Yes. I think an Austrian would have to reject the concept of monopoly pricing if he wishes to remain consistent. Monopoly pricing yeilds “dead-weight losses” (downward sloping MR curve), but this assumes that one can measure “consumer” and “producer surpluses.” As we all know, value is always graded and never measured.
Yes, because something along the line of “the farmer seeks or is motivated for monopoly so there is monopoly price” .
It’s not that he’s “motivated for monopoly”, it’s that he’s motivated to restrict supply solely for the purpose of raising the price, which is in turn for the purpose of higher net proceeds. This is not even “my” argument; it’s Mises’.
(Emphasis added)
“Considerable confusion stems from a misinterpretation of the term control of supply. Every producer of every product has his share in controlling the supply of the commodities offered for sale. If he had produced more a, he would have increased supply and brought about a tendency toward a lower price. But the question is why he did not produce more of a. Was he in restricting his production of a to the amount of p intent upon complying to the best of his abilities with the wishes of the consumers? Or was he intent upon defying the orders of the consumers for his own advantage? In the first case he did not produce more of a, because increasing the quantity of a beyond p would have withdrawn scarce factors of production from other branches in which they would have been employed for the satisfaction of more urgent needs of the consumers. He does not produce p + r, but merely p, because such an increase would have rendered his business unprofitable or less profitable, while there are still other more profitable employments available for capital investment. In the second case he did not produce r, because it was more advantageous for him to leave a part of the available supply of a monopolized specific factor of production m unused. If m were not monopolized by him, it would have been impossible for him to expect any advantage from restricting his production of a. His competitors would have filled the gap and he would not have been in a position to ask higher prices.”
The significance of monopoly prices is not that they yield dead-weight losses; Mises never claims that they yield such a thing. They are catallactically interesting because they represent the one condition in which a market decision is not ultimately driven by the consumption of the final goods or services of the production process in question. It is the one instance on the free market of a conceivable abrogation of consumer sovereignty (or as I prefer to say “consumer captaincy”).
He’s motivated to increase his profit. That’s all we can say in certainty. He can imagine all he wants about some inelastic demand curve but he can never know, and neither can the economist know, that he has achieved some monopoly price.
This is where Rothbard brilliantly debunks the notion of consumer sovereignty as is usually understood. You forget that the producer is also a consumer and this “abrogation of consumer sovereignty” is simply a matter of point of view.
Again, you’re confusing economics with economic history.
We don’t know with apodictic certainty if the unpopular street singer is singing for his pleasure or singing for his supper. But IF his motivation is for his pleasure then he’s a consumer. And IF his motivation is for his supper then he’s a producer.
In the same way, we don’t know with apodictic certainty if a farmer is burning his crops to increase net revenues or to gratify his pyromania. But IF his motivation is for increasing net revenue then the resulting price is by definition a monopoly price. And IF his motivation is for watching the pretty lights then the resulting price is by definition not a monopoly price.
The producer who restricts his supplying of a certain quantity of a good to the market in order to himself consume the quantity does so qua consumer with regard to the good in question. The producer who restricts his supplying of a certain quantity of a good to the market in order to increase his net revenues does so qua producer with regard to the good in question. That is an interesting distinction, and economists should not shy away from recognizing that distinction, out of libertarian misgivings over policy non sequiturs that statists may try to infer from it. I strongly suspect that is the motivation for the general aversion among libertarians against monopoly price theory.
“Right, my characterization was not sufficient. Burning crops by itself cannot by itself be an indication of a monopoly price. It also must be that the demand curve really was inelastic at that particular point, and that the restriction of supply really did raise the price, and thereby net revenues, both higher than they otherwise would have been.”
Sure; if you define such a thing as a monopoly. That’s just the single seller monopoly; the one that Rothbard acknowledges as such.
“The significance of monopoly prices is not that they yield dead-weight losses; Mises never claims that they yield such a thing. They are catallactically interesting because they represent the one condition in which a market decision is not ultimately driven by the consumption of the final goods or services of the production process in question. It is the one instance on the free market of a conceivable abrogation of consumer sovereignty (or as I prefer to say “consumer captaincy”).”
Why would this be true? Why isn’t this decision not still driven by ‘consumer captaincy’? The fact that the demand for a good is inelastic, is a consumer decision. So I don’t see why it would follow that it’s not driven by consumer captaincy. Presumably; the producer won’t make that many crops next time (if he’s burning them), which would also free up resources for other aims, that people can value. Furthermore; because of the sheer fact that consumers are paying the price, proves that they don’t mind the price/good. So I’m not sure about this abrogation of consumer captaincy.
Again; one could imagine certain actions that can be interpreted as the behavior you have indicated above. I’m just not convinced this is a a monopoly price different from the single seller monopoly. I withhold my services a lot; I burn them on leisure. And yes, I have a monopoly. But since catallactic competition talks about the competition between all goods and services, it doesn’t really make sense to talk about ‘monopoly’ that way. I’m actually also dissatisfied with the concept of a ‘monopoly’ in the light of government franchise and all. I would say it’s an arbitrary limitation of competition, not a ‘mono-poly’. But that’s just nit-picking. For all practical purposes; one could call it a monopoly.
This is a fantastic point you’re making.
While Grayson is pointing out the alleged “exception to the rule” of consumer sovereignty, he neglects the “exceptional” conclusion that must follow, namely that profit in this case signals loss of welfare and not increase in welfare.
