Under Chicago School economics, will monopolies naturally go away?

  • I have two questions regarding monopolies in a capitalistic society:

    1. According to Milton Friedman and Thomas Sowell, among other Chicago School economists, under purely market forces monopolies will naturally not be sustainable for long. When I'm trying to defend a libertarian state that does not interfere with the free market, monopolies will come up regularly as an example of something that the government will need to interfere with. How viable is the libertarian view that monopolies will naturally go away?

    2. All the examples of monopolies that I have found are created by the government, or at least aided by it in large ways. Are there any counterexamples? If not, why not?

    Should be migrated to [Economics.SE].

    If you want an easy to read but thorough understanding largely from the perspective of the Chicago School, I definitely recommend Thomas Sowell's "Basic Economics." There is a good chapter in concerning monopolies and much of it revolves around defining what constitutes a monopoly and what may be conflated with a monopoly.

    I didn't know there was much of an argument as to whether a monopoly could naturally grow or not. There's certain realities that we have to live with. Either a society has a government, or it has anarchy. If it has a government, it will have businesses who lobby that government to create regulations. It's not like politicians say 'hey, how can i create a monopoly for the fun of it' - so while you say every monopoly is created by government - the reality is, every monopoly is created by a business/rich person, who lobbies a person of public power, to create regulations that decrease competition

    While it's true, some regulations that were well intended by government officials could lead to a decrease in competition in a market. The solution to this isn't deregulation, the solution is accountability. But regardless, i think you'll find that the majority of monopolies 'created' by government, were actually created by businesses lobbying government. Get rid of crony capitalism for a year and see how many monopolies a government creates then. After that, if government is still creating monopolies left and right - i'll stand corrected and convert back to libertarianism.

    Deregulation is just a circular solution. You might find good honest politicians every once in awhile who want to get rid of regulations that create an unfair market advantage (bernie sanders pharma bill) - and maybe you'll get rid of a lot of bad regulations... but once those good politicians are gone - they'll be replaced by politicians who only care about money - and you'll get those regulations right back.

    @JustinBeagley, crony capitalism is still the government doing things, whether it's on behalf of corporations or not. The point is that corporations couldn't do that kind of stuff on their own, so they have to get the government to do it. If you had a government that couldn't do that kind of thing or at least didn't have a precedent for that (regulation, grant special exceptions) then you wouldn't even get crony capitalism. And the dichotomy you set up between 'anarchy' and 'government' is false. You *can* have a government that corps can't lobby for such things. It's called 'small gov.'

    @JustinBeagley - and you have just clearly stated one of the best arguments for less government ever concieved. "Imagine if the next guy with access to this much power you wanted grabbed is the guy whose policies (or person) you hate".

    I don't have data to defend it, but I find all of the free market arguments make assumptions about how the world works that are demonstrably wrong. Most arguments are generally challenged by questioning what *actually* defines the line between the government and a corporation. I find typically the discussion agrees that non-violent free markets can only exist in the presence of a government like enditity.

    @user4012 - doesn't sound like you actually understood what i said. You either have government, or you have anarchy. If you have government, you will, always, it's inevitable, have people with money, lobbying them to create regulations that benefit their business by reducing competition in their market. Your solution of less government is circular. If you acheieved less government today, you'd lose it tomorrow by the mass amount of rich people showing up to that small government lobbying them to get bigger.

    @ChristopherDumas i feel like i'm speaking in circles here. This is unbelievable. You're seriously suggesting that businesses would not be able to lobby government, if government were small? Also, you don't understand what a false dichotomy is. A false dichotomy is when 2 options are given, where a 3rd is present. If society doesn't have a government or authoritative body, please tell me what structure society has if not anarchy? The point of me saying 'gov or anarchy' is to point out the obvious fact - if you have gov, no matter how small, you will have rich people lobbying their influence

    JB, you are making a *false dichotemy* between *big* government, with the capability to interfere in the free market, and *anarchy*, where there is no government, by implying that the only kind of gov is big. A government with a constitutional or structural limitation (or a government that treated the powers listed in the Constitution as a list, not a starting point) that doesn't allow it to interfere would not have "rich people lobbying their influence," because that would be a waste of time. And just because businesses lobby doesn't mean the government has to listen to them!

