Are monopolies/cartels always a result of government interference in the free market?

Have philosophical discussions about politics, law, and government.
Featured Article: Definition of Freedom - What Freedom Means to Me
Londoner
Posts: 1783
Joined: March 8th, 2013, 12:46 pm

Re: Are monopolies/cartels always a result of government interference in the free market?

Post by Londoner » February 7th, 2018, 6:02 am

Frost wrote:
February 6th, 2018, 10:01 pm
Monopolies cannot be considered being a single seller of a good, or else practically every business is a monopoly. I'm not even sure if it's quite possible for there to be truly homogenous goods. Each business is unique in some sense and therefore offers different goods. For example, buying a car from a car dealership is not a matter of selecting from homogenous goods, but rather each dealership offers a unique good due to the difference in so many factors involved in providing that good.

That a single seller charges higher prices does not make it a monopoly due to the dynamics of exchange. In a free market, exchanges are voluntary, and the seller cannot force the buyer to buy at a particular price. If I have a unique item I am selling on e-bay, does that mean I am a monopoly? Should the government come in and determine what the fair price should be? Based upon what if I am offering a unique product? Furthermore, I cannot force the buyer to buy at any particular price.
It isn't that the product is unique in the sense that there isn't another one exactly like it, but because it fulfills a particular function. Each used car is individually unique, but there are many ways of acquiring transportation. However, the need for some form of transport may be a necessity so, if I own the only bridge out of town, then I can charge motorists a monopoly price to use it. Not because it is the only bridge in the world, but because it is the only bridge for those motorists.

In the case of the eBay item, that it is a one-off is likely to be a sign that nobody actually needs it, that it has no function. But most purchases are not like that. The buyer is obliged to buy goods and services - because it would cost them even more if they didn't have them. If the motorists do not cross the bridge, they can't get to work. Any remnants of their wage, even after paying my bridge toll, is better than starvation.

So, I could claim that all the motorists freely choose to pay my tolls! That if they do not like the situation, they are free to become bridge owners, just like me (if they can save up enough from what I leave them of their wages).

To put it another way, we do not meet as buyers and sellers as equals; both are already in a situation, both have already committed themselves to a particular economic role which means they are dependent on others. Monopolies arise not because some object or service being sold is unique, but because of the nature of the economic relationship, the degree of dependency.

Steve3007
Posts: 4662
Joined: June 15th, 2011, 5:53 pm
Favorite Philosopher: Eratosthenes
Location: UK

Re: Are monopolies/cartels always a result of government interference in the free market?

Post by Steve3007 » February 7th, 2018, 7:11 am

Frost wrote:Monopolies cannot be considered being a single seller of a good, or else practically every business is a monopoly. I'm not even sure if it's quite possible for there to be truly homogenous goods. Each business is unique in some sense and therefore offers different goods. For example, buying a car from a car dealership is not a matter of selecting from homogenous goods, but rather each dealership offers a unique good due to the difference in so many factors involved in providing that good.
If you follow that line of reasoning you conclude that every individual good (with the possible exception of elementary particles like electrons!) is different from every other and they change from one moment to the next. That seems to me to be a reductio ad absurdum. Clearly, in order to make any sense of the world, we classify things and regard members of a class as being the same as other members of that class for practical purposes.

Every individual item sold by every supermarket is unique and it changes from one second to the next as it slowly rots. But if there was only one supermarket chain in a market then that chain would hold a monopoly in the class of goods called groceries.
Frost wrote:That a single seller charges higher prices does not make it a monopoly due to the dynamics of exchange. In a free market, exchanges are voluntary, and the seller cannot force the buyer to buy at a particular price.
I already agreed in my previous post that even in a single-seller market (which is by definition a monopoly) the price of the goods is, by definition, the free market price because only market forces are operating. But I gave an example in that previous post to show that in this free market prices can still be higher than they would be in a non-monopoly - i.e. in a market with more than one seller. As I said, one reason why prices can still be higher is that there is no competition to maximise the efficiency of that single supplier's internal production processes.

