Monopolies

Economics
1

Before I begin this discussion, I want to establish a few things.

  1. I understand and believe that there is a distinct difference between economic power and political power, and that purely economic monopolies could not gain political power under capitalism.

  2. I am against antitrust law.

That being said, I am wondering about the economic effects of monopolies rather than political ones.

My main concern is that once a monopoly is established in a given market, because of the fact that there are such extravagant costs required to enter that position, no competition could ever possibly challenge that monopoly and thus the monopoly could lessen the quality of their products and raise their prices without much to fear.

Now, the main argument I have heard against this is that while such monopolies would make it very difficult for competition to arise against them, no such monopoly could forbid the possibility of future competition (only the government could do such a thing). Also, such monopolies would still be subject to the laws of supply and demand, and so they could not arbitrarily lessen the quality of their products and raise their prices.

I agree with all of that, and it seems clear that such monopolies would still be subject to such market forces. What I am concerned about is the speed and efficiency of progress in a given market if a monopoly takes hold. It seems that at the very least, competition in markets was a great catalyst to the economic growth that we have experienced in our history. When this competition is essentially removed in a market with a monopoly however, what incentive is there for that company to lower costs and raise quality TO THE EXTENT that they would have in a highly competitive market?

Thanks for your time.

2

what incentive is there for that company to lower costs and raise quality TO THE EXTENT that they would have in a highly competitive market?

My suspicion is that the incentive lies not in acquiring a larger market share, but rather in acquiring products outside of the monopoly’s original scope. this in and of itself wont increase quality/decrease price, but the resulting integration/support of itsproducts will.

For instance, Media Domination in the written newspapers spurred a market for internet news. While they werent a monopoly in that area, there was incentive for dominant businesses to diversify their services into a growth area. Now written Newspapers are available free on line, and increased access is offered to transcripts speeches etc…

I guess thats not directly related to monopolies, but the point is that monopolies always have a direction in which they can grow

3

While this question has been asked throughout the history of capitalism - and has been properly answered by many of its famous champions - you seem to be falling into the same trap as the conservatives have throughout that history. You treat collective benefit as a primary concern, and you appear to reverse economics and politics.

Let me make it clear for you exactly what you have asked:

“I know a man should be free to own what he can produce. But if he is the only one producing that product, I am ‘concerned’ I might not get as good a product or as good a price under those conditions as I MIGHT get under conditions where he is NOT the only one producing that product. Obviously it is ‘better’ (for ME) if I get a better product or a lower price - and get them sooner rather than later. And if it is better for me and all the other people trading with him, then it is better for ‘society’. As such, that makes it REALLY ‘good’. So I want to know if there is an incentive for him to make a better product at a lower price. Otherwise, I will not be as satisfied with the trade as I could be. And THAT is a ‘problem’ - both for me AND society.”

Do you see ANY problem with this statement and the assumptions it makes?

Furthermore - IF there is no ‘incentive’ for a property owner to offer a better product or a lower price, then what? Do you abandon capitalism because it produces results you don’t like? Is it a ‘flaw’ you believe would require some sort of ‘fix’? That is certainly the implication of your question. The implication is that, even if the political principles of freedom are correct, they can produce ‘bad’ economic results, thus invalidating the political principles.

Whether that is your standard, or the standard of your opponent, it is wrong. And it is THAT standard which must be challenged - the standard of elevating economic results over political principles - not will I get a better price etc? You must challenge the philosophic reversal of economics being placed OVER politics.

When you do, the question has no meaning - because there is no ‘problem’, just a raw fact.

Now, if that was not your implication, then what is the point of your question?

4

RadCap,

That was not my implication. When I have stated to people that it is only the coercive monopoly backed by political force that is dangerous, and not the non-coercive monopolies that may come out of capitalism, the typical response has been: well, that will destroy the efficiency of the market.

I am in no way making the claim that if something is economically inefficient, then the government should step in order to benefit society. I agree that the economic results of capitalism do not eliminate the fact that every man has a right to his own life.

However, it has been argued by Rand that capitalism is not only the most moral political system but also the best economically as well. I am very familiar with Rand’s moral arguments, but I am not familiar with very specific economic arguments besides the basics of Adam Smith and such. Particularly, I am not familiar with economic arguments against the feasbility of monopolies in a capitalist system or against the idea that such non-coercive monopolies cause harm.

