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.
There are so many problems with monopoly theory that I'd recommend a study of the relevant chapter in Rothbard's Man, Economy and State. It's dubious in the extreme that a firm could continue "monopolizing" markets and continue to be able to calculate effificiently. Like a socialist state, it'd continuously sink deeper into calculational chaos. This alone precludes the possibility of massive, all-expansive monopolies. The fact that, if successful, they briefly earn high entrepreneurial profits simply hastens their demise, unless the firm is efficient enough to maintain a large share of the market.
-Jon
Freedom of markets is positively correlated with the degree of evolution in any society...
ecoli: However, if a powerful monopoly forms, couldn't they theoretically stifle new entreupeneurs from innovating? Thus reducing competition in the market.
However, if a powerful monopoly forms, couldn't they theoretically stifle new entreupeneurs from innovating? Thus reducing competition in the market.
How could it "stifle new entrepreneurs from innovating"?
(PS: see The Incredible Bread Machine for a nice story of antitrust in action )
Governments create monopolies through patents and copyright because its good for the economy. Governments also break up monopolies through anti-trust laws because its good for the economy.
Peace
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.
... or by actively muscling out new entrepeneurs. Or what about using their resources to simply buy up the new start-ups (everyone has their price).
And this is even assuming that there are entrpeneurs around that are willing to enter a market in order to "challenge" a monopoly in the first place.
The more correct question is: why on earth assume that there won't be entrepreneurs? If the firm is simply buying up competitors, it might be the most efficient firm in the market. If it isn't, it is prone to being taken over. As for "muscling" out competitors, depending on what that means, it'd probably be illegal.
The more correct question is: why on earth assume that there won't be entrepreneurs?
I'm just posing a hypothetical scenario. (playing the devil's advocate. It helps me understand the austrian position)
To add to what Chris said about Dom Armentano, here is a video of him on Ron Paul's old show discussing Anti-trust laws:
http://www.youtube.com/watch?v=8C4gRRk2i-M
Keep you doped with religion and sex and TV. And you think you're so clever and class less and free. But you're still f***ing peasants as far as I can see.
There's room at the top they are telling you still. But first you must learn how to smile as you kill, if you want to be like the folks on the hill.
ecoli: The more correct question is: why on earth assume that there won't be entrepreneurs? I'm just posing a hypothetical scenario. (playing the devil's advocate. It helps me understand the austrian position)
The Austrian position is praxeological. There are fundamental things that we know a priori about human action which tell us what will follow from any given set of circumstances. In this case, we can extract from our knowledge that people act to lessen perceived wants and that people prefer more goods to less goods, that where there is profit, entrepreneurs will follow.
If a monopolist has low prices and delivers a product efficiently, then there doesn't seem to be any problem with the monopolist in the first place.
On the other hand, if the monopolist charges a high price, that indicates economic profit. Entrepreneurs will go where there is economic profit; they will drive the price down in their drive to gain market share. In a free market, the number of firms who will compete are theoretically without limit. So long as economic profits remain high, someone will be there to grab a piece of it. They can only do this by either doing it better or cheaper.
Thus in a free market, the threat of monopoly is completely unwarranted - unless we assume a world in which there are no entrepreneurs, which in Austrian theory is just as relevant as an assumption that 2 + 2 = 5. Austrian economics is a priori economics. We consider only that which logically follows from basic truths about human action.
So to address your hypothetical scenario, which assumes things that are contrary to reality, we would have to leave Austrian theory entirely. In that situation, the monopolist will exploit everyone to the point of starvation, because it would seem that he is the only one who posesses the basic human trait of rational self-interest, and/or the ability to act upon that trait.
Pro Christo et Libertate integre!
If there are no entrepreneurs, potential monopolies won't be an issue anyway. Fortunately that's not an issue, all men are entrepreneurs.
"You don't need a weatherman to know which way the wind blows"
Bob Dylan
ecoli:Or what about using their resources to simply buy up the new start-ups (everyone has their price).
Nonsense. They'd have to pay the start-up more money than they would expect to earn by competing with the monopoly.
How do you suggest a firm is going to keep its monopoly position by handing out money to those people most able to compete with it?
JonBostwick: ecoli:Or what about using their resources to simply buy up the new start-ups (everyone has their price). Nonsense. They'd have to pay the start-up more money than they would expect to earn by competing with the monopoly. How do you suggest a firm is going to keep its monopoly position by handing out money to those people most able to compete with it?
Excellent point. Thank you, and everyone for explaining. I understand the larger point now, I think.
This is a common enigma I run into with Libertarians where ideology trumps practicality. It comes down to this bottom line: When one idea you believe in is in conflict with another idea you believe in, you have to prioritize which one will win out. I believe the number one ideology of Libertarianism is individual liberty. Those of you who argue that monopolies only drive out competition by being more efficient with lower prices are providing a naive point of view. Remember, there are two types of power: Political and Economic. Both can be abused to the detriment of society.
Let's use Microsoft as an example. I think Even Coyne Maloney put it best in two articles:
http://brain-terminal.com/posts/2001/08/22/the-microsoft-conundrum
http://brain-terminal.com/posts/2003/01/13/
Here's a conundrum: Microsoft tells Dell that they have to only offer PC's with Windows operating system and Internet Explorer and, if they choose to offer any competing OS (like Linux) or browser (like Netscape), they will pull their license to sell Windows completely. Does Dell have a choice? Sure, but the practical reality is that MS is holding an economic gun to Dell's head. "Do as we say or we'll put you out of business." Another tactic was to only temporarily lower prices. Microsoft has offered software for free until their competitors either go under or sell out to them at fire sale prices, then they come out with "new" versions and charge whatever price they want. Possible future competitors got the message and didn't even bother trying to go up against them.
So here we have a company using their economic might to stifle competition not through better efficiency, but through pure coercion. Sound familiar? The only way to curb this detrimental use of economic power is to use political power, in the form of anti trust legislation, to stop it.
Microsoft is almost like a government. They are doing whatever they can to govern the internet, that is why Yahoo refused to be bought by them.
Art transcends ideology.
http://mises.org/Community/blogs/ruben
interesting application to a real life scenerio. I'd like to know what the "Austrian" rebuttal would be.