Also, as I said, if you re-define the word "monopoly" to mean a market in which something other than market forces are operating then you are committing a begging the question fallacy. i.e. you are attempting to show that monopolies cannot arise in free markets by defining a monopoly as something that doesn't arise in a free market.
Frost wrote:If I have a unique item I am selling on e-bay, does that mean I am a monopoly? Should the government come in and determine what the fair price should be? Based upon what if I am offering a unique product? Furthermore, I cannot force the buyer to buy at any particular price.
It depends how narrowly you define the term "unique". As discussed above, every seller could be defined as having a monopoly or not a monopoly in a particular market depending on that defintion.
Frost wrote:I suppose we could use the classic well example where there is one person that owns the only water source anywhere around and he sells to the town, ...
Incidentally: Using your argument above, even if there were multiple wells, you would presumably argue that each water product is different and has different unique selling points (perhaps hard water versus soft water) and that therefore each well-owner could be argued to hold a monopoly on their particular product?
Frost wrote:...and he one day decides to charge exorbitant amounts. In clear examples, this seems to be an appropriate area for government intervention to avoid coercion of procurement of basic necessities for life. However, in instances of natural disaster, for instance, the mere rising of prices is not monopolistic since it is allocating scarce resources.
To be clear: It is monopolistic by definition (there is a single seller). What you are arguing is that this monopoly still results in a fair market price for the water which, given the conditions in the water market at that time, is appropriate to the circumstances and confers more benefit to the population as a whole than any form of control by external forces would.
Frost wrote:People want it so that poor people can buy the product as well, but if it sells out, poor people cannot buy it anyway.
Yes, a higher price will certainly mean that this product sells out more slowly than a lower price. To maximise his profits (in accordance with the principles of free trade) this water seller must judge how high he can push the price and still sell all of his water. The only limit to the price is the point where all the water does not sell. If there are no competing wells then it makes sense to push the price higher and sell to only the richest. The water will still all sell eventually won't it?

If I were this seller, and I owned a finite quantity of water, and there were no other sources, and my only consideration was maximising profit, I might consider allowing all but the richest to die of thirst and sell the water to just that one small group. It would sell more slowly but I'd get more money in the end. But if there were other sellers they'd spot the gap in the market and sell to the next poorest group for slightly less. I'd then have to drop my prices to compete because the richest would then also have a cheaper source of water.

Also, if there were no other sellers I would have no incentive to maximise the efficiency of my water collection apparatus (a.k.a. bucket and rope). It would still all sell in the end. But if there were other sellers they might spot that and collect their water more efficiently, satisfying the market before me, and I'd be left with excess unsold water.

So, unless my reasoning is way off, I don't see how your argument about single-seller markets (A.K.A. monopolies) works.

If we widen the discussion from single sellers, we might speculate that the rich group might use some of this precious water as a kind of currency to pay the poorer people to provide services of various kinds for them. Given that the alternative is dieing of thirst, I guess this water could be quite persuasive. I suppose that would literally be the trickle-down effect in action!
Frost wrote:The problem is, without economic understanding, people are all too quick to label something as "predatory" or "monopolistic." While there are some rare instances which justify legal intervention, that is quite rare on a free market and such violations must be approached with economic understanding and seen as gross violations of the rights of others (such as the well example).
Monopolistic it clearly is, by definition. "Predatory" is usually used as a value judgement term for ruthless exploitation. In this discussion I'm not particularly interested in jumping to value judgements yet. I'd prefer to start by trying to analyse the arguments.
"When the seagulls follow the trawler, it is because they think sardines will be thrown into the sea." - Eric Cantona.

User avatar
Count Lucanor
Posts: 355
Joined: May 6th, 2017, 5:08 pm

Re: Are monopolies/cartels always a result of government interference in the free market?