    And most corporations don't lobby for regulations to exist, they would rather them not be there. Yet, by definition regulations make it harder to get into a market, making it more likely to get a monopoly or duopoly.

    @ChristopherDumas PS. 'corporations couldn't build monopolies on their own' - So in your utopian fantasy of free markets and small government, you can't fathom why two large companies would agree to not compete in certain territories, so they can hike up their prices together? (comcast, TWC are currently doing this) - what? you think once government is out of the way that they'll just stop what their doing? Libertarians are as naive about free-markets as communists are about government.

    @ChristopherDumas - no, actually i'm not suggesting that the only government that can exist is big government. I'm saying that as long as lobbying is legal, you will eventually have big government (unless, as you suggested there are regulations in place - such as making lobbying illegal) - but if you're referring to the current US system, there is absolutely methods for introducing new laws/regulations into society. And the constitution and bill of rights was written that way... so i don't know what you mean by 'a government that treated the powers as a list rather than a starting point'

    @ChristopherDumas unless you're suggesting that government is making unconstitutional laws - which, i would love to see your source on that.

    @ChristopherDumas - wait... you don't think businesses lobby government for certain regulations to exist? Please tell me what you think businesses receive when they lobby our government?

    @JustinBeagley as far as the current constitution, your 100% right, I'm just saying that if there were a libertarian government it would *have* to treat its constitutional powers as a list, not a starting point. And also, the current government isn't doing anything explicitly unconstitutional, but it's clearly not limited to the powers enumerated there. And as far as your point on corporations colluding, they can't keep doing that forever, which is the point of the libertarian argument about monopolies. Have you read up on this before jumping in?

    @JustinBeagley I said `most`.

    @ChristopherDumas 'have you read up on this before jumping in' - i used to be a libertarian. Never once heard that government policies would be immutable. (although, i guess taken to it's logical conclusion the NAP would essentially be the only needed policy - right?). lol - and no - those corps could absolutely keep doing that for forever - unless you care to tell me the regulation that would exist in a libertarian society that would prevent them from doing that for forever.

    @ChristopherDumas - 'i said most' - my question remains - what do you think businesses are receiving in return for the millions they spend on lobbying government officials. Also - curious... have you ever bothered looking at the studies of differences between how most americans are represented by their gov officials, and how millionaires are represented by their gov officials... it's night and fucking day.

  • user4012

    user4012 Correct answer

    4 years ago

    As requested in comments, converting my own comments to a brief answer:

    First of all, there's no generic concept of "monopoly" and thus libertarian views on such will vary. The following aspects of monopolistic situations are distinct:

    1. "Natural" monopolies

    Most frequent argument by proponents of antitrust and those using "monopoly" as argument against libertarian ideas are so-called "natural" monopolies. These are typically things like utility companies.

    "The Myth of Natural Monopoly" by Thomas J. DiLorenzo rebuts this view this in detail. In short,

    • Nearly every case of "natural" monopoly known is merely a result of government interference - either direct one by granting exclusive rights or contracts; or indirect one by unre-pricing scarce public resources (e.g. right to place infrastructure in public spaces).

    2. Monopolies of consumer choice

    If a company provides consumers with the product they universally prefer over their competitors (e.g. by price), this is not intrinsically a bad thing that needs to be rectified, since this situation does not lead to any of the tangible problems that are stated to arise out of monopoly.

    The moment they start abusing their monopoly by raising prices above what consumers find comfortable, they cease being in a position to be able to sustain that monopoly as a competitor can then enter the market.

    (not to even go into an innovation tangent - a competitor may simply come up with a better product that justifies higher price for consumers).