Therefore, I am merely inquiring as to whether or not it can be said, in purely economic terms, that monopolies are not ECONOMICALLY harmful in a given market (or not economically feasible, etc).

RadCap, as a personal note, you should try not to always assume the worst when people make a particular statement that can be interpretted in a number of ways. I had absolutely no intention of claiming that any economic problems arising from capitalism should then be fixed through the government. In fact, I clearly stated as such in the second statement I made in which I said that I am AGAINST antitrust law.

5

A monoply sometimes emerges naturally when a firm experiences economies of scale, as reflected by a downward-sloping, long-run average cost curve (cost per unit on the y-axis and quantity per period on the x-axis). A single firm can sometimes supply market demand at a lower average cost per unit than could two or more firms operating at smaller rates of output. To put it another way, market demand is not great enough to permit more than one firm to achieve sufficient economies of scale. Thus, a single firm will emerge from the competitive process as the sole seller in the market.

For example, the transmission of electricity, not the production, exhibits economies of scale. Once wires are run throughout a community, the marginal cost of linking additional households to the power grid is relatively small. Consequently, the average cost declines as more and more households are wired into the system.

6

If that was not your implication, then you should have not had a problem with my post. You should have agreed that the question is indeed POINTLESS and THANKED me for pointing out that fact. The fact that you are ANGRY with me about my post indicates you still have not recognized the faulty premise from which the question proceeds, since you are STILL asking it - ie STILL treating it as a valid question.

It is NOT.

You want to know if a producer without competitors will be as ‘efficient’ as producers who have competitors. By WHAT STANDARD are you going to judge which is ‘more efficient’?

The ONLY think you can do is take the FACT of a situation and IMAGINE some fantasy reality where people behaved differently. Then you are going to compare the fact TO your imaginary model - the one which you believe produces ‘better’ or ‘optimal’ 'speed and efficiency. (BTW - speedier and more efficient for whom? 'The producer? The consumer? For society? I suggest your ‘efficiency’ standard is a collectivist one - which is another of the conservative’s errors on this topic).

This is EXACTLY what I meant when I said you have fallen into the same trap as conservatives. That is what their ‘perfect competition’ is - a model which purports to represent the ‘best’ market behavior. That is the imaginary STANDARD by which they JUDGE the current behavior of any given market. It is how they determine whether the behavior of producers is ‘good’ or not - ‘speedy’ or not - ‘efficient’ or not. The problem is, the model does NOT represent reality - and CANT.

For instance, the FACT is - Microsoft has a virtual monopoly on Operating Systems. Now to what IN REALITY can you compare its monopoly in order to decide that it would have been BETTER - it would have been SPEEDIER and more EFFICIENT for "economic growth " (of some unnamed group)? You can say: well, if this condition had not been, and if that condition had been, then maybe the other might have happened, and ‘we all’ might have experienced more 'economic growth. But how exactly can you PROVE it would be better?

You cant. Why? Because one cannot ‘prove’ the unreal.

In other words, all you can do in such instances is compare FACT to FICTION - the real to the unreal. And if REALITY does not meet the expectations of the unreal, you intend on calling REALITY deficient. You will say reality was not as efficient or as good or as speedy at creating economic growth as the unreal says it should.

Do you SEE a problem yet?

It is INVALID to compare reality to the unreal - for ANY purpose. Period. Yet that is the premise from which your question proceeds. And that is why it is POINTLESS.

–

BTW - in your ‘personal note’ to me, you chastised me for ‘assuming’ something about your post which was not true. I would suggest I understood more about what you were saying than you did - ie I grasped the underlying premises upon which the question stood. While your ‘intent’ might be interpreted any number of ways, the premise upon which your question proceeds cannot. And it is THAT which I addressed. In other words, I wasn’t ‘assuming’ anything. I simply delved into the foundation of your post. And - as to your specific complaint - you said: “I had absolutely no intention of claiming that any economic problems arising from capitalism should then be fixed through the government.”

Two points:

One - Did I make the claim that you suggested or were going to suggest that govt must fix the ‘problem’? No - which means you presented a straw man in support of your claim against me, leaving your claim unsupported.