Post by Count Lucanor » February 7th, 2018, 2:51 pm

Frost wrote:
February 7th, 2018, 12:55 am
Count Lucanor wrote:
February 6th, 2018, 10:32 am
Monopolies can arise "naturally", of course. The general tendency among capitalist competitors is to kill each other until one controls the market.
Based on what? This has never happened. What evidence do you have to support this claim?
I'm not sure what you mean by "this has never happened". Obviously, monopolies exist, and capitalists do want to get rid of the competition, so I guess you mean that monopolies cannot arise "naturally". Why not? It's easy to see that if you defeat all of your competitors, you'll end up with too much power and will use it to close the door to any new potential competitor rising up. It's what Microsoft did and what monopolies have always done.

Steve3007
Posts: 4662
Joined: June 15th, 2011, 5:53 pm
Favorite Philosopher: Eratosthenes
Location: UK

Re: Are monopolies/cartels always a result of government interference in the free market?

Post by Steve3007 » February 8th, 2018, 5:36 am

Count Lucanor wrote:It's easy to see that if you defeat all of your competitors, you'll end up with too much power and will use it to close the door to any new potential competitor rising up. It's what Microsoft did and what monopolies have always done.
---

I think it's interesting to return to the Microsoft example that I cited in the OP to examine the arguments surrounding the concept of monopoly, and try to draw parallels between this and other examples of alleged anti-competitive behaviour that have been proposed here.

First point: Nothing lasts forever. That includes monopolies. So if it were to be established that a company has a monopoly in a particular class of product, and if we did accept that this required external-to-the-market actors (government) to break it up, one question would be: How long before we decide to act? How long do we wait to see if market forces restore order by themselves? Or do we simply try to objectively establish a set of activities that are deemed to be anti-competitive and take legal action as soon as those activities are shown to have taken place?

The answer in practice, in the case of Microsoft, appears to have been the last one. One of the products discussed was Microsoft's Internet Explorer - the web browser that is bundled with the Windows OS. If they'd waited long enough they would have seen Microsoft's hold on the browser market gradually loosen, in large part because of the rise of the smart phone market in which Microsoft doesn't dominate. But even in the desktop market IE lost its dominance quite a while ago. As of now, nearly 18 years after the document that I cited was written, IE has lost a lot of market share. For example, I and most people I know tend to use Google Chrome instead. It's better!

But, at the time, Microsoft were deemed to have engaged in anti-competitive practices in order to promote that product. These practices don't involve forcing other companies or individuals to do anything, as such. It seems to me that an economic libertarian would regard them as perfectly acceptable for that reason. But the law (or at least the judge in this case), it seems, said that they were illegal because they were:

"a broad pattern of activities for which Microsoft advanced no credible efficiency rationale, but which can easily be understood as being designed to harm competition."

So, it seems that the law believes agreements that companies seek to make with other companies and other activities must be shown to be motivated by the desire to improve efficiency. One of the things that Microsoft apparently did was to use the ubiquity of the Windows OS to push IE by threatening to revoke the Windows licenses of other companies (e.g. Compaq) if they didn't promote IE. Now, as I said, this doesn't involve forcing anybody to do anything. In a libertarian free market, Microsoft are free to grant or withhold licenses to use their products to/from anyone they choose for any reason. The license is a contractual agreement, which both parties are free to accept or not accept as they choose.

But presumably the law decided that this particular type of contractual agreement reduced the need for Microsoft to make its IE product better and more efficient and is therefore anti-competitive.

But was it necessary to use legislation against Microsoft? Did this "anti-competitive" activity of Microsoft ultimately harm them, and thereby allow competitors to get a foothold, break the monopoly and restore competition to the market? Should the authorities immediately act against activities that are deemed to be anti-competitive or should they always wait for the free market to come to the rescue? How long does a monopoly have to last, and how complete a monopoly does it have to be, before it is deemed to be harmful to competition?

I wonder what, if any, the parallels are with Londoner's bridge toll example. I'll think about that, as this post is way too long already.
"When the seagulls follow the trawler, it is because they think sardines will be thrown into the sea." - Eric Cantona.

