I especially want to hear from those of you who believe there are no such things as natural monopolies.
Monopoly: exclusive control of a commodity or service in a particular market
By natural monopoly, I assume you mean a monopoly without government aid. It is possible for a monopoly to exist, but likely not easy. Mises.org editor Jeffrey Tucker said, “The struggle to stay on top in this rat race consumes all energies. Profits are always threatened in unexpected ways. Market share is never really secure. The capitalist in this system feels like a slave to consumers, and there is always another entrepreneur out there with a better idea to market. Not even gigantic companies can be sure that they can hold on.”
I think the general response you'll get is something along these lines: A monopoly is a privelage granted by the State to have exclusive or semi-exclusive ability provide a product or service over a geographical region. Modern examples would be cable companies, the Post Office, many power companies, etc.
"Natural" monopolies aren't actual monopolies because there are no hard and fast barriers to entry outside of startup costs. For example, an electrical grid requires a large investment in infrastructure, and whoever sets up shop first will have a big edge over any competitors moving into the region. However, there's really nothing to stop someone else from moving in if they can make it profitable. However, with a granted monopoly, it's actually illegal to attempt to break into any one market.
"Natural" monopolies aren't actual monopolies because there are no hard and fast barriers to entry outside of startup costs. For example, an electrical grid requires a large investment in infrastructure, and whoever sets up shop first will have a big edge over any competitors moving into the region. However, there's really nothing to stop someone else from moving in if they can make it profitable. However, with a granted monopoly, it's actually illegal to attempt to break into any one market."
So, if there was a company that was the only company selliong a certain service or product, that would not constitute a monopoly?
It depends on how you define it, but it is different from an enforced monopoly because even if the company might not have to take active competition into account, it does have to consider potential competition. It cannot abuse its position as the sole provider of the service by extracting extravagant profits because then it would be inviting competitors to enter the market and undercut it.
A monopoly is a legislative limit on the supply of a market. Whether there are countless firms, one firm or zero firms makes no difference.
The fallacies of intellectual communism, a compilation - On the nature of power
"It depends on how you define it, but it is different from an enforced monopoly"
Noone is using the term "enforced monopoly".
I'm asking, if there is only 1 company that sells a certain product or service, is that a monopoly in your opinion?
limitgov:Noone is using the term "enforced monopoly". I'm asking, if there is only 1 company that sells a certain product or service, is that a monopoly in your opinion?
A monopoly was originally a privilege granted to merchants by a king, which allowed them to be the only seller of a product. The Greek word just means the only seller, and in colloquial use the term monopoly has come to mean any company that is the only seller of a product. Those who believe that monopolies can and will emerge in a free market are referring to a company that managed to defeat it's competitors through tactics such as predatory pricing and became the only one left selling a certain product. But the term originally specifically referred to a state-enforced privilege. Some libertarians, who believe that monopolies only happen because of government force, therefore use the term to refer to just the state-enforced privileges, i.e. a legislative limit on the supply of a market.
What matters to economists, though, is not by how many companies a product is sold, but whether companies can continue to use resources inefficiently because they are protected from competition. That would make society poorer than it would be with competitive pressures. Therefore the mainstream economic definition of monopoly is something like "an enterprise that has sufficient control over a product to determine significantly the terms on which other individuals shall have access to it". I.e. whether it is protected by barriers to entry. A company can be protected by barriers to entry wihout being the only seller, and a company can be the only seller without being protected by barriers to entry, when it offers such great service that everyone wants to buy with them. (A natural monopoly.) The disagreement regarding barriers to entry is whether they allow companies to gain control over a product in a free market. Libertarians believe that all free market barriers are counteracted by equally strong market forces, and that the only barriers to entry are government-created. In that case an enforced monopoly and a monopoly are the same thing.
Monopoly is also a fun but tedious board game.
A monopoly is in the eye of the beholder. In other words, anything can intelligently be identified as a monopoly.
Take note of few things:
1) The Market in question can be delimited any which way you want.
For example, I hold a monopoly on selling my flatulence within the geographic space of my butt.
The fast-food joint across my street holds a monopoly on selling fast-food within the geographic space of my street. However, it does not hold a monopoly in my entire city.
Apple Computers holds a monopoly on the sale of iPods within the geographic space of the entire planet but it does not hold a monopoly in the entire galaxy. Martians sell knock-offs of the iPod to extra-terrestrials in the rest of the solar system.
2) The identification of the product / service that is being monopolized is inherently indeterminate because we can not objectively identify what the consumer is buying.
For instance, most kids spend their time playing video games. I spent my youth watching television. Nobody holds a monopoly on the market for sedentary childish amusement which is probably all we want.
When somebody buys cigarettes, that person may simply be buying favors for a lazy boy-friend who just happens to be addicted to cigarettes. It could just as easily be weed or alcohol or crack or a service. Alternatively, that person may be in the market to feed a nicotine habit or just simply in the market to appear cool at school.
One man buys flowers. A second man buys Viagra. A third man buys Cialis. A fourth man buys some crap off of the internet. A fifth man tosses something in his wife's drink. A sixth man gets implants. A seventh man buys false hope by running around the house doing more laundry, more dishes, more vacuum cleaning, etc. etc. A neglected wife buys lingerie. All eight people are in the market for the same thing.... sort of.
The point being is that the analyst can define the good or service any way they want and thus define a monopoly or eliminate the label of monopoly. You can never objectively know what is in the minds of consumers even if they tell you.
3) The definition of Government is in the eye of the beholder too as it pertains to the free market.
For instance, the mafia who enforces his protection racket is just as much of a government as anybody else.
Thus, if I sell roses at the market but the mafia-goon comes by every day and threatens me, it makes no sense for me to classify him in a different category as the tax collector -- as far as economic analysis is concerned.
