Economics Questions

Re: Is natural monopoly really impossible?

John James — Tue, 21 Jun 2011 12:05:20 GMT

EconomistInTraining:
You know, rather than merely asserting that with key words in italics you could actually try to argue in favour of this stance.

As I said (and thought was made quite clear with the huge, bold, underlined, hyperlinked letters), others have already "argued in favour of this stance" and I don't need to regurgitate when I can just link to it.

Thing is, the meaning of that statement is pretty damn clear, in fact it uses two very simple concepts that Austrians also use (marginal cost and market prices) both of which can theoretically be approximated.

I don't get it. You're suggest that as long as you're clear and use Austrian terminology, you're right?

And seriously, a little humility might be nice. If you're going to state the I'm certainly wrong, you might want to provide some actually evidence.

Again, I did. In big bold underlined hyperlinked text that takes up the width of the post.

But since you failed to do so (I'm guessing you didn't even check) I think I might just have to. So here's the man himself

Ludwig von Mises:
If a commodity is controlled by a single seller or a group of sellers, which act in concert and they decide to restrict their production of this commodity, not because they have better use for the resources, but solely for the reason that they face an inelastic demand and hope to receive higher proceedings from selling lower number of units than they would normally sell, then the price, at which the market will clear is called monopoly price. Monopoly price is higher than would a competitive price be.

Ludwig von Mises:
Monopoly prices are only prices at which it is more advantageous for the monopolist to restrict the total amount to be sold than to expand his sales to the limit which a competitive market would allow

1) You didn't say anything about how Mises (or anyone else, for that matter) defines "monopoly pricing". You said "monopoly power actually has a pretty precise definition in mainstream economics (and I think, although could be mistaken, that Mises adhered to this definition) as the ability to price over marginal cost." How these quotes do anything to support your initial claim, I have no idea.

2) It's interesting how you would berate me for "not bothering to check" when it's quite obvious you didn't even look at the link I provided.

Both of which are taken from page 359 of the 1996 edition of Human Action. And both of which are pretty much in accordance with neoclassical monopoly theory.

Again, you obviously didn't read the article.

Re: Is natural monopoly really impossible?

EconomistInTraining — Tue, 21 Jun 2011 01:11:39 GMT

Per that definition, "monopoly power" would seem to abound to the point of being almost meaningless.

Also, why should people be forced away from pricing over marginal cost?

Slow down there buddy, I never said people should be forced away from pricing over marginal cost. That's a pretty ridiculous position to take and I'm a reasonable guy! I just said that's the definition of monopoly power according to the mainstream, no more no less!

And yes, it turns out that monopoly power is pretty ubiquitous! Of course, me and you aren't the first ones to realise this which I why the standard models of perfect competition (with a perfectly elastic demand curve that doesn't allow pricing over marginal cost) are generally considered to be more of a benchmark than a description of reality. That doesn't make it meaningless because there are varying degrees of monopoly power, ranging from Cournot games with large numbers of firms to pure monopoly. (Even if monopoly power were the same in every instance, the term still wouldn't be meaningless, just analytically useless. Let's be precise in our use of language please!)

Re: Is natural monopoly really impossible?

EconomistInTraining — Tue, 21 Jun 2011 01:06:00 GMT

That definition is meaningless. (And certainly wrong about Mises). I didn't think it required a response. But here's one anyway

You know, rather than merely asserting that with key words in italics you could actually try to argue in favour of this stance. Thing is, the meaning of that statement is pretty damn clear, in fact it uses two very simple concepts that Austrians also use (marginal cost and market prices) both of which can theoretically be approximated.

And seriously, a little humility might be nice. If you're going to state the I'm certainly wrong, you might want to provide some actually evidence. But since you failed to do so (I'm guessing you didn't even check) I think I might just have to. So here's the man himself

Ludwig von Mises:
If a commodity is controlled by a single seller or a group of sellers, which act in concert and they decide to restrict their production of this commodity, not because they have better use for the resources, but solely for the reason that they face an inelastic demand and hope to receive higher proceedings from selling lower number of units than they would normally sell, then the price, at which the market will clear is called monopoly price. Monopoly price is higher than would a competitive price be.

Ludwig von Mises:
Monopoly prices are only prices at which it is more advantageous for the monopolist to restrict the total amount to be sold than to expand his sales to the limit which a competitive market would allow

Both of which are taken from page 359 of the 1996 edition of Human Action. And both of which are pretty much in accordance with neoclassical monopoly theory.

Re: Is natural monopoly really impossible?

John James — Tue, 21 Jun 2011 00:28:51 GMT

That definition is meaningless. (And certainly wrong about Mises). I didn't think it required a response. But here's one anyway:

A Critique of Neoclassical and Austrian Monopoly Theory

Re: Is natural monopoly really impossible?

Autolykos — Mon, 20 Jun 2011 15:34:18 GMT

EconomistInTraining:
Except, monopoly power actually has a pretty precise definition in mainstream economics (and I think, although could be mistaken, that Mises adhered to this definition) as the ability to price over marginal cost.

Per that definition, "monopoly power" would seem to abound to the point of being almost meaningless.

Also, why should people be forced away from pricing over marginal cost?

Re: Is natural monopoly really impossible?

Autolykos — Mon, 20 Jun 2011 15:33:21 GMT

Jacob:
Standard oil also attempted illegal or immoral methods. Like buying all of the barrels that they could afford so that their competitors we're pumping oil and couldn't store it.

How is that immoral? Were their competitors prima facie entitled to those barrels?