User avatar
Count Lucanor
Posts: 355
Joined: May 6th, 2017, 5:08 pm

Re: Are monopolies/cartels always a result of government interference in the free market?

Post by Count Lucanor » February 8th, 2018, 9:18 am

Steve3007 wrote:
February 8th, 2018, 5:36 am
Count Lucanor wrote:It's easy to see that if you defeat all of your competitors, you'll end up with too much power and will use it to close the door to any new potential competitor rising up. It's what Microsoft did and what monopolies have always done.
---

I think it's interesting to return to the Microsoft example that I cited in the OP to examine the arguments surrounding the concept of monopoly, and try to draw parallels between this and other examples of alleged anti-competitive behaviour that have been proposed here.

First point: Nothing lasts forever. That includes monopolies. So if it were to be established that a company has a monopoly in a particular class of product, and if we did accept that this required external-to-the-market actors (government) to break it up, one question would be: How long before we decide to act? How long do we wait to see if market forces restore order by themselves? Or do we simply try to objectively establish a set of activities that are deemed to be anti-competitive and take legal action as soon as those activities are shown to have taken place?

The answer in practice, in the case of Microsoft, appears to have been the last one. One of the products discussed was Microsoft's Internet Explorer - the web browser that is bundled with the Windows OS. If they'd waited long enough they would have seen Microsoft's hold on the browser market gradually loosen, in large part because of the rise of the smart phone market in which Microsoft doesn't dominate. But even in the desktop market IE lost its dominance quite a while ago. As of now, nearly 18 years after the document that I cited was written, IE has lost a lot of market share. For example, I and most people I know tend to use Google Chrome instead. It's better!

But, at the time, Microsoft were deemed to have engaged in anti-competitive practices in order to promote that product. These practices don't involve forcing other companies or individuals to do anything, as such. It seems to me that an economic libertarian would regard them as perfectly acceptable for that reason. But the law (or at least the judge in this case), it seems, said that they were illegal because they were:

"a broad pattern of activities for which Microsoft advanced no credible efficiency rationale, but which can easily be understood as being designed to harm competition."

So, it seems that the law believes agreements that companies seek to make with other companies and other activities must be shown to be motivated by the desire to improve efficiency. One of the things that Microsoft apparently did was to use the ubiquity of the Windows OS to push IE by threatening to revoke the Windows licenses of other companies (e.g. Compaq) if they didn't promote IE. Now, as I said, this doesn't involve forcing anybody to do anything. In a libertarian free market, Microsoft are free to grant or withhold licenses to use their products to/from anyone they choose for any reason. The license is a contractual agreement, which both parties are free to accept or not accept as they choose.

But presumably the law decided that this particular type of contractual agreement reduced the need for Microsoft to make its IE product better and more efficient and is therefore anti-competitive.

But was it necessary to use legislation against Microsoft? Did this "anti-competitive" activity of Microsoft ultimately harm them, and thereby allow competitors to get a foothold, break the monopoly and restore competition to the market? Should the authorities immediately act against activities that are deemed to be anti-competitive or should they always wait for the free market to come to the rescue? How long does a monopoly have to last, and how complete a monopoly does it have to be, before it is deemed to be harmful to competition?

I wonder what, if any, the parallels are with Londoner's bridge toll example. I'll think about that, as this post is way too long already.
"Perfectly acceptable" points at moral justification, but that'a different problem of whether something is legal or not. Laws in a given society represent the interests of the ruling class and in the case of monopolies, the class of capitalists, by means of its state apparatus, considered that it is for the overall best interest of that class to prevent excesses from single capitalists, so they made antitrust laws. "The law" is not a separate, autonomous entity, but an arm of the state and the ruling class.

I remember Netscape, quite a remarkable internet suite compared to IE in that time, when not even Mozilla or Chrome existed. Microsoft market muscle worked against a quality product. The way things are working today are a little bit different and one could imagine Netscape as being a small startup giving headaches to the big guys.