    3. Monopolies that enforce their monopoly status by force.

    There are claims that Standard Oil did this. I'm not versed enough to be sure if those claims are true; but if they are such actions are contrary to libertarian principles of NAP and therefore would be prohibited regardless of monopoly-angle.

    Additional resources (sadly, youtube videos):

    Comments are not for extended discussion; this conversation has been moved to chat.

    Microsoft is the better counter example: No regulation stops you from installing any O.S. There are FREE alternatives like Linux. A lot of people complain about windows. You PAY Microsoft indirectly when you buy the computer and if you ask a Linux computer they ask you for more money. Of course you can always say that a product is better if people buy it even if forced by monopoly. And people buy so all monopolies are a type 2 by this semantic "trick". But people are still FORCED to buy Microsoft in non-apple PCs.

    I think mentioning **network effects** might be a good idea. Imagine social media for example (let's pick Facebook?), it's difficult to become a competitor simply because the competitor site is useless until your friends/family switched too.

    @borjab - I would recommend you talk to people who actually are experts on the topic, since the above is rather incorrect. I can rattle off 5 retailers selling MS free PCs (linux or barebones). Then again, I also built my own PCs as often as buy off the shelf, if not more often. So no, for the last, say, 5 or even 10 years nobody is "forced" to buy Microsoft, and they never were even before. Oh, and also it's not "non-apple" anymore either. Chromebooks run Chrome OS (which is Linux underneath) and are quite popular and cheap.

    @MatthieuM. - that argument makes sense on the surface until you remember 2 things: (1) people used to say the same thing about MySpace. Until Facebook managed to break their monopoly (2) Nobody is forced to use Facebook. There's this thing called "real life" where people communicate, like they did before Facebook came along. Plenty of people don't bother to use Facebook (<== *raises hand*)

    @user4012 I think borjab is referring to Microsoft's promotion to large manufacturers where windows was sold at an (arguably) uneconomically low price - so long as it was installed (or at least paid for) on all machines. This led to manufacturers having to charge more for Linux than Windows (they had to pay MS for Windows, then install Linux at extra cost to them). Classic abuse of monopoly - and a monopoly that government had very little role in creating. Yes, individuals can buy components and small companies don't get the preferential rates but that doesn't disprove the argument

    @user4012 is right. Microsoft can offer a better price to manufacturers that only offer their products. That is only one example of a very frequent strategy: raise barriers. It can make the customers hard to change products or hard to the competitors to enter. It is another example of inefficiency as a company is spending money trying to make life harder. Example: Apple has incentives to spend money to develop propietary accesories that will grant a monopoly on them. That is another effect: one monopoly in one market can lead to another. Ej. Microsoft forced the use of IE for years.

    @mcottle - the fact that they could install Linux by definition makes Microsoft NOT a monopoly in the first place. Dominant player? yes. Monopoly? no. Underpricing competition on one product is like... **normal tactic in 100% of industries** (ever heard of Black Friday? It's not about selling things cheaper, it's about locking in consumers to your store so you can sell them expensive non-BF products).

    Can you edit to clarify: Is the gist that Capitalist Libertarians assume the state is always imposing itself and distorting the market, and it could never be the other way around? Seems like point one in particular is assuming this, when often business meddles in politics for profitable ends. They reject the idea that government meddling in markets is itself a natural consequence of market activity?

    I think talking about what prices consumers “find comfortable” could be a bit misleading. For example, the Nintendo 3DS costs about twice as much as a phone with comparable hardware and superior software. Much of the cost, if it isn’t pure profit, is designing the handheld to make piracy very difficult - a definite inefficiency. Are consumers *comfortable* with this? No. But since they like playing Nintendo games, they’ll pay up anyway, at least until the price becomes much higher.

    In other words, that consumers must be happy because otherwise they’d switch isn’t necessarily true. All that we can say is that they’d be *more* unhappy if they switched or stopped using a product. People aren’t happy they have to pay twice parts and labor for a 3DS, but their demand for Nintendo games is fairly inelastic.

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Content dated before 7/24/2021 11:53 AM