Jacob:
They also paid state militias (the early national guard) to enforce work conditions that people didn't want.

I think you mean they paid state militias to prevent striking workers from occupying property that those workers didn't own.

Jacob:
John Rockefeller was at the helm when the Coloroado state militia killed all of the strikers (not all, but many including women and children).

That was a tragedy indeed. I certainly doubt it was intended by John Rockefeller.

Jacob:
Intentional or not corporations are not saints, but without their public newspaper connections, and the early women's lib, people would have flocked to another company when given the opportunity.

First off, who is a saint?

Second, how do you know that people would've flocked to another company when given the opportunity - had it not been for Standard Oil's (alleged) newspaper connections and the early women's lib?

Jacob:
Standard Oil also was a trust. Basically a private cartel with no government backing. They had the benefit of promised business from other business owners who would commit to it. The competition was never pumped about this and went to government, but the Rockefellers always win when the government is involved.

How can a cartel exist when there is competition against it?

Re: Is natural monopoly really impossible?

EconomistInTraining — Sun, 19 Jun 2011 03:20:30 GMT

Except, monopoly power actually has a pretty precise definition in mainstream economics (and I think, although could be mistaken, that Mises adhered to this definition) as the ability to price over marginal cost.

Re: Is natural monopoly really impossible?

Evilsceptic — Sat, 18 Jun 2011 10:15:32 GMT

These lectures by Murray Rothbard (The American Economy and the End of Laissez-Faire) are great fun and detail all the nefarious dealings of businessmen and politicians of the time. They're quite long but if convert them to mp3 you can listen to them while walking to school/work.

Re: Is natural monopoly really impossible?

vive la insurrection — Sat, 18 Jun 2011 09:19:47 GMT

A monoply exists by arbitrary extant legal definitions, there is nothing market science can say about monopolies as it is not a scientific concept, but rather an aesthetic one.

Re: Is natural monopoly really impossible?

Em_ptySkin — Sat, 18 Jun 2011 05:36:41 GMT

Standard oil also attempted illegal or immoral methods. Like buying all of the barrels that they could afford so that their competitors we're pumping oil and couldn't store it. They also paid state militias (the early national guard) to enforce work conditions that people didn't want. John Rockefeller was at the helm when the Coloroado state militia killed all of the strikers (not all, but many including women and children). Intentional or not corporations are not saints, but without their public newspaper connections, and the early women's lib, people would have flocked to another company when given the opportunity.

Standard Oil also was a trust. Basically a private cartel with no government backing. They had the benefit of promised business from other business owners who would commit to it. The competition was never pumped about this and went to government, but the Rockefellers always win when the government is involved.

When Standard Oil was split up the government didn't make Rockefeller sell any of the new companies. He could still own them all. The difference was now he had regional centers (Amaco, i can't remember the others).

Re: Is natural monopoly really impossible?

thecommaking — Fri, 17 Jun 2011 19:56:56 GMT

I agree with everything all the repliers have posted. I would also add that in the latter half of the nineteenth century, Standard Oil grew to such bloated size because it was protected from foreign competition by extremely high tariffs implemented by the Republican Party. As accepted at the time, these tariffs created the massive trusts. Rather than lowering tariffs, the Republicans responded to the alleged problem of the trusts by passing the Sherman Anti-Trust Act.

Re: Is natural monopoly really impossible?

John James — Wed, 15 Jun 2011 07:51:29 GMT

The Myth of Natural Monopoly

There goes the "natural monopoly" argument

Anti-trust, Anti-truth

The Truth About the "Robber Barons"

(If the music is annoying, the original lecture is here.)...

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Re: Is natural monopoly really impossible?

Bogart — Wed, 15 Jun 2011 04:36:05 GMT

Only Standard Oil was broken up and that was when its market share IN THE USA , it was lower in Europe, dropped to 60%. It was at one time 95%. I did not think US Steel was ever broken up. JP Morgan never had a monopoly of any sort although it may have been the largest and most power bank in US history but there were larger ones in other places.

Businesses can look like monopolies in the Short Run. It is in the long run, that can come around rather quickly as shown by the housing bust of 2008, where a monopoly is impossible without government privilege. The reason a monopoly is unsustainable is that it has only two ways of keeping out competition without using force: 1. Keep prices so low that no competitor wants to join the market. 2. Out innovate your competitors in providing new products and services to existing markets. Number 2 is extremely difficult in time frames more than a few years. Number 1 seems easier but in doing number 1 the monopoly has reduced its value as it is giving its rents to the consumers.

And if you examine your "monopolies" above you will find that they tried a combination of 1 and 2 and were incredibly successful for more than a few decades but time and competition caught up with them. The most know example is that of Standard Oil. In the early 1890s, Standard Oil acquired a 95% market share by undercutting the competition. But oil strikes in California, Mexico and Canada brought in low cost competition to the rapidly growing markets of the American West. At the same time Standard Oil was trying to undercut its European Competitors in their areas and was not finding success. So eventually Standard Oil had to raise prices in its most cherished markets thus opening the doors to its decline.

Re: Is natural monopoly really impossible?

Vitor — Wed, 15 Jun 2011 04:28:01 GMT

Standard Oil was far from being a monopoly. It was the largest oil company, but there were many others in such way that Standard Oil was not even 75% of the whole oil industry.

Re: Is natural monopoly really impossible?

Nielsio — Wed, 15 Jun 2011 04:25:23 GMT

The Myth of Natural Monopoly | Thomas DiLorenzo

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