User avatar
LuckyR
Moderator
Posts: 2704
Joined: January 18th, 2015, 1:16 am

Re: Are monopolies/cartels always a result of government interference in the free market?

Post by LuckyR » February 8th, 2018, 12:02 pm

It is kind of humorous to listen to the terms: "free market" and "monopoly" in the same sentence.
"As usual... it depends."

Steve3007
Posts: 4662
Joined: June 15th, 2011, 5:53 pm
Favorite Philosopher: Eratosthenes
Location: UK

Re: Are monopolies/cartels always a result of government interference in the free market?

Post by Steve3007 » February 8th, 2018, 12:52 pm

LuckyR wrote:It is kind of humorous to listen to the terms: "free market" and "monopoly" in the same sentence.
I don't find the above sentence particularly funny. But then I have no sense of humour.
"When the seagulls follow the trawler, it is because they think sardines will be thrown into the sea." - Eric Cantona.

User avatar
LuckyR
Moderator
Posts: 2704
Joined: January 18th, 2015, 1:16 am

Re: Are monopolies/cartels always a result of government interference in the free market?

Post by LuckyR » February 8th, 2018, 2:20 pm

Steve3007 wrote:
February 8th, 2018, 12:52 pm
LuckyR wrote:It is kind of humorous to listen to the terms: "free market" and "monopoly" in the same sentence.
I don't find the above sentence particularly funny. But then I have no sense of humour.
You know yourself best, but self-contradictory would apply, even for the humor-impaired.
"As usual... it depends."

Judaka
Posts: 223
Joined: May 2nd, 2017, 10:10 am

Re: Are monopolies/cartels always a result of government interference in the free market?

Post by Judaka » February 11th, 2018, 1:46 am

Aren't monopolies the logical conclusion to free market? With better contacts/supporting technology, well known brand name, superior R&D teams, superior consumer feedback, larger financial support for franchises and so on, especially as technology increases input/output ratios - that monopolies will occur? The only interference possible is from the government - we've seen that in China and other governments which obstruct global monopolies from entering their market. We do see some monopolies overplaying on their advantages which leads to them being undercut or new technology making their services redundant, we've seen greed cause some monopolies to simply implode but unless you're using the word monopoly as in "exclusive provider" rather than the more common "an industry or sector dominated by one company", in which case, what monopiles exist in a free market?

Londoner
Posts: 1783
Joined: March 8th, 2013, 12:46 pm

Re: Are monopolies/cartels always a result of government interference in the free market?

Post by Londoner » February 11th, 2018, 8:27 am

Aren't monopolies the logical conclusion to free market?
One could ask if there has ever been - or could be - such a thing as a free market.

As Wicki says, it is an idealised system. Or perhaps 'simplified' would be a better word. It is the system in which all those theoretical graphs of supply and demand etc. would represent reality because no additional factors were involved, as they always are in real life.

Belindi
Moderator
Posts: 1227
Joined: September 11th, 2016, 2:11 pm

Re: Are monopolies/cartels always a result of government interference in the free market?

Post by Belindi » February 11th, 2018, 9:23 am

I read the article which Steve cited.
To answer Steve's original question I can see that feudal system is similar to trade monopoly in that that the monopolists in each case own a mechanism for limiting economic power to themselves.I can also see a parallel with feudal system , and modern trade monopolies, in the regime of North Korea where the ruling dynasty and its supporters own a mechanism of terror , ignorance, and quasi-religious devotion in order to retain the power where it at present resides.

Authority is not in every case traditional religion, or rigid class system but has to be actively maintained by individuals who have the advantage in a status quo. Microsoft fits that description. A parallel with Judge Jackson's advice to break the monopoly by means of separating commercial authority into four competing companies is like diluting a ruling elite's power by installing competing political parties.

