Monday, November 27, 2017

Capitalism and the Misunderstanding of Monopoly

Richard Ebeling emails:

Dear Bob,

My latest article on the website of the Future of Freedom Foundation is on, “Capitalism and the Misunderstanding of Monopoly.”

Many of the criticisms raised against capitalism are connected with confusions and misunderstandings about
the meaning of ‘monopoly” in the marketplace. The word holds many negative connotations, yet all that “monopoly” means is a “single seller” in the market.

The real issue is not that there is, at a moment or over a period of time, one seller in the market, but why this has come about, and what has been the role of the government in either creating, fostering and protecting it from a more competitive market process.

There may be a single seller because of an entrepreneur marketing a new or significantly different product, and thus he is the first one to bring it to market. Or a market may be too small in terms of consumer demand to financially sustain the profitable existence of more than one enterprise. Or it may be that temporarily a single producer has control or ownership of an essential resource for a particular production process, without which a good may not be brought to market.

But each of these situations, as I explain, have their competitive answers, if we look at things as a dynamic market process through time, rather than a static moment in time.

The only real source of a meaningful “negative” connotation and relevance to a monopoly situation is when it has been made possible through government privilege, favor and legislative protection that legally prohibits potential competitors from entering a walled off corner of the market, and thus prevents other potential suppliers from offering possibly more, better and less expensive versions of the monopolist’s product.

It is the State that creates “monopoly problems,” not the competitive, open marketplace.


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