The question is, what does monopoly mean, if it can be natural or unnatural, coercive or voluntary?
The last I checked, “perfect competition” in today’s economics textbooks is defined as an industry with zero economic profit* and free entry of new firms.
So if we have an industry where only one firm is operating at zero economic profit and new firms do not enter, while free to do so, because they can not do so without losing money, then such an industry is not a monopoly but a competitive industry, even with one firm.
*profits after deducting owner’s salary or interest on capital and opportunity cost of entering the next best industry or market
I understand the neoclassical theory of monopolies (or at least the basics, as presented in a principles of and intermediate level course on microeconomics in college). My point is that in the long run, an unregulated monopoly will be able to produce far more than a regulated one, thereby increasing consumer welfare.
BTW, can Tullock’s paper be found somewhere on the internet?
Unfortunately, arguing over the definition of the words effectively neuters most of the value of the word.
I would say that strictly everything has a monopoly over something else–My monitor has a monopoly on changing the color of the pixel here:__ in this position of space and at this time. But I don’t think anyone but me cares about what color that pixel is right now and most would not ascribe a monopoly to a tangible “good” like a monitor anyhow (i.e. it does not measure benefits or detriments).
However, monopoly is not easy to define in a practical sense because everyone has a different preference for substitutes and willingness to seek them. McDonalds doesn’t have a monopoly (in any sense) on burgers (and certainly not on lunch), but maybe they have a coercive monopoly on McDonalds burgers in areas where their Trademark is enforced?
The more narrowly you define the product the less relevant the term “monopoly” becomes but the more likely it is to exist. Perhaps we need more clearly understood classifications of the probability/reasonability of substitution and the specificity of the good to even start considering defining monopoly.
So words only have value when we don’t define them? Or words lose value when they are precise in meaning?
How does one “get” a monopoly? If they can be competed with, is it really a monopoly at all? Mono from “single”.
Etymologically “monopoly” means “single seller”. According to Prateek that can’t be how the textbooks define it; it would overlap with free competition.
So we’re back to, how is a single seller somehow worthy of all of this academic economic attention?
Oh wait, academic economists don’t do research for the market.
“HAY LETS MAKE UP A PROBLEM AND THEN WRITE ALOT ABOUT IT BUT WE WONT TALK ABOUT THE REAL PROBLEM, THE GLOVED FIST”
Sounds like global warming. Watermelons never want to reduce the emissions of aircraft carriers.
Sorry I took so long to respond to you here, LS.
I think you meant to ask how the word “monopoly” can be defined such that distinctions of natural vs. unnatural and coercive vs. voluntary can be made.
As Caley McKibbin posted, those distinctions can be made when “monopoly” is defined as “a situation where there is a single provider of a given good or service”. However, that definition gives rise to some interesting statements. For example, each of us could then be considered to hold a natural monopoly over his own time and effort (or labor).
Interestingly enough, the Wiktionary definition for “monopoly” states that it comes from an Ancient Greek word that meant “a right of exclusive sale”. Even here, however, one could say that every person has a monopoly (i.e. a right of exclusive sale) over his own time and effort.
Then again, not all academic economists see the gloved fist as a problem, do they?
That’s weird: I have a monopoly on my own services. Is this a privilege reinforced by violence? In one sense it is, but I always thought we were in favor of this privilege, called self ownership?
Yes, for someone who understands economic theory, there are natural monopolies like “I am the guy who invented this, and nobody else knows about it yet”. In essence, new ideas, privacy, individualism, and brand recognition are all natural monopolies.
Unfortunately, the unwashed masses, especially the political class, tend to think of “monopoly” only in terms of dominance over an industry, which IS bad, and will pretty much never happen in a free market.
That kind of monopoly pretty much only happens through coercion, like the FDR administration granting AT&T a monopoly, your local county government granting your cable company a monopoly, the corrupt Congress granting intellectual monopolies of almost unlimited timespan via copyright law, companies gaining what are effective monopoly through a combination of being favored by government and IP law, like the Federal government buying millions of Windows licenses and protecting duplication through copyright/patent monopolies, et cetera.
In a free market, a “natural monopoly” is an ephemeral thing: You come up with a new product. No potential competitor takes you seriously. Your project becomes The Next Big Thing, and for a few months you have a natural monopoly, until competitors manage to ramp up a competing version of the product. Even when they do, you’ll always be “The Original Widget”, and therefore keep the largest market share, if you are consumer-responsive enough.
The same, obviously, is true if you write a book…for some time, nobody else is printing the book. What’s more, you’ll always be “The Author” and “printed by the authorized publisher”, and so maintain probably the lion’s share of the publication of the book.
I had typed a different post but I lost it to internet… but anyhow:
I think that absolutely words lose value when they become [too] precise though it’s certainly circumstancial. That’s not to say that a complete absense of precision has the most value but we work in the area in between where the words “animal” and “bird” are more useful and practical in most instances than “living thing” or “Sialia sialis” [a kind of blue bird]. All of them are valuable depending on the circumstance but my subjective value is that the ones closer to the middle are more practical and convey the amount of information necessary in the most circumstances.
To address “monopoly” specifically I think this word is effectively useless as I don’t think there are any “true monopolies” (my words). Anything I can think of has a viable substitute–just perhaps not one most people would consider practical. I don’t consider apple to have a monopoly on the iPhone because my personal assessment of that situation is that it is too narrowly defined to be considered a monopoly–there are plenty of alternatives to both a) smart phones and b) phones. To be allowed to narrowly define monopoly to that level makes the word impractical for the opposite reason–e.g. that burger king has a monopoly on burgers…on their property.
But they should, because the political means (violence) are not the economic (market) means. It’s like hiring a brain surgeon to paint your house. What is the point?
Yes, this is a winner take all effect, which happens IN THE MARKET, and as Nassim Taleb explains with his Mediocristan/Extremistan examples, is “natural” to particular domains.
Good post Kaz.
Sounds like cognitive dissonance, or at least a performative contradiction to me. You need words which have a precise meaning, to make a claim about words not having “value” (which is not yours to determine objectively anyway) when too precise.
I didn’t know we were talking about objective value–I was certainly making a subjective value claim but my wording must not have been precise enough.
Steve H. Hanke recently published an article on franchise bidding contracts in France (and some critics about “natural monopoly theory”)
Very interesting.
http://globalwater.jhu.edu/index.php/magazine/article/privatizing_waterworks/