This is a rather absurd conclusion considering that we are talking about free markets. For a given fixed amount of input, there can be a case where the output value productivity is higher, but the economist will declare it as a lowering of welfare rather then an increase of welfare. Again, that’s according to monopoly price theory. I say red alert! red alert! we know economics is not usually intuitive.
Grayson has said nothing about welfare. We can admit that a person has restricted his supply for the purpose of raising his price and increasing his profits, and we can admit that in the short-run this meant there was less of a good and at a higher price than there otherwise may have been, all without claiming that there has been a “loss” in “welfare” at the expense of a “gain” in “welfare.”
Michael & Grayson: The fact that he makes demand inelasticity a condition for the emergence of a monopoly price shows that he was only thinking of total revenue. Elastic demand, in Mises view, makes monopoly prices unprofitable because they decrease total revenue. But if total costs fall by more than this decrease in total revenue, it can be profitable. So elasticity has little to do with it.
Point taken.
Yet, it is still difficult to reconcile the claim of consumer sovereignty being abrogated with the end result of higher output productivity per unit cost.
This doesn’t constitute monopoly price. This is why we are talking about the unique and rare example of crop burning. Costs have already been determined.
“We can admit that a person has restricted his supply for the purpose of raising his price and increasing his profits, and we can admit that in the short-run this meant there was less of a good and at a higher price than there otherwise may have been, all without claiming that there has been a “loss” in “welfare” at the expense of a “gain” in “welfare.””
`<= But this wouldn’t be a monopoly price; but any price.
Imagine me producing 50 billion cars. The marginal benefit is probably zero; so me producing less, would increase the price and increase profits.
It doesn’t have to do with a simple monopoly, which, as Mises said, is not catallactically distinctive. We’re talking about monopoly prices. And the existence of a monopoly is not sufficient for there to be monopoly prices.
Because, again, motive matters. Consumer sovereignty isn’t about productivity. It’s about what ultimately directs a market decision.
Why would this be true? Why isn’t this decision not still driven by ‘consumer captaincy’? The fact that the demand for a good is inelastic, is a consumer decision. So I don’t see why it would follow that it’s not driven by consumer captaincy. Presumably; the producer won’t make that many crops next time (if he’s burning them), which would also free up resources for other aims, that people can value.
Yes, of course the decision to not make so many crops the next time is at the ultimate behest of consumers. And the elasticity of the demand curve is a result of consumer valuations. But that is not the same thing as saying, “the farmer is burning crops to improve his own lot via changing the structure of production to better serve consumers,” because the concrete act of burning the crops is not an instance of changing the structure of production to better serve consumers.
Furthermore; because of the sheer fact that consumers are paying the price, proves that they don’t mind the price/good. So I’m not sure about this abrogation of consumer captaincy.
Whether consumers mind the ultimate price or not is not the criteria for determining whether a concrete act (burning the crops) is an instance of changing the structure of production to better serve consumers.
Again; one could imagine certain actions that can be interpreted as the behavior you have indicated above. I’m just not convinced this is a a monopoly price different from the single seller monopoly. I withhold my services a lot; I burn them on leisure. And yes, I have a monopoly.
But you are not charging a monopoly wage, because you are simply redirecting your personal energy to immediate consumption.
But since catallactic competition talks about the competition between all goods and services, it doesn’t really make sense to talk about ‘monopoly’ that way. I’m actually also dissatisfied with the concept of a ‘monopoly’ in the light of government franchise and all. I would say it’s an arbitrary limitation of competition, not a ‘mono-poly’. But that’s just nit-picking. For all practical purposes; one could call it a monopoly.
This is an important passage from Human Action regarding the issue of whether the monopoly-price prerequisite of a monopoly of supply is present:
“The reaction of the buying public to the rise in prices beyond the potential competitive price, the fall in demand, is not such as to render the proceeds resulting from total sales at any price exceeding the competitive price smaller than total proceeds resulting from total sales at the competitive price. Hence it is superfluous to enter into sophisticated disquisitions concerning what must be considered the mark of the sameness of an article. It is not necessary to raise the question whether all neckties are to be called specimens of the same article or whether one should distinguish them with regard to fabric, color, and pattern. An academic delimitation of various articles is useless. The only point that counts is the way in which the buyers react to the rise in prices. For the theory of monopoly prices it is irrelevant to observe that every necktie manufacturer turns out different articles and to call each of them a monopolist. Catallactics does not deal with monopoly as such but with monopoly prices. A seller of neckties which are different from those offered for sale by other [p. 359] people could attain monopoly prices only if the buyers did not react to any rise in prices in such a way as to make such a rise disadvantageous for him.”
But as pointed out here, the source of the motive to gain monopoly price, is in fact, consumer behavior. The consumers are still directing production. Consumers’ demand could have been differently, i.e, elastic, and the burning of crops would not have taken place. And the farmer is motivated by the same drive - To earn profit.
Of course, again, the farmer never knows the demand curve of the consumers. He’s just speculating and we can never look back and say: the curve was inelastic or elastic.
That simply doesn’t satisfy the Hutt-ian conception of consumer sovereignty, because again, the concrete act of burning the crops is not itself an instance of changing the structure of production to better serve consumers, even if the general conditions which led to the act are by and large determined by consumer demand. This isn’t a difficult concept, so I have to wonder if someone as bright as you must be simply unwilling to really grapple with it because it doesn’t sound “libertariany” enough.