I do think that in an unfettered market monopolies or price-fixing will inevitably result.
And if it is inevitable that such monopolies will eventually fall (as some upthread seem to be implying), it’s not clear that this happens at all quickly. Look at de beers – anyone could undercut them and yet they continue to dominate the market.
And I like how some have used the car industry as an example of competition. How many mass-producing car companies are there now, worldwide, once you consider the tree of ownership?
I am not a Walmart supporter. I do not like Walmart. I even have a non-militant casual boycott of Walmart.
However, this ( the quote by gamerun above) may not be fair. Unlike many whippersnappers today, I remember these small, local stores.
They sucked.
For example, I remember coming home from work at 5:10, needing something from a local ‘department’ store and finding the door locked. They closed at 5.
I also remember having my calculator break. I paid $7 for it in Minneapolis over the summer. I stop in during my lunch break and find the same calculator on sale for…$37.99. Saying…screw that…I go to the other store in town seling them and they are on sale for…$37.99.
These were the same people that would tell us teachers to our face that our pathetic salary was being overpaid.
Do not feel sorry for these mom and pop stores. They were inefficient. The owners of the store were really close to minimum wage jobs in reality and because they thought they were great entrepeneurs they felt they should make a tide sum and that came across in huge prices.
When a Walmart came into the area, the locals screamed bloody murder but it came in anyway.
The Mom and Pops died like dew in the Sahara sun.
I went there and, by chance, saw the calculator I wanted to by 2 years ago for…$7. I even saw one of the previous owners working there as a gruntish employee making what he should have been making all along. Hell, I bet he even got some shitty form of health insurance which is better than what he provided for his employees when he had them (which would have been…nothing).
No love for the Walmarts…but do not feel sorry for those Mom and Pop stores.
WalMart edging out strip mall stores isn’t too disconcerting, but mom and pop sandwich shops are the last bastion of good taste in fast food. I had to move recently and the town I moved to had a disturbing lack of sandwich shops, only three within as many miles. McDonalds and Taco Bell better not shut them down, or I’ll riot. (Except when it is McRib season.)
Monopoly means one. Just one. It does not mean, only a few. Or one really dominant player with a bunch of small ones. Or three really big ones. It means one. Just one.
In my lifetime, the only time there has been a monopoly is in the absence of capitalism. The province owned and controlled power production and distribution for example. A monopoly was granted to one company to provide home phone service. Garbage collection controlled by the government. Private health care forbidden. And to this day the province is the only one allowed to sell off-sale alcohol (some brewers are allowed to have a store at their brewery).
Let’s not forget that monopolies can and have been great. A monopoly on power meant that everywhere in the US has the same type. Imagine having to take a power adapter from one part of a city to another. Imagine not being able to use your land-line to call people that use a different phone company.
When Australia was putting in rail lines each colony set their own rail gauge independently of the others. So trains couldn’t go from one region to another and instead needed a complicated system to transfer things from one train to another. Imagine if each State picked which side of the road they wanted to drive on. Would we be better off if Ford brand cars could only use Ford brand fuel?
The fact that Microsoft came near to almost having a bit of a monopoly meant that we have a lot of standardization within the computer industry. That Walmart dominated their niche for a little while means we now have a standard model for chain department stores. Like BlinkingDuck I too avoid Walmart, because I really like Target. But I still recognize that I need a Walmart-type store. I know if I’m in any part of the US I can quickly find a Walmart, and within it quickly find exactly what I need. Walmart didn’t have to force us to want what they offer. And they were never able to be a monopoly because stores like Target quickly offered a better product.
Even in the most outlandish fantasy scenario a company that manages to achieve a monopoly will quickly find they have made themselves obsolete. If Exxon managed to control all of the world’s oil, there would be a mad rush to find something other than oil. And just like that they have no power at all. It’s like the old joke about the Middle East, will anyone give a shit about them when the oil is gone? Saudi Arabia is very careful to keep fuel prices low enough to keep people from switching to coil, or natural gas, or god forbid solar/hydro/etc/etc
Even considering a company like McDonalds that managed to put a lot of places out of business and achieve market dominance. They only exist today because they are constantly changing and adapting. But every year they are losing ground to companies that offer not-McDonalds. Starbucks did a great job dominating and created the specialty coffee niche, but eventually people wanted not-Starbucks, and research showed that having a Starbucks nearby actually increased profits for smaller coffee shops.