What I DID say is that the logical conclusion of the premise which you accepted - explicitly or implicitly (ie held by you or accepted unknowingly in debate with others) is an inversion of economics and politics - ie a condemnation (by you or them) of a politics because of a “problem” in economics. By pointing out this fact, I hoped you would realize there was a conflict between your express dislike of antitrust and the premise upon which your question stood. I also hoped you would resolve that conflict by discarding the offending premise.

It turns out my hopes were not realized.

Two - In that sentence, you reiterated EXACTLY what I said was your error. NO economic ‘problem’ CAN arise from capitalism. It is simply not possible for it to be ‘less efficient’, ‘less speedy,’ or produce ‘less growth’ according to an *objective* standard of economics. Not because there are ‘incentives’ which keep it ‘more efficient’ etc, but because there is no valid standard by which it may validly be judged against.

That is MY premise. If you wish to challenge it - if you wish to claim it is wrong, and by extension, that I am therefore accepting some invalid principle or premise, please do so. Though I may disagree with your argument, I will not mistake it for a personal attack. I will, however, take additional claims that I am focusing on personal intent as opposed to intellectual content, well… personally.

7

I agree with RadCap: It is not valid to say that monoplies “cause” “problems” or “economic harm.”

A monopolist still trades value for value with you. If he offers a product you like at a price you are willing to pay for it, you are BETTER OFF with the monopoly than you would be in the absence of it. The only thing the monopoly has “caused” is an economic BENEFIT, both for you and for its owner, and for the makers of all those products the owner will spend his money on, etc. etc.

Sure, if the monopolist had some competition, he would likely offer you an even better deal. But as it happens, he DOESN’T have any competition, so you don’t get an awesome deal, just a good one. If you call this a “problem”–well, it is the only kind of problem I would ever like to have! :wink:

8

The fact that you are ANGRY with me about my post indicates you still have not recognized the faulty premise from which the question proceeds, since you are STILL asking it - ie STILL treating it as a valid question.

I understand the point that you are making now. I was not making any claim whatsoever about the “economic efficiency or inefficiency” of capitalism, but rather, wondering how to respond to such an argument from someone else. I realize the faulty premise behind such a question now, thank you. (As a side note, I was not angry with you in my earlier post).

However, you could have gone about pointing this problem out to me in a much more civilized way. Instead of calmly explaining my error (after which I would have thanked you kindly), you treated me as though I were a moron that needed to be screamed at in order to learn something (through your constant use of capital letters and your putting me down because I did not understand your claim right away).

I understand that your primary concern is in getting across your point as clearly as possible, and you did do that with your post. However, you could easily do the same without being so (seemingly) hostile towards everyone you disagree with. I understand a natural hostility towards skeptics, Kantians, communists, and the like (I have it very much as well), but the majority of us here accept Objectivism and are merely trying to clearly identify our premises as well as elaborate on our own views. (Although, there have been people posting here that do deserve such treatment: trolls, irrationalists, etc.)

I have no desire to enter into some personal argument with you RadCap. You corrected the error in my premises and I thank you for doing so. Also, your insights in a number of other issues have been quite helpful. However, I think you should entertain the thought of being more civil in your responses. Thanks.

9

RE

  1. I am glad you understand my point now.

  2. As I have indicated in numerous posts on this site, I use caps as my bold because formatting as I write breaks my train of thought and makes writing more difficult for me. As such, I was NOT screaming at you, NOR was I being hostile. If you were NOT aware of this, now you know and can RECONSIDER your claims against me. If you WERE aware, and just consider emphasis on terms or phrases as screaming and therefore an indicator of hostility, then I simply cannot help you.

  3. Your ‘scolding’ of me in your ‘personal note’ CERTAINLY made it seem like you were angry with me - as does THIS post (comments like “asshole” are not indicative of a ‘calm’ or ‘friendly’ attitude).

  4. Please provide quotes of my “put downs” of you. If you CANNOT, then I expect an apology.

  5. In this last post, you did SPECIFICALLY what I asked you NOT to do. You spent one VERY short paragraph discussing the topic and THREE MUCH LONGER paragraphs berating me - ie attacking me personally. As I said, you made a mistake in your first post when you mistook an attack on your ideas as an attack on you and your intentions. I warned you against repeating that error. Yet , that is PRECISELY what you have done - but on a MUCH BIGGER SCALE.