Just as consumers choose to swap something they own for something produced by a specialist producer (baker, butcher, software supplier and so on) so the specialist producer is incentivised to produce more attractive ware in the course of competition with other producers.

As long as 'government' is defined as government by implicit consent of the governed, so government must be that which intervenes to free the market from self -interested monopolies.

The answer to Steve's question depends upon what he means by "government".

Alias
Posts: 2178
Joined: November 26th, 2011, 8:10 pm
Favorite Philosopher: Terry Pratchett

Re: Are monopolies/cartels always a result of government interference in the free market?

Post by Alias » February 11th, 2018, 3:18 pm

http://www.businessdictionary.com/defin ... opoly.html
Market situation where one producer (or a group of producers acting in concert) controls supply of a good or service, and where the entry of new producers is prevented or highly restricted. Monopolist firms (in their attempt to maximize profits) keep the price high and restrict the output, and show little or no responsiveness to the needs of their customers.
http://www.cobbles.com/simpp_archive/edison_trust.htm
The Edison Film Manufacturing Company, the Biograph company, and the other Motion Picture Patents members ended their competitive feuding in favor of a cooperative system that provided industry domination. By pooling their interests, the member companies legally monopolized the business, and demanded licensing fees from all film producers, distributors, and exhibitors.
Not much has changed: It's all a matter of destroying, buying out, subsuming, merging or making a deal with the competition.
It's always been natural:
https://www.investopedia.com/ask/answer ... polies.asp
Andrew Carnegie’s Steel Company (now U.S. Steel), John D. Rockefeller’s Standard Oil Company and the American Tobacco Company.
From the late 19th to the early 20th century these organizations maintained singular control over the supply of their respective commodities.
and still is:
http://www.businessinsider.com/these-6- ... ica-2012-6
This infographic created by Jason at Frugal Dad shows that almost all media comes from the same six sources.
That's consolidated from 50 companies back in 1983.
Government interference is sometimes able to limit the size and profits of a monopoly
'Legal Monopoly' A company that is operating as a monopoly under a government mandate. A legal monopoly offers a specific product or service at a regulated price and can either be independently run and government regulated, or government run and regulated. Also known as a "statutory monopoly".
http://www.vault.com/company-profiles/u ... y-overview
In mid-2017, Texas utility regulators spurned NextEra’s proposed $18 billion purchase of Oncor Electric Delivery. In 2016, Hawaiian regulator nixed NextEra’s proposed purchase of the Hawaiian Electric Company.
and then again, sometimes government is ineffective:
https://www.fool.com/investing/2017/07/ ... -amer.aspx
True monopolies were outlawed in 1890 in the U.S. after Congress passed the Sherman Antitrust Act. This law was designed to protect consumers from large companies that sought to use their dominant market position to engage in anticompetitive business practices. The bill also gave the federal government the power to step in and take action when necessary.
While this law is still in place today, that hasn't prevented a handful of very powerful companies from gaining a huge amount of market share in their industries. Below we'll take a closer look at seven companies that could easily be considered near-monopolies today.
or actively colludes:
https://www.thenation.com/article/ameri ... -its-huge/
antitrust was taken over by an army of economists and lawyers. They redefined and narrowed the scope, to focus on consumer harm, with strong presumptions that the market was in fact naturally competitive, placing the burden of proof on those who contended otherwise. On this basis, it became almost impossible to successfully bring a predatory pricing case:

Steve3007
Posts: 4662
Joined: June 15th, 2011, 5:53 pm
Favorite Philosopher: Eratosthenes
Location: UK

Re: Are monopolies/cartels always a result of government interference in the free market?

Post by Steve3007 » February 12th, 2018, 9:05 am

Londoner wrote:One could ask if there has ever been - or could be - such a thing as a free market.

