I'm a newcomer to this school of thought (and pretty new to economics in general). I'm currently reading Israel Kizner's essay collection "The Driving Force of the Market" and I'm stuck on a point that he brings up in the first essay (called Entrepreneurial) about competition and, in particular, about anti-trust laws.
The claim is that antitrust laws block entrepreneurial entry into the market and thus anti-competitive in nature.
But, surely, in theory and in practice, monopolies through mergers are more likely to restrict the competition necesary for a free market to function.
I understand the essence of the claim, which is that government inteference in the free market tends to reduce the freedom of a market, but I've always considered loose antitrust laws to be the exception to that rule.
Kirzner then brings up advertising as an example of an imperfectly competitive industry which "are precisely the kinds of entrepreneurial initiative which make up the dynamic competitive process."
So, my question is, in the Austrian view, are antitrust laws not supported? And could somebody offer me a clearer explanation of why what is? It may just be my lack of economics background, but I just don't understand his point in the way he's explaining it.
Thank you!
Antitrust laws are backed by force, ergo a big gun. Monopolies can be taken down by any "David" with a better idea.
Kirzner is saying that advertising is tool our proverbial "David" uses to compete; itis a product of entrepreneurial initiative or human action.
It is only inevitable, though, when the politicians are allowed to control the fates of companies. When the government is kept out of the business world, at least mostly, then there is no benefit for big business to collude with them. But when the government can control who wins and who loses in the marketplace, then they get involved. A major way of doing this is anti-trust. Walter Block often makes the point that it is impossible to not be violating anti-trust laws, because if you are setting prices higher than your competition, then it is profiteering and exercising monopoly power; if you set prices lower, then it is predatory pricing and dumping; if you set prices the same as your competitors, then it is collusion and cartelization. Since it is impossible to not violate anti-trust, or at least impossible to not be "investigated" for anti-trust violations and brought to court, the decision of who to use these laws on is absolutely arbitrary. Remember now who controls the government - the lobbyists and big corporate interests. What do you think those anti-trust laws will be used on? Anti-trust laws were created by politically-connected companies to destroy their rivals and have been used for that purpose since.
mises.org/books/antitrust.pdf
"You don't need a weatherman to know which way the wind blows"
Bob Dylan
The government's interference in the market just ends up creating tons of artificial barriers to entry which creates monopoly conditions in the market. Without the government's barriers to entry, competition would be much freer and thus most monopolies would be unable to persist.
Antitrust laws make no sense because making one law to fix a problem created by another law is generally a bad idea. Also, antitrust laws are very selectively enforced based on who currently has the most political pull.
However, if a powerful monopoly forms, couldn't they theoretically stifle new entreupeneurs from innovating? Thus reducing competition in the market.
ecoli:However, if a powerful monopoly forms, couldn't they theoretically stifle new entreupeneurs from innovating? Thus reducing competition in the market.
How would the "powerful monopoly form"?
by a merger, veritcal or horizontal integration. Without antitrust laws, couldn't any two companies merge, reduce competition between them and set prices above market value? If their selling a valuable enough commodity, they could jack up prices without losing too many sales (and increase profit margin for both of them).
ecoli: by a merger, veritcal or horizontal integration. Without antitrust laws, couldn't any two companies merge, reduce competition between them and set prices above market value? If their selling a valuable enough commodity, they could jack up prices without losing too many sales (and increase profit margin for both of them).
You're missing the point, a monopoly can only form when their are barriers to entry, that can't happen without the state.
GilesStratton: ecoli: by a merger, veritcal or horizontal integration. Without antitrust laws, couldn't any two companies merge, reduce competition between them and set prices above market value? If their selling a valuable enough commodity, they could jack up prices without losing too many sales (and increase profit margin for both of them). You're missing the point, a monopoly can only form when their are barriers to entry, that can't happen without the state.
Or if the main competitor is way more efficient than the rest.
It would also help if someone defined what they are calling a monopoly, one dominant firm or a single supplier of a good/service.
Anonymous Coward: GilesStratton: ecoli: by a merger, veritcal or horizontal integration. Without antitrust laws, couldn't any two companies merge, reduce competition between them and set prices above market value? If their selling a valuable enough commodity, they could jack up prices without losing too many sales (and increase profit margin for both of them). You're missing the point, a monopoly can only form when their are barriers to entry, that can't happen without the state. Or if the main competitor is way more efficient than the rest.
Not that that's really possible in a free market but even if it is, so what?
I would recommend you read Dominick Armentano's Antitrust and Monopoly: Anatomy of a Policy Failure. From a historical perspective, every single case brought about by either the Sherman Antitrust Act (1890) or the Clayton Act has always been to the detriment of the consumer. All the cases demonstrated that the government's claims of "monopoly" were blatantly absurd. Prices were continuously falling, there was no collusion and price fixing, not a huge market share, etc. I don't want to go through every case specifically but Aremantno does an amazing job with that book going through the cases in detail.
As the above posters correctly stated, monopoly is only possibly with the assistance of the State creating barriers. In a truly free market you'd be hard pressed to find a monopoly. First of all, there would be nothing to hinder one from entering an industry. Second, if one company did acquire a huge market concentration this is possible because they are meeting the demands of consumers at prices that are generally accepted. The company is operating efficiently and people are satisfied with their products, so why is this a bad thing? Now if the company begins to raise prices, and we understand that prices provide substantial information as far as investment, this will attract competition. People see high prices and they want a piece of the pie, so they enter the industry as well and offer lower prices than the competitor obviously to get their business. The first company now has to compete back; you get the idea. Seriously though, check out that book it's an excellent read!
In liberty,
Chris
ecoli: However, if a powerful monopoly forms, couldn't they theoretically stifle new entreupeneurs from innovating? Thus reducing competition in the market.
The only way a monopoly could prevent competition from forming is by pricing below any potential competitors. This is, contrary to what your government school teachers would tell you, competition in practice.
If a monopoly can price lower than anyone else there is no economic gain to having more firms, one firm is the most efficient accolation of resources for that specific product.
If a single firm is not the most efficient, then competitors will be able to out compete the monopolist and gain entry; either through price or some other differentiation.
Peace
Chris:I would recommend you read Dominick Armentano's Antitrust and Monopoly: Anatomy of a Policy Failure.
Yeah, look Dominick Armentano if you want to find anything on this subject, I already Antitrust: The Case for Repeal earlier.
Or you can read these two by him: http://mises.org/story/2694 and http://mises.org/story/1800
You can't have it both ways. If they raise prices other firms will enter the market, if they lower prices to prevent entries they are not "exploiting" anyone.
But all this is based on a subtle assumption that there is such a thing as an unfair price. But, sorry, there is not.
If some people can not afford to pay a certain price, why is that bad? I can't afford a LearJet. Why has the government not intervened to fix this market failure?
GilesStratton:Not that that's really possible in a free market but even if it is, so what?
So what what?
I'm just saying it is possible, even probable, that one firm will outperform all the others without the State ensuring a 'competitive market' through penalizing the most efficient providers to benefit the less efficient ones.
Where people run into a problem is buying into the monopoly=bad propaganda that the statists use to justify market intervention.
Anonymous Coward:Where people run into a problem is buying into the monopoly=bad propaganda that the statists use to justify market intervention.
That's all I was saying with the "so what?"