I would ask that you cease this hostility NOW.

  1. Please refrain from name-calling on this site. No matter what you think of someone here, calling them a ‘jerk’ or an ‘asshole’ WILL NOT be tolerated.
10

RadCap,

I believe this situation is being blown out of proportion. I do not hold any hostility towards you. The reason why I spent only one paragraph discussing the actual issue at hand (monopolies), was because of the fact that your post answered my question.

The second issue was your presentation of your viewpoint (at least as it was perceived by me). This issue had not yet been solved, and therefore required more space.

First I would like to point out that there is a major difference (at least for me) between being really angry with someone, and just disliking some minor issue. Your presentation of your viewpoint represented the second, not the first.

The main reason why I reacted the way that I did is because of the fact that the presentation of your arguments, on pure face value, appears to be extremely hostile. This is mainly because of your use of capital letters and other such minor forms of your presentation. Your content however, was accurate.

I continue to suggest that in your discussions with others on this forum you should avoid the extravagant use of capital letters; especially for those people who have not talked with you before. I know that I certainly do not want to give the impression that Objectivists are overtly emotional and angry towards any person who makes any mistake whatsoever or who does not have knowledge of a particular item. I know that this is not your intent for the use of capital letters, but it sure does come off that way.

I want you to understand that I am not angry with you, this is not an issue for me, and to move on. Thank you for providing an answer to my original question, and I apologize for any perceived hostility on my part. :wink:

11

I believe this situation is being blown out of proportion. […] the presentation of your arguments, on pure face value, appears to be extremely hostile. […] minor forms of your presentation […]

Hmm, so we’re blowing out of proportion an appearance of EXTREME hostility caused by minor presentational details ? RE, it appears to me that either you drank too much whiskey or I drank too little coffee this morning. B)

Each of us has his personal style and AFAIAC I love RadCap’s one because of its radiant clarity. Of course, if you get something wrong, it’s rather disappointing to be confronted with your wrongness in such a lucid way; you might even perceive it as a form of hostility. But you shouldn’t. One of the major tests in life for a person who wants to be rational is the test of whether you are offended when you are proven wrong or whether you accept and embrace the truth.

12

First, I agree with what RadCap and Capitalism Forever have already said.

I would add that you seem to have a fuzzy grasp of the concept “monopoly” that adds to the confusion.

I don’t think you can validly apply that concept to any situation that does not involve the initiation of government force–certainly not if a given company is the “dominant” supplier of a particular product or service, and not even if they are the sole supplier.

In other words, I think “non-coercive monopoly” is a contradiction in terms.

Here’s why: it would be impossible to establish and maintain a “monopoly” non-coercively, except by offering a value at a price and quality that no one else can compete with.

You ask: “When this competition is essentially removed in a market with a monopoly however, what incentive is there for that company to lower costs and raise quality TO THE EXTENT that they would have in a highly competitive market?”

The answer to which is, how do you think they established the “monopoly” in the first place (if not backed by government coercion)? Precisely by lowering costs and raising quality dramatically. And as soon as they reverse that process, they open themselves to the possibility that someone else will cut into their market. (The argument against this is typically that the new competitor doesn’t have the resources to enter into the market and successfully compete against the established “monopoly”–but there’s no reason why a successful entrepreneur from a different industry, who would have the necessary resources, wouldn’t be able to cut in on that market. It’s not the case that there is the big, evil “monopoly,” and everybody else are just oppressed “little guys” who can’t compete. Without the backing of government force, the “monopoly” really has no way of preventing anyone else from entering the market if they have some edge–i.e., if they are somehow able to lower costs and raise quality even more.)

Although I think the question is kind of moot, because I can’t think of a single example of a company that controls a whole market. Microsoft certainly doesn’t count, they have several competitors. It’s true that their competitors are not nearly as successful as them, but they exist, and in some cases are themselves profitable. The reason they aren’t as successful as Microsoft is precisely that they don’t offer as much value. Are we to say that Microsoft should be in any way condemned because they offer a greater value? Of course not. They obviously cannot be condemned morally on those grounds, but they also can’t be condemned economically.

13

AshRyan,

That is the kind of answer I was looking for, thank you very much.