I'm having an economics discussion with my favorite Green Party member, and the discussion has stalled on the issue of monopolies. Yes, he's probably a closet Marxist, but I'm not interested at this point in debunking Marxism. What I do want to debunk is that big businesses use market power to establish persistent monopolies. I'm sure there's an article somewhere that demolishes that, showing that there have only been a handful of non-government-supported monopolies that lasted any decent length of time, such as ALCOA and DeBeers. But I can't seem to find one. Any ideas?
Shouldn't he have to establish which firms he's talking about, and that they get their power from the market, and not regulation?
DeBeers gets help from various governments in the form of mining licenses. Want to mine for diamonds? Well you need a license from the state. And oh look--only DeBeers members can qualify for the license.
liberty student: Shouldn't he have to establish which firms he's talking about, and that they get their power from the market, and not regulation?
Not really. I'm trying to make the case for capitalism, so it's up to me to correct his plausible and popular impression that big firms can shut out competition over the long term.
Knight_of_BAAWA: DeBeers gets help from various governments in the form of mining licenses. Want to mine for diamonds? Well you need a license from the state. And oh look--only DeBeers members can qualify for the license.
Alright, so even DeBeers isn't purely a non-coercive monopoly. But the point in general that I learned in my econ classes is that the only way to secure a long-term, non-government-franchised monopoly is to have exclusive or near-exclusive control over some resource. ALCOA owned pretty much all the aluminum mines; DeBeers owns pretty much all the diamond mines (although that's changing, with Russia entering the game).
No, he really should, at least if he wants to be taken seriously.
-Jon
Freedom of markets is positively correlated with the degree of evolution in any society...
Calion,
This article by DiLorenzo is awesome. There's some great historical points that will shut your friend right up.
http://mises.org/journals/rae/pdf/RAE9_2_3.pdf
Jon Irenicus: No, he really should, at least if he wants to be taken seriously. -Jon
Er...I'm the one trying to convince him, not vice versa.
You're allowing him to shift the burden of proof to you.
Calion:What I do want to debunk is that big businesses use market power to establish persistent monopolies.
They most certainly use political power to do that.
Quick google search for a bit of Mises on monopolies;
The case of monopoly is particularly significant. It is possible, even probable, that in a market economy, which is unhampered by government intervention, there will be conditions which temporarily may give rise to the appearance of monopoly prices. We may regard it as probable, for instance, that even in the free-market economy an international mercury monopoly might have been formed, or that there might be local monopolies for certain building materials and fuels. But such isolated instances of monopoly prices would not yet create a “monopoly problem.” All national monopolies and—with a few exceptions—all international monopolies owe their existence to tariff legislation. Were the governments really serious about fighting monopolies they would use the effective means they have at their disposal; they would remove the import duties. If they merely did this the “monopoly problem” would lose its importance. Actually, the governments are not interested in eliminating monopolies; rather, they try to create conditions to enable producers to force monopoly prices on the market.
Makes no difference. If someone makes an argument, it's up to them to provide evidence for it. If he wants to bring something up as a defence, it better be effective. Show no mercy.
A common example of quasi-free market monopoly was Standard Oil. Yet this was based upon exclusive railroad contracting, and railroads were both regulated and subsidized. Plus, Standard Oil actually lost market share during the last 5-10 years of its operation, before being broken up by anti-trust law.
If you can beat down their strongest example, you win.
Check my blog, if you're a loser
If a business is the most successful at maintaining the proper market price, and being the most efficient, then it will have a monopoly. However, that's not a bad thing. They are contributing to the economy as a whole better than anyone else and bringing the best quality at the best price. This kind of monopoly that has no actions in violation of other's rights is great for society. It frees up capital(labor, resources, etc.) and drives innovation(entrepreneurs seek new markets to make a niche in instead of trying to compete with an already super efficient company). Now if it's because it is violating the rights of others then this is what we institute government to punish so as to make an example of them and take away the incentive to violate others. We don't need to set up any regulations, though. Regulating an industry is typically the government licensing an institution or individual to violate the rights of others and thus regulating how they do that(i.e. licenses to pollute, banks chartered to steal purchasing power and loan it out at interest, etc.). Otherwise, regulations themselves are a violation of the liberties of those regulated.
Now a monopoly that is in a country where justice is what prevails, if it raises the prices, competitors will come in with lower prices(no longer a monopoly) and they will price the monopoly out of business. If the quality is lowered, then competitors will come in and bring a better product to the economy. Under a system where there is no such thing as "intellectual property", then they have no ability to purchase up the 'right of discovery'. I do not believe such property exists. Inventions will occur without patents. The problem with this is that often times all the right developments have been made and so multiple people within the same period of time develop the same or a similar invention. Which one should get the ability to produce it? I say anyone who has the technological skills to do so and the free market will determine who those are.
Most monopolies we see today are formed because of patent laws. That is regulations that form them. Not lack of regulations.
Hm...
I actually need to learn more about IP, but I think there needs to be some kind of protection for creators of IP. Voluntary measures that don't create monopoly, like non-disclosure agreements seem to be good, but couldn't be enforceable without some form of IP protection. Copyright might not be terrible either, although I am not persuaded that corporate entities with indefinite lifespans should be able to hold the same protection as individuals.
I agree patents are a poor system, especially how they are used today.