The Misplaced Fear of ‘Monopoly’

When you debate libertarianism or the free market on the Internet, you are guaranteed to hear, in addition to the inevitable roads objection, “Why, ‘monopolists’ would dominate the world! Wherever would we be without our wise protectors in the public sector,” etc.

That’s why I wrote this essay on monopoly. It considers monopoly from the point of view of history and of economic theory. It shows that this fear is unfounded, that it is based on preposterous assumptions, and that even if it were a reasonable fear, defense mechanisms already exist on the market itself to ward off any so-called predator.

Anonymous

I can’t believe I’m just just now finding out about this article a month after it was posted… can’t wait to read it. Never can get enough Tom Woods…
http://www.vincebullinger.com Vince Bullinger

I haven’t even read your critique yet, but I will. I’ve encountered this numerous times and it’s sooooo easy to destroy. I mean, from “government is a monopoly” to “a truly free market monopoly is impossible because you can’t make everybody happy” to “if there IS a monopoly in a truly free market, that means they’re somehow catering to EVERYBODY and beating EVERYBODY at it. The question then becomes: why is that bad?” you have the entire concept crushed. You probably destroy it even further, Tom.
http://twitter.com/critchie106 Chris Ritchie

You’re assuming that Wal-Mart’s suppliers have the clout of Merck. Many don’t. Wal-Mart dictates prices it will pay to its suppliers.

http://hbswk.hbs.edu/archive/4417.html

Eventually, suppliers get wise and create 2 product lines: one for Wal-Mart at lower quality in order to meet margins and another for other retailers.

http://www.businessweek.com/innovate/NussbaumOnDesign/archives/2007/02/can_this_be_true_of_wal-mart.html

And DeBeers is widely known for making what is actually an abundant mineral a scarce resource in order to drive up the price. Rubies and Sapphires are more rare than a diamond. Here’s a good paper I read years ago about the diamond cartel:

http://pages.stern.nyu.edu/~lcabral/teaching/debeers3.pdf

http://www.gemsociety.org/info/igem5.htm

Finally, I believe it is a misconception that Adam Smith advocated a completely “invisible hand” when describing the free market. Few understand that Adam Smith’s work was in response to abuses he observed from the East India company and their dealings with India. Those abuses included impoverishing an entire population for the benefit of a few. He did write against income inequality. A great book on that unfettered monopoly is The Corporation That Changed the World by Nick Robbins.
http://www.amazon.com/The-Corporation-that-Changed-World/dp/0745325238

I believe in the free market, but you still have human beings involved. There must be governance in some form. Ideally, we are self-governed and follow the non-aggression principle. In that environment, sure, we can all trade peacefully. Absent that, how does the “Market” ensure that monopolies don’t crush choice?

This is an interesting take out of UMass:
http://scholarworks.umass.edu/cgi/viewcontent.cgi?article=1064&context=peri_workingpapers
Anonymous

So… You destroy your own argument. The market found a way to deal with the Walmart margins. Cheap stuff for Walmart.
Y’know, Walmart is big but there’s an awful lot of other pharmacies out there. And if Walmart’s drugs suck, then people will go to the CVC or wherever…

The deBeers scam is COMPLETELY govt enabled. They couldn’t do it without the cooperation of the S. African, Russian, and British governments. They (the govt.s) are players too. And they can enforce with violence. Only kind of monopoly that works.
skpg

Monopolies do exist today mainly in the technology sector. Microsoft for example is a monopoly due to copyright law. Microsoft standardized the desktop market in the 1980s and because windows is the mostly used operating system in the world, it gets most of the support. The problem is under the copyright laws in software it’s illegal to reproduce windows operating system, thus M$ can sell windows at inflated prices. Also source code is protected under copyright and patents, therefore forking the windows OS is a crime which means it’s difficult for software developers to port their software from windows to a different OS like Linux or Mac.

Then you have Intel who have a near monopoly in the destkop market because of patents. Their chip designs cannot be copied. As Stephan Kinsella pointed out ideas are not property rights, and in order to manufacture an Intel-like CPU, you have to a get a license from Intel which cost a lot of money.

There is wide spread patent and copyright abuse in the technology sector.
http://twitter.com/critchie106 Chris Ritchie

Yep. The Market took care of it all right, by shorting the customer of a quality product. Of course, it’s not widely reported that the suppliers have 2 production lines so people believe they are getting a product that they aren’t actually getting.

My argument is that the Market isn’t truly a free market unless people have knowledge of the transaction. Knowledge is being hidden in many cases so that people can’t make an informed decision.

Glad you see that DeBeers is a complete scam. I agree.
http://twitter.com/critchie106 Chris Ritchie

I agree. The book, Against Intellectual Monopoly talks about the same thing.
http://twitter.com/Spagaletto C. Rakish Spagaletto

In your article, you talk about peaceful monopolies. You should have contrasted
this with violent monopolies (state services).
Anonymous

Great essay, I have a question though, how do you deal with the anti-capitilist/OWS crowd that has a fear of “isms”. They simply will NOT accept any explanation of protectionism or mercantilism.
I tried to explain why the post office should be privatized earlier and the only thing I could get out of the other person was that the post office is a “public resources” something he couldn’t explain…
This is my biggest frustration, the fear of isms, I simply don’t get it.
-Thorax232
——————————————–
Family Survival Course Book
romano

I do not think government is a monopoly. There is a market of governments – you can move from one state to another. It is often difficult but not impossible. How is this different from living in an apartment for example? You have to change the hotel and not its owner if you don’t like its rules. Hotel is a good example of territory monopoly.
Of course, there is no coercion in hotel. True but (1) state is supposed to coerce and (2) coercion does not mean there is no choice. People actually choose to suffer under government rather than to move somewhere else or try to change something from within. If la Boetie is true and we consent to be governed then this argument lose ground.
Competition among states operates on the field of politics, diplomacy and war. I disagree with libertarian idea that there would be few wars in a free society because war is costly. The opposite is true – because wars are costly there has to be a state. In a sense politics is more fundamental than economics because it creates room for economic activities. Dismantle the state and you remove protector that can only be replaced by another one.
Why not to have a protection based on voluntary contract and not coercion? For several reasons: (1) protection suggests territory to be protected rather than persons – it is easier; (2) people inhabitating particular areas and sharing language, habits, laws etc. make a nation i.e. certain collective identity that calls for sovereignty and collective protection – it is historically given and may change in the future but I don’t believe in radical change; (3) coercion of few based on passive consent of many seems to be more efficient in collecting funds than voluntary contract.
These are just a few thoughts on why there are states all around us today. Perhaps states are not nice or ethical but I am prone to believe they are necessary outcome of human conditions.