Monopolies

Monopolies

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B: Businesses can’t oppress us.  They can’t force us to buy from them.  It’s the beauty of competition: if you don’t like their product or their prices, you can go somewhere else for a better deal.

Wal-Mart, for instance, has been criticized for the way they treat their employees.  Some have gone so far as to suggest that they use slave labor in some parts of the world.  What, is Wal-Mart forcing people at the point of a gun?  If so, that should be illegal; the “slaves” should then complain to the government and the government should prosecute Wal-Mart.  Otherwise, this is not a free market.

Supposing, then, that Wal-Mart isn’t forcing anybody to work for them, could they still be paying slave wages?  Presumably, the employees there had a job before – if they didn’t, at least some work is better than none.  But if so, then they chose to leave their previous job to come to Wal-Mart – emphasis on “chose.”  Nobody’s forcing them to work for Wal-Mart.  It may not be the ideal job, but obviously it was better than what they had before.  If the employees don’t like the way they’re being treated, why don’t they go somewhere else?  Employees have prices, too – we call them “wages” – and if they don’t like the “price” they’re being offered; well, again, the beauty of competition gives them the opportunity to take their services elsewhere.

But what happens if there is no competition?  A government can ensure this possibility by allowing only one state-sponsored business to have legal patronization in a single industry.  Prices can therefore be driven up, and depending on how necessary patronization of the business is, it prospers (or fails) accordingly.  As long as the government sponsors that business and suppresses every potential competitor, the government has sponsored a monopoly in that industry, and the only way to overturn the monopoly is to overthrow the government.

Is it possible, then, for a monopoly to exist without the government sponsoring it?  In some cases, some businesses have used excellent products, clever and perhaps occasionally questionable business practices, and whatever leverage they can muster to eliminate competitors to the point where they control over a large portion (even above 90%) of the market.  Some famous examples include Rockefeller’s Standard Oil company, the “Ma Bell” telephone company, and, more recently, Microsoft.  All three of these companies, and many more, were targeted by the government as violators of certain laws on “trusts,” or monopolies, and eventually broken up.

The concern that a monopoly raises, of course, is that, by dominating a certain market, it could raise or lower the prices as it likes and thereby “oppress” the general public.  But this kind of thing can always be circumvented in a free market – that is, as long as the government allows competition – by a start-up company that produces the same product(s) the monopoly offers, and sell them for lower prices.  Even in the situation where the monopoly’s primary product is a difficult-to-reproduce commodity such as oil (as it was with Standard Oil), a prospective competitor could simply purchase some amount from the monopoly at a low price, wait until their prices go up, and then sell the commodity at a lower price, still yielding a handsome profit.

A: Couldn’t the monopoly simply lower prices below any competitor’s for as long as it takes to put them out of business?

B: Apparently this practice, called “predatory pricing,” has been theorized, but it’s never been successfully implemented, as far as I know.  Either way, the potential for competition is always present in a free market, so in order for the monopoly to continually eliminate competitors in this way, they may potentially have to keep the price unprofitably low in perpetuity.  This would likely lead the monopoly to go out of business itself.  The end result, however, is that prices are still too low to be “oppressive” to the general public.

Another fallacy with the idea that government must break up monopolies is that a lot of them gain their monopoly, or near-monopoly, status in industries that aren’t essential, or “luxuries.”  Suppose, for instance, that a beer company, such as, say, Budweiser, attained a monopoly on beer.  A very large number of people drink beer, but even if, in this case, Budweiser started raising prices on beer, and there was somehow no other way to obtain beer, would it be necessary for the government to break the Budweiser monopoly up?  Beer isn’t a necessity for anyone or for any other industry.  While some other industries may take a bit of a hit if the beer “industry” went under, it may be that in the long run, the economy would be benefited more than hurt by the demise of that particular part of the market.  Fewer people would spend their money on the unnecessary luxury of beer, and may instead invest it in an industry that has more potential to strengthen the economy.  Also, fewer people would be drunk as often, and they may become more productive in society than they otherwise were.  Most likely, however, people would just shift to another source of alcohol (or try to get beer through a black market of sorts, as in the ‘20s, under Prohibition), and that source’s business would go through the roof.  In any case, the economy would likely not be any worse, and people would likely be better off.

It may be that quite a few more of the “monopolies” targeted by the government than they think are really just in the luxury industry, and people would find a way to get along without them if they were just left alone – indeed, we may find that, as usual, people, and the economy, are more productive than they were before the government intervened.

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