Monopoly
A monopoly is an enterprise that is the only seller of a good or service.[1]
Definitions
Despite the fact that monopoly problems occupy an enormous quantity of economic writings, little or no clarity of definition exists. There is, in fact, enormous vagueness and confusion on the subject.
"Monopoly exists when a firm has control over its price."
Firms never have control over their prices, because every exchange is a voluntary transaction subject to market forces. Any man can set any price that he wants for any quantity of a good that he sells; the question is whether he can find any buyers at that price.
All producers have absolute control over the quantity they produce and the price which they attempt to get; and absolute noncontrol over the price-and-quantity transaction that finally takes place.
"The only seller of any given good."
It means that, whenever there is any differentiation at all among individual products, the individual producer and seller is a "monopolist. John Jones, lawyer, is a "monopolist" over the legal services of John Jones; Tom Williams, doctor, is a "monopolist" over his own unique medical services, etc. The owner of the Empire State Building is a "monopolist" over the rental services in his building. This definition, therefore, labels all consumer distinctions between individual products as establishing "monopolies.
Only consumers can determine what an individual good is. There is no way to determine this externally.
A monopoly is a grant of special privilege by the State, reserving a certain area of production to one particular individual or group.
This definition of monopoly goes back to the common law and acquired great political importance in England during the sixteenth and seventeenth centuries, when an historic struggle took place between libertarians and the Crown over the issue of monopoly as opposed to freedom of production and enterprise. Under this definition of the term, it is not surprising that "monopoly" took on connotations of sinister interest and tyranny in the public mind. The enormous restrictions on production and trade, as well as the establishment by the State of a monopoly caste of favorites, were the objects of vehement attack for several centuries.
This type of monopoly can never arise on a free market, unhampered by State interference. In the free economy, then, according to this definition, there can be no "monopoly problem."[2]
Natural monopoly
A "natural monopoly" or "public utility" occurs where "competition is not feasible." This concept has the following issues:[2]
- There is no way to determine how many firms should be in a given industry. It could be true that only one is possible.
- It is also not possible to determine whether the firm is charging a monopoly price.
- There are no rational grounds to separate "public utilities" from other spheres on the market.
The history of the so-called public utility concept is that the late-nineteenth- and early-twentieth-century "utilities" competed vigorously and, like all other industries, they did not like competition. They first secured government-sanctioned monopolies, and then, with the help of a few influential economists, constructed an ex post rationalization for their monopoly power.[3]
References
- ↑ George J. Stigler. "Monopoly", The Concise Encyclopedia of Economics, referenced 2010-07-16.
- ↑ 2.0 2.1 Murray N.Rothbard. Man, Economy and State (pdf), Chapter 10 Monopoly and Competition, p.629-754. Referenced 2010-07-16.
- ↑ Thomas J. DiLorenzo. "The Myth of Natural Monopoly" (pdf), The Review of Austrian Economics, Vol. 9,No. 2 (1996). Referenced 2010-07-16.
External links
- Monopoly on Wikipedia
- The Development of the Theory of Monopoly Price: From Carl Menger to Vernon Mund (pdf) by Joseph T. Salerno, September 2003
- Fear of Monopoly by Brad Edmonds, March 2001
- What's Wrong with Monopoly (the game)? by Benjamin Powell, February 2004