In the end, monopolies (if they ever manage to occur) are by their very nature self defeating, unless of course they’re helped along by government forces.
Well how strict are we going to be about the “mono”?
If I sell my old iron to the market do I count as a rival to Vale?
On what timeframe? There are plenty of vast companies that have been going for decades. And Standard Oil controlled virtually all the world’s oil for a while, and it was not obvious how anyone else was going to enter the market.
And the effect that peak oil will have on companies and countries is a separate issue – even if there were more competition in the market oil is still going to get harder to find.
I remember being “taught” this very concept in elementary school by a teacher that had wandered off topic: Wal-Mart was “evil” because their low prices were intended to bankrupt the competition. Once competitors failed, WMT’s prices would rise and consumers would be taken to the cleaners.
Except, that’s not at all what happens. WMT is no angel, but their focus on providing low-priced goods to consumers is most certainly a consistent strategy.
Before anyone says it; I’m not claiming there is a monopoly on iron, or even that Vale is the biggest producer. I was just making a point of how big must a rival be to “count”? Does any alternative seller necessarily mean it is not a monopoly?
Well, my cite doesn’t count for very much, but it is there.
All I can find to corroborate is that they have raised prices recently and that they sell barely above cost (Bloomberg article). Still, the point is that with their significant amount of capital they have the capacity to do it, why should they thus be trusted more than federal government?
Sorry, I meant they have the capacity in specific areas without other chains to sell below cost then raise prices once competitors disappear. Such practices could only be curtailed by other large competitors moving into the area, but they may feel incapable of actually competing against such a behemoth (after all, Walmart could cut costs down below production again).
But seriously, in your instance - if you could sell the iron at a profit as an ongoing business enterprise, then a monopoly doesn’t exist. If you were just getting rid of some scrap metal that you didn’t need anymore, then no that wouldn’t mean that there was no monopoly. But if you were an honest to goodness competitor, no matter how small, then it means there is no monopoly.
And, seriously, traditional capitalism does not favor a monopoly (either in fact or theory - that is, capitalism tends not to lead to one and capitalists prefer not to have one - Wealth of Nations is worth a read in this regard) except when referring to natural monopolies. This was referenced by another poster regarding lines companies - but there are some ways to deal with that, too - although we haven’t entirely gotten the hang of it yet. You can read about FERC Order 888 on OATT reform if you’re interested - http://www.ferc.gov/industries/electric/indus-act/oatt-reform/history.asp.
I think that’s taking the word too literally. Of course a monopoly is virtually impossible in a world with almost 7 billion people where any mom and pop operation counts as a competitor.
But this pedantry doesn’t disguise the reality that there are vast companies, millions of times larger than such startups, with huge power over markets, that have been going for decades.
And there are markets where the barriers to entry are insurmountable.
Well, it’s reasonable to refer to a company as acting as a monopoly in a given geographic area. For instance, even if there are lots of grocery stores - if there’s only 1 in your town, then it acts as a monopoly. Some markets are more global and location isn’t as important. But the word monopoly means what it means, and there are other words to describe other things.
Of course it doesn’t. There are very large companies out there, they do wield a ton of market power, and there are some markets with huge barriers to entry (although I wouldn’t say insurmountable).
Sure, the main reason that capitalism does not favor monopolies is that they lead to inefficient use of resources due to monopolistic pricing. In a competetive environment, the volume of production will be determined by the intersection of the supply and demand curves. A monopoly may choose to produce at any volume along the demand curve. Under this scenario, the best way to optimize profits is to produce at the volume where their own average variable cost curve intersects their incremental revenue curve. This will result in a volume level that is far below one that you would see in a competetive environment and, correspondingly, a much higher price. The reason that this is opposed by Adam Smith and others is that the sum of the marginal benefit to the producers and the marginal benefit to the consumers is lower under monoplistic pricing than it is under competetive pricing, and that’s bad.
That’s absolutely not the case. Whilst the political invective in this clip is pretty clearly leftist, I charge you to find some data that contradicts what they’re saying if you do indeed think that rich are poorer now than they have been in the past. Change of wealth levels over time in the United States by income bracket
The notion that Walmart offered a better deal for employees than mom and pop stores is suspect to me. I worked for Target once when I was between jobs. I was an entry level retail worker. They very carefully kept my hours just below the number where they’d have to make me full time and give me benefits … I think I worked 32 hours a week or so for $7 an hour plus change. Target offered insurance to all its employees, but they didn’t pay for any of it themselves. I had to turn the insurance down because my payments would have taken up nearly my whole salary after taxes. I would have been working for nothing, or close to it. As it was, it was the poorest I have ever been in my life, while still being employed.
I’d be real surprised if it was any different for entry level Walmart employees.
Even with that addition the word would be virtually useless.
You could never say a company was a monopoly, even within a geographic area, without interviewing the entire populace, because mom and pop operations may not be well-known. Furthermore a company may technically change from being a monopoly day to day or on even shorter timeframes.
Finally, a company could dodge anti-monopoly legislation (which is the term used for competition laws in several countries) by buying enough items from “some guy” to barely keep that guy in business. Not to mention that whether it’s a monopoly would also be dependent on the size of the geographic area you choose.
I…think…I understand, but you were implying before that this situation is somehow self-correcting. I agree a monopoly is a bad situation, I’m disputing that market forces alone will break it up on any kind of reasonable timeframe.
It’s very useful from an academic point of view, as well as policy point of view, as there is a very unique set of economics that come into play when you have monopolistic pricing, as we discussed prior. Understanding those mechanisms helps us understand why we should try to prevent monopolies, how we can recognize them, and what we should do when we’re dealing with natural monopolies in order to prevent them gaining monopolitics profits (while simultaneously trying to minimize deadweight loss).
Most DOJ analyses don’t rely on a simple dictionary definition of monopoly, but rather focus on anti-competitive behavior or market concentration as measured by the Herfindahl index. And if something is a fraud (like your example), it can simply be ignored (and should be). As to the geographic area - that’s a good point, and it is often something that is highly disputed in cases of market power analysis.
Two points here, kind of separate. The first is that what I described above is the reason why adherents of free market capitalism oppose monopolies and recommend government action against them.
The second point is that in most market monopolies will not form as anyone who is pricing above the natural meeting point of the supply and demand curve is leaving an open market position which can be profitably entered - they are ‘inviting’ competition so to speak. And the analyis above describes how, for a monopoly to maximize profits - to extract monopolistic profists, they need to price above that point. So, unless there is something preventing a competitor from entering the market, that ability to find profit will bring competitors in, who will price below the monopoly - causing them to lower prices in turn, until you return to a ‘nomral’ market.
Now, the things that might prevent a competitor from entering even when there are profits to be had can be bnroken into a few different groups:
intentional government protection (this is bad - don’t do it)
government protection due to corruption (government corruption is always bad, and should be opposed)
anti-competitive actions, such as dumping (this should be regulated against)
a natural monopoly (the solution here is to try to find a way out of it - like FERC order 888, or to regulate the monopoly, such as mandating a rate of return like most utility commissions do)
I think this is universally accepted when judged from a vacuum but in practice we tend to create barriers to entry on purpose. For instance, there’s plenty of profit to come from bringing better internet to people, or phone service, or etc., but some of the costs people assume aren’t paid by the entities in question, like traffic increases during construction, the fact that people don’t generally want giant cell phone towers in their backyard, and so on. So sometimes we have reasonable regulations in place—things like zoning laws or limits on cables running down streets—and this creates barriers to entry. This is at least partially why in some areas you don’t have a lot of choices, Comcast or bust for instance. (Which I have lived with more than once.)
I have no nits to pick with the rest of your list.
