Yeah rj, but I think that even the most die-hard market advocates concede that certain goods and services such as utilities tend to act like “natural monopolies”, and it’s very, very difficult to get them to work like truly competitive markets. Some aspects of utility markets may indeed come to be genuinely competitive and function successfully with little regulation, but we’re a long, long way from working all the bugs out of that yet.
Woah, kimstu, not so fast. I believe there are some people on this message board, some participants in this very thread even, who will not concede anything of the sort regarding utility regulation, and have argued that the only reason it failed is that the deregulation wasn’t complete enough. [Those people can correct me if I have misrepresented them, Sam.]
Hmmm jshore. That would seem to be arguing that some people don’t accept the concept of market failure due to monopoly, which is a really basic Econ 101-type concept, right? I don’t think that you’re going to find anyone here arguing that monopolies don’t interfere with the efficiency of markets. If so, as kingp astutely pointed out, why do they accept antitrust regulation in order to goose up competition in monopolized markets? Why don’t they just say, “Oooh, Humongous Corporation must be the best and most efficient in the business, because market forces would not have allowed it to dominate this market if it weren’t!”? No, I betcha home-baked cookies that we are not going to see a participant in this thread arguing for the entire wholesale deregulation of natural monopolies. These libertarian types may be idealistic but they’re not dumb (most of them at least ;)).
Actually, the Wall Street Journal Editorial Page frequently makes this argument. They point out that it’s hard to find actual examples where Humongous Corporation was gouging the public.
Kimstu, your post seems to be using the term “natural monopoly” to describe Humongous Corporation. Your earlier post used the term to mean something with an enormous infrastructure like TV cables or power lines, where it’s not efficient to have two different organiations, each with their own infrastructure. IANAE but I agree with the latter definition.
Of course the problem with judging power deregulation to be a failure of the free market is that there was so much regulation remaining. Perhaps there’s no way to avoid regulation, because power distribution is argualbly a natural monopoly.
Similarly, I’m struck how “free trade” agreements such as NAFTA wind up with thousands of pages of complex rules regulations. It makes me wonder what would happen if they tried real free trade, i.e., NO regulations.
How come this first sentence doesn’t surprise me? As for the second sentence, I wonder what the WSJ editorial page’s definition of gouging the public would be?!?! I think if you looked up “gouging the public” in the WSJ editorial page dictionary, it would say "see ‘what government does’ ". 
No. My “Econ 101” book strongly says the case for monopolies being bad is very ambiguous. It lists some preliminary pros and cons. (this is a macro view, by the way, not factoring in the mom-and-pop convenient store monopolies)
Economics, Campbell McConnel, copyright 1990
Pages 666 to 667
Some cons are:
Insufficient resource allocation, which is the standard beef against monopolies, including “unfair” price setting (also levied against oligopolies).
Unprogressive. Being on top grants no incentive to build the better mousetrap.
A source of income inequality. Being a company man makes you rich; otherwise, you’e SOL.
Political dangers, which is bunk completely, as even non-monopolistic entities exhibit strong political pull. But, they listed it, and I felt obliged to as well.
Some pros are:
Superior products. They didn’t become a monopoly by selling lemons.
Underestimating competition. Having a monopoly on aluminum manufacture doesn’t stop other prodcuts from edging in on your sales. Steel, wood, and plastics, for example, can offer the consumer viable alternatives.
Economies of scale. As technology increaes, divided resources hinder growth and raise costs. For some markets, the book contends, only monopolies can take advantage of economies of scale when competition is in absence.
Technological progress This takes the oligarchy view of highly competitive industries and contends that only such huge entities can have both the incentive and the means to further growth, where “normal” competition would stagnate. I think this is an offshoot of the previous point.
Should update this one you know.
Monopolies have by definition, market poer, as such they are able to set higher prices than more competitive situation allows. In general a lot of the positive items of a free market go right out the window in monopolistic situations that are uncontrolled.
As for the political issue, it’s not bloody bunk ERL. You need to read a bit more on the capacity of monopolies (and highly concentrated oligopolies) to manipulate> You’re conflating different avenues of political influence.
Assumption, check it at the door amigo. Plenty of ways to achieve monopoly without having a particularly good product, including illegal collusive practices, of course gov’t fiat etc. This ‘positive’ is right out.
I believe you’re stating a reason why monopolies tend to fall apart in certain circumstances
Fair enough>
Hey, I think the arguments for and against monopolies haven’t drastically changed much since the ALCOA days. YMMV tho. And how much is econ 101 going to change in ten years?? Seriously!
True; however, in an historic case the court which held a monopoly trial judged that the company did indeed have a monopoly though found no reason to prosecute for unfair market practices.
Businesses always have a portion of the government’s ear. Large business have a larger piece? Sure; is this a problem of business, or government? Seriously… which is it?
I think you might find that every pro and con are based on an assumption about the operation of business, and its effects on the economy. The case I mentioned above, which I will find if you like, found that they had, in fact, achieved their market success through no harmful activities; ie- by selling the best or at least most popular product.
The point of this pro, I think, is that when anti-monopolists cry “monopoly!” that they are, in fact, underestimating the competition. that is, sure ALCOA was driving out competitors from aluminum, but there were plenty of alternative fields which would actually still directly compete with this “monopoly.” VHS versus Beta? 
Well, actually a sophisticated work, prob not a 101 text but still, might note some interesting recent … what is is the word, ah yes refinements.
The legal issue is rather seperate from the economic issue. In general, as I said, much of the fine advantages of the Free Market are lost in non-competitive situations, rather undermining our justifications for supporting the social costs of the free market. Ergo, the economic argument is for limiting to the extent possible, monopolies or monopolistic situations.
Businesses large or small with an ability to manipulate market prices, exclude competition and otherwise manipulate the economic, and by extension the political scene in ways that a non-monopoly (by the very nature of the game) can not. Different game, albeit on a continium.
So, no I don’t find this retort terribly interesting.
To an extent assumptions are made, however the degree to which monopoly can be built through multiple non-competitive actions in most situations strikes me as an important issue which does not allow one to assume this (i.e. better product) as a general or even likely condition.
The point of this pro, I think, is that when anti-monopolists cry “monopoly!” that they are, in fact, underestimating the competition. that is, sure ALCOA was driving out competitors from aluminum, but there were plenty of alternative fields which would actually still directly compete with this “monopoly.” VHS versus Beta?
[/QUOTE]
Bother, this is bloody simplism. Of course, for example, aluminium may have substitutes, but are they realistic? Switching away from aluminium may, to take this example, impose large and wasteful capital costs on industries using aluminium when a simpler answer is to break up the monopoly or otherwise restrain anti-competitive behaviour (adopting the assumption that the industry is not a natural monopoly). It would be quite simply wasteful to sit with a thumb up the butt because of a naive faith in market perfection in case of a demonstrated monopoly on the expectation substitution would help you out. It may, but one needs to look at the costs.
To the extent a firm (a) desires to maintain its monopoly and (b) is willing to use anti-competitive practices (and political string pulling) to do so (and it does rather appear than human ego does lead to both a and b) one cannot blithely assume that market forces will work out.
Well…But as I see it, is the said monopolies are nationalized, none of the pro dissapear. On the other hand, three of the cons (ressource allocations, income inequality and political danger) dissapear.
So, if a monopoly appears (either because there’s no anti-trust law or because it’s a “natural monopoly”),given your arguments, you should advocate for it being nationalized and public-owned, since the pros doesn’t change while the cons are reduced.
Here is a quote from Judge Learned Hand (what a name! :p) on the case and what he felt ALCOA was doing wrong:
[from US vs ALCOA 1945]
Now, forgive me for being a market sympathizer, but the above quote illustrates the complete idiocy of anti-monopoly knee-jerking. Shall we review why ALCOA was busted?
- For seizing opportunity and growing.
- For anticipating new needs and taking action to be prepared to meet those needs with excellence
- For having the most highly skilled personnel
I find that any person who desires efficiency and positive growth should look to ALCOA as a god of industry and a champion of capitalism. Did Hand find that they were fixing prices unfairly? Nope. Did he find that they were undercutting to drive out competition? Nope. Those evil monopolists were simpy growing to meet anticipated demand.
I am not suggesting we simply turn a blind eye to a monopoly on any grounds; it surely demands a higher level of scrutiny. I just find that monopolies are not inherently detrimental and that they shouldn’t be considered guilty until proven innocent (especially with the totally ambiguous wording of anti-trust laws).
I think this is a matter of debate. State monopolies are good for building infrastructure, but I think that the legislation behind them stagnates growth beyond a certain point. As well, “pulling the plug” on state monopolies (deregulation) is-- as most Californians would agree-- a sticky business.
That’s the point. The only reason I brought this up was because Kimstu said something to the effect that even Econ 101 shows us monopolies are bad, and I demonstrated that my Econ 101 book didn’t agree.
I should also mention that I do, in fact, have a different and more recent econ 101 book but it gives very little treatment of monopolies. The one I cited aboev has quite a few pages dedicated to weighing the arguments from both sides, as well as discussing the legislative history of the anti-trust laws and cases which were tried under them.
erl: The only reason I brought this up was because Kimstu said something to the effect that even Econ 101 shows us monopolies are bad
Well, what I actually said is that monopolies are generally admitted to “interfere with the efficiency of markets”. Since they remove competition from markets, I think that’s a reasonable statement. I didn’t intend it to imply that monopolies are somehow unrelievedly “bad” or that there are never any advantages to them whatsoever.