for which there are no reasonable substitutes
If we want to get overly specific, then (1) could be true for any particular person. However, if we want to be more realistic, and use a job like ‘hamburger flipper’ instead of engineer, it’s easy to see that not every individual is much of a monopoly on these grounds. Is the world really limited on the amount of people that are capable of flipping hamburgers in relation to the number of jobs flipping hamburgers?
As for (2) and (3), again using the hamburger flipper, is it that difficult to find a replacement? Why aren’t hamburger flippers paid millions a year? Because they’re a dime a dozen. And there are no significant barriers to hiring a new flipper if the one you’re employing decides to quit.
So (1) other people can supply the same product, (2) there’s nothing stopping a company from replacing that burger flipper, and (3) there are many reasonable subsititutes for any particular burger flipper.
I don’t have scientific magnitudes, just as Austrian theory is lacking scientific evidence for all of it’s theories. I’d like to note that I don’t disagree with Austrian theory, I’m just making a point.
Anyway, high government barriers to entry would be if it were illegal for anyone other than the government to provide a particular good. High free market barriers could be economies of scale or a single firm owning all of a particular resource.
You insult my case as if you have proved something.
Anyway, I guess prohibitive would mean costly to the point of being unprofitable. You keep using an engineer for your point, but I’ll use a burger flipper, since you said all people are monopolies.
Would it really put a particular McDonald’s out of business if one of their workers didn’t show up and they had to train somebody new? Or would it just be a hiccup in an otherwise smooth production process.
And if my logic takes me there, it proves what? Yes, a competent engineer has a better chance of engaging in monopolistic behavior than an incompetent engineer. The same applies for business firms.
Coercion can still happen, it doesn’t matter if the person gets punished for it by the free market. Also, you’ve dodged my examples about economies of scale and a single owner of all of a particular resource to try and knock down a straw man about individuals being monopolies, when very few would fit such a definition.
I know they don’t exist. If they did, they would be equitable (I believe).
I’ll have to watch the video another time though, maybe tonight.
At existing technological and organizational levels, the market can only support one firm. There is huge monetary incentive to find a way around this.
If they did contract in advance, the price would probably be pretty good. No consumers would subscribe to long term price gouging.
Even if I grant for the sake of argument that it is possible for there to be only one firm on the market at any time, this doesn’t work out a priori “bad” for consumers. You’re equating one firm = monopoly = bad. Anyway, its the THREAT of competition which keeps firms honest. If someone can enter the market and take over your share, you’re competing against their hypothetical prices/services.
You might think this isn’t a very powerful force, but consider that at any time in the market there are n number of firms. Well they could all get together and agree to raise prices right? The only thing stopping this is the prospect of new competition entering the market.
Theory aside, isn’t google a monopoly? Isn’t hotmail/yahoo/gmail an oligopoly? Why don’t they just start charging for their services? Because they KNOW someone else would come up with a way to provide these services on the cheap (free), and then they’d lose market share and their business would be completely destroyed.
In the end, there will be ONE COMPANY left standing. It is not a monopoly so long as new firms can enter the market and repeat the X–>2X–>X process again.
But there’s not a fixed number of entrepreneurs. They’d have to cartelize investment and then cartelize whatever industry.
Markets are all about incentives right? In fact that’s really what politically philosophy (ought) to be about. If you structure society in a way so that the selfish motivations of individuals are transformed into benign acts for humanity, that’s what you want. The formation of a monopoly on the free market, even if it can happen, brings with it massive incentives for entrepreneurs to break that monopoly. Its the frat kids versus the smartest and most creative innovators.
The entrepreneurs have an incentive to break the monopoly, cus they’ll make a buck doing it. The state doesn’t make money if they break up monopolies. In fact, just the opposite.
Sorry to juxtapose free market vs statists as if you’re some state communist. The compare and contrast is kind of reflexive at this point.
Sure he is! He’s not instantaneously replaceable either and you have to learn to flip hamburgers also. Again, all you’re doing is talking about relative costs (lower for hamburger flipper and higher for engineer). You’re left with only the concept of a “coercive monopolist” for you to even have a reasonable objection to.
Oh really? According to your definition of a coerive monpolist, all you have to do is out compete your competitors or potential competitors.
The cost for a hamburger flipper to compete with an engineer is too great for him to be profitable - So the engineer is a coercive monopolist
The cost of Toyota to go into the business of Hamburgers tomorrow is too high for them to compete with McDonalds and be profitable - So McDonald’sis a monopolist.
And if Burger King is out competed by McDonalds’ - then again, McDonald’s is a coercive monopolist.
You misunderstand the problem in your own argument. You are implying objective magnitudes for subjective valuations. You can’t make your case without resorting to the claim that there is some objective standard by which you can determine such costs associated with “restriction to entry” or whatever.
Coercion necessitates the use of force, or at minimum, the threat of force. Saying that I will quit if I don’t get a raise is not coercion. Otherwise, anything that anybody does that you deem harmful to yourself can be considered coercion by you. It’s a preposterous definition for coercion.
It proves that you are complaining about those that are successful and are more productive.
But such unjustified behavior would make him undesirable by the same customers (or employers) that you claim can be victimized by him. Your argument then becomes circular and contradictory.
Also, you seem to be only able to make your case by resorting to the popular nirvana fallacy. If you realize it, you may change your mind.
No straw man. You can’t just define monopoly in terms of superficial criteria, like number of competitors, if you’re going to make the case that it is always bad.
Economy of scales is just one leverage at the big firm’s disposal for competing with newcomers. There is also reputation (brand name) and established clientèle. This should be also deemed “evil” according to you. But you don’t realize that all of this just means proven success and efficiency, and consumer satisfaction. If the big firm lowers its guards, the “barrier” will be lowered for newcomers. Newcomers can also penetrate the market with better innovation in the product. They are also more agile and flexible to meet those custom demands that the big firm will not meet.
There is no case for coercion. Nobody has a god given right to compete with anybody.
Yes, you should. Even if it’s just because Israel Kirzner, a former student of Mises, is a legend.
As pointed out by DD5, we have to be careful with the definition of “monopoly”. Is the owner of a Rembrandt a monopolist of that work of art? After all, it is the only original.
Modern economics treats “large market share” as some kind of market failure or, at least, a problem which needs to be “solved” via intervention. The fact is that economic substitution and the ever-present spectre of new competitors ensures that a firm’s market share, however large, is never inherently problematic for consumers.
The real problem is personal versus impersonal exchange. Impersonal exchange is the free market - anyone may sell anything to anyone at any price they both find mutually agreeable. Personal exchange, on the other hand, restricts who may trade what with whom and creates a legal double-standard. A certain privileged class of individuals is permitted to engage in trade that those not in the privileged class are not permitted to engage in. This is not only obviously immoral it is destructive of human prosperity.
The debate has been shifted so far from its origins that few people ever get from “monopoly” to “government-administered restraint of trade”, even professional economists and academics whose sole concern is the very subject of monopoly.
There is this 350-year old legal innovation called the stock share corporation that permits many small investors to pool their money together for the express purpose of unseating large, established business interests. If Microsoft really is doing that bad a job of writing software, then it is possible for a bunch of investors to get together and make a better company to give Microsoft competition. Same for Wal-Mart or any other large market share corporation.
Shouldn’t be difficult if the monopoly is, as we would expect that it is, charging higher prices than would obtain in the presence of competition.
Property rights have zip, zero, nada to do with government except insomuch as the government is the most egregious violator of property rights; the thief par excellance.
Color me terrified. Oil is just a cheap energy source, nothing more. There are other energy sources which are less cheap than oil but not by more than a small factor, a factor which would be much smaller if one of those substitute energy sources were to become the primary energy source of the world economy. Oil is currently so much cheaper than other alternatives for the same reason everyone uses QWERTY keyboards - because everyone uses it! If everyone used some other energy source because, for example, oil became more expensive than the alternatives, that energy source would begin to enjoy the self-reinforcing status of being the primary energy source. Fueling stations for that energy source would become widespread. People would go to college to get degrees in how to harness that energy source. And so on.