As Wicki says, it is an idealised system. Or perhaps 'simplified' would be a better word. It is the system in which all those theoretical graphs of supply and demand etc. would represent reality because no additional factors were involved, as they always are in real life.
Or perhaps it is theorised that all possible factors have already been included in the model and that the fair price includes all those factors. That seems to me to be what is meant by this Subjective Theory of Value. It does seem to me strikingly similar to idealised laws of physics, like the ideal gas law, and in fact the analogy with laws of physics is made explicit in some of the laws which are used to calculate the fair prices of some things.
"When the seagulls follow the trawler, it is because they think sardines will be thrown into the sea." - Eric Cantona.

User avatar
Frost
Posts: 510
Joined: January 20th, 2018, 2:44 pm

Re: Are monopolies/cartels always a result of government interference in the free market?

Post by Frost » March 7th, 2018, 10:08 am

Steve3007 wrote:
February 12th, 2018, 9:05 am
Or perhaps it is theorised that all possible factors have already been included in the model and that the fair price includes all those factors. That seems to me to be what is meant by this Subjective Theory of Value. It does seem to me strikingly similar to idealised laws of physics, like the ideal gas law, and in fact the analogy with laws of physics is made explicit in some of the laws which are used to calculate the fair prices of some things.
While I enjoyed my month-long ban, I certainly missed out on a lot here. I will attempt to address many points—mainly for the benefit of Steve3007 since I feel he is genuinely debating the issue—in one post rather than individual point-for-point responses, although I am unsure if I will continue to post on this forum.

The first point is that the question "aren’t monopolies the logical conclusion to free market?" is a result of long-disproven Marxist economic theory. Marx never published the later volumes of Das Kapital because Karl Menger disproved his economic theory a few years after Marx published the first volume. It is evidence of intellectual regression to have to continue to argue against such long-disproven theory. Then again, there has been a resurgence of such nonsense, including having to argue against the Blank Slate and the defend the reality of biological differences, and it fits right in with the post-modernist nonsense I’ve encountered in other threads here about how math is epistemically subjective and science is a matter of beliefs…so I question the point of putting in the effort to respond, but here goes…
"one historical example of this pattern occurred when ALCOA—the Aluminum Company of America—controlled most of the supply of bauxite, a key mineral used in making aluminium."
This is an outright falsehood. One only has to read the legal case. ALCOA owned 48% of the ore quality bauxite in Arkansas while it was available in six other states, and “outsides the United States, the supply of bauxite is practically inexhaustible.” The old windbag is at it again with her Google scholarship, failing to actually investigate the validity of her quick Google searches. However, perhaps knowing history, just like knowing economics, is merely "libertarian fundamentalism."

None of the companies named, ALCOA, Standard Oil, American Tobacco, or U.S. Steel, were monopolies in the sense of being a sole seller. Being dragged through anti-trust litigation does not mean they were monopolies. None of them were exclusive sellers of their product, and perhaps more importantly, none of them had what might be considered a monopoly price since they all dramatically reduced the cost of their product over time. ALCOA is an excellent example where they dramatically reduced the price of aluminum from $5/lb in 1887 to $0.15/lb in 1941 and with inflation this drop is even more, especially considering the massive inflation in the progressive era, and the "barriers to entry" argument is nonsense since very wealthy investors looked into this field, including Ford, but decided their money was more productively invested elsewhere. These companies certainly had no shortage of capital to compete. The most notorious of the supposed monopolies, Standard Oil, had a peak market share of about 90% in 1899—which is not a monopoly—but it was not able to retain this dominance. By 1904 this share slipped to 84%, then to 80% in 1911 when anti-trust legislation was used against them. Perhaps one might argue that they had enough control of the market to extract a monopoly price, but of course they didn’t and instead drastically reduced the wholesale price of kerosene from 45 cents per gallon in 1863 to 6 cents per gallon in the mid 1890s. What a terrible state of affairs. It is true that Rockefeller attempted to buy out other refineries to eliminate competition, but this never resulted in a monopoly since new refineries kept opening, and Rockefeller eventually stopped this practice in 1885 and 10-20% of the refining capacity in the U.S. continued outside of Standard Oil. Independent refiners continued to grow from 67 in 1899 to 147 by 1911. While there were many attempts at cartels in the steel industry, and at one point 138 companies consolidated into six trusts, and these six then formed U.S. Steel, it only had 62% of the market even with the protective tariffs on the cheaper British steel! Their profits were dropping and they attempted to create a cartel to keep up the prices of steel in 1907, but by 1908 independent companies began secretly cutting prices which broke the agreement forcing U.S. Steel and other companies to compete.

Worse yet is the history behind the Sherman Anti-Trust Act. The motivation for the legislation began in the early 1870s as a result of the massive railroad subsidies that occurred as a result of the neo-mercantilist Republican party which entirely controlled Congress after the Civil War, since the rights of the southern states were violated upon returning to the U.S. This was the legacy of Lincoln's policy that brought to fruition Henry Clay's "American System" of crony capitalism. The people eventually became fed up over the blatant corruption and subsidies of the government and railroad industries, which created the anti-monopoly sentiment. Part of the bust of the unsustainable railroad subsidies was the bankruptcy of railroad tycoon Jay Cook, and as a result, J.P. Morgan became the leading investment banker in the U.S. This combination of government corruption fed into a oligarchical battle between the Morgans and the Rockefellers. While the Cleveland administration was dominated by Morgan, the McKinley administration was dominated by Rockefeller. This conflict came to a head with the assassination of McKinley and the Morgan affiliated vice president Teddy Roosevelt coming to power. This led to the domination of Morgan interests for almost the next decade with the Roosevelt. This led to the shielding of Morgan companies from the Anti-Trust litigation while attacking non-Morgan companies, the most famous of which was Rockefeller's Standard Oil in 1906 (Standard Oil was also part of the attacks on "price discrimination" of railroads, which was nonsensically labeled "monopolistic" despite the elimination of "price discrimination" reducing a method of competition between businesses). Subsequently, Rockefeller retaliated through the corrupt administration of William Howard Taft which then led anti-trust attacks on Morgan companies U.S. Steel and International Harvester. None of these companies had a natural monopoly, and the Sherman Anti-Trust Act was used as a tool by big businesses made possible by corrupt politicians to go after competitors. On a free market without such legislation, or such interventionism, such a state of affairs could not have occurred. While it was true there were wasteful attempts at monopoly and cartelization, the companies learned from their mistakes. The whole idea of anti-trust legislation emerging from benevolent legislators helping the public is a complete fairytale that is exploded by both history and economic understanding. What we ended up with instead was a tool for corrupt government officials to attack successful and efficient businesses to favor special interests all the while lining their pockets and reducing competition and reducing the standard of living of all.

While narrowly focusing on "economies of scale" and "entry barriers," one fails to realize that very large corporations tend to fall behind due to technological and entrepreneurial conservatism. Mainstream "economics" and a great deal of political philosophy fails to understand the importance of entrepreneurship in meeting the future demands of customers. Modern economics doesn't even really recognize entrepreneurship due to the nature of their mathematical models! Neo-Marxist or Marxist-inspired political philosophy sees corporate leadership as mere managerial book keeping. This type of stagnation was seen with Standard Oil and the cartels U.S. Steel and International Harvest. The quotes from people like Lenin that running a business is a matter of "extraordinarily simple operation" that "any literate person can perform" would be quite hilarious in their naiveté if it were for the horrendous loss of life that resulted from this ignorance. Nor was this limited to ignorant communists revolutionaries, as U.S. intellectuals such as John Dewey have said a number of enormously stupid things along these lines, such as "Industrial entrepreneurs have reaped out of all proportion to what they have sowed." Those ignorant of economics and business are all too quick to act as if they are experts in the matter. Furthermore, this narrow focus on economies of scale ignores that there are other limits to the economic size of a business, including inefficiencies of vertical integration, limits to management ability, and judgment necessary in entrepreneurship. It also ignores that smaller companies have lower overhead costs, are more