It is a two-way street. If I sell roses but threaten anybody else who sells roses, I am doing the same thing as enforcing government privilege.
To put things plainly, the government is just a band of thieves. So, defining monopoly in terms of government privilege just obfuscates the human actions.
To put things boldly, we anarchists should not be defining economic agents in statist terms. My gut tells me that a proper economic theory should not hinge on distinguishing a monopoly from any other supplier.
I believe the best way to define them is in terms of barriers to entry. Otherwise I could define my own crude paintings as a monopoloy since no one else can paint for me just as there are no other Monet's. The usual definition leads to innumerable examples of monopolies.
limitgov:"It depends on how you define it, but it is different from an enforced monopoly" Noone is using the term "enforced monopoly". I'm asking, if there is only 1 company that sells a certain product or service, is that a monopoly in your opinion?
they are answering you. its not a monopoly unless there is a legislative limit. the single company in a market still has to operate as if there is competition so as not to encourage competition and a loss of market share.
Monopolies involve some sort of coercion, which is used by government.
For me, a "monopoly" exists when there is but ONE source for a particular type of product, usually within a certain market.
Type of product maybe something like: music players, groceries, liquor, aluminum, etc. Market could be a community or a nation.
Natural monopolies are rare. But they do occur. Typically the market for the product has to be such that it can only support one supplier (market is mall or demand is small) or the producer is SOOO effective that it keeps the cost lower enough (while still being profitable) that its nearly impossible for competitors to come in.
Examples of the first would be things like a small community that can support but one general store or other service (tho nothing prevents people from traveling outside the community for stuff, other then the added cost of doing so), and the second may be the case of Alcoa.
As noted, these natural monopolies are hard to achieve. Things can occur to eliminate the monopoly. In the first place, if the community grows, this can enable competition to come in. In the second, if company slips up or gets greedy (raises prices or is less effective), this again opens the door to competition.
This is why, rightly, most of us realize that in almost all cases of monopolies, its cause by government force/power.
One example of a natural monopoly is if I purchased land around a city and charged people to leave and enter (bridge to an island is another example.) I think there some real world examples involving a city in Wyoming and some small areas in West Virginia.
Further, another monopoly is the "Mona Lisa" there is only one owner of this unique object.
A1- The answer would be alternatives or consumers would choose to stay or smuggle or group cross the bridge or tollway. In the case of the bridge, there can be other bridges, boats ferries, tunnels, and airplanes. Is this efficient?
- The answer to the mona-lisa is there is other art, copies, and most people really don't care.
The Mona-lisa unique arguement leads me to ponder another thought regarding monopoly and uniqueness (if I was so myopic as to ignore alternatives). So for sake of arguement, uniqueness is a monopoly, like each snow flake is a micro-monopoly. Each human is unique. Therefore a monopoly over themselves. ERGO: (That's totalitaran speak for more government intervention) We need government to regulate the monopoly known as the individual. Problem solved, you nolonger have sovergn control over yourself.
I think people arent realizing, that a monopoly can be anything, depending how you define it. I mean starbucks has a monopoly on frappacinnos (R) but thats because its called a frapacinno. Other coffe stands make blended ice coffee.
Also, would you call microsoft a monopoly? well the EU did.
Simply, a monopoly is anything a large amount of politically-tied people in one room want to call a monopoly.
"bridge to an island is another example."
What if I build another bridge? or what if I start a ferry business
A legal barrier to free entry into a market based on a claim of personal privilege. Owning a bridge to an island is not an example of a monopoly - even if it is geographically impossible to build a second bridge or operate a ferry - because the bridge is property. That is, the bridge is justly owned. To challenge ownership of the bridge, a person would need to show that the bridge was stolen through force or fraud and establish who is the true owner of the bridge.
A monopoly, on the other hand, has nothing to do with market share. An owner of an original Renoir has a "monopoly" on that Renoir since that painting is the only original. Perhaps government should regulate the ownership of original paintings. Monopolies are grants of legal privilege that permit the privileged producer to barricade entry into the market. "No one may build bridges but the Department of Bridges" creates a monopoly called the "Department of Bridges" and confers on that monopoly the power to exclude all competition in the market for bridge-building. But no one could legally prove they have ownership over all water, land, natural resources, persons, materials and so on that go into the production of bridges so if such a monopoly privilege could be argued in a court of law other than the government's monopoly courts, the absurdity of the monopoly privilege would quickly become clear.
Clayton -
If you build another bridge - you just broke monopoly. Ferry business is just different kind of service, in my opinion. Like "work around" :D hehe
(english is not my native language, sorry for grammar.)
"A monopoly, on the other hand, has nothing to do with market share. An owner of an original Renoir has a "monopoly" on that Renoir since that painting is the only original. Perhaps government should regulate the ownership of original paintings."
Good point! Your posts are always so insightful.
A monopoly is the condition where there is only one seller of a product. People may describe a business as having a monopoly in the short term but in the long term a monopoly is not possible without the use or the threat of violence and loss of property brought upon those who would compete with the so called monopoly. So a "Natural Monopoly" is simply a business who has impressed upon government in such a way as to have government grant it an exclusive permit to sell a product in an area without competition. Normally these businesses simply use the fact that high entrance costs prohibit other firms from competing along with some graft paid to the politicians.
I think EmperorNero mentioned this above, but using the definition of "only one provider of a unique product," technically everything is a monopoly. If I want to buy a Pepsi at a Speedway, that Speedway has the monopoly rate at that particular location. But it is a matter of ease of entry; if you could easily go across the street to a supermarket and get a Pepsi versus if the Speedway is the only provider of a Pepsi bottle, it would cease to be a monopoly in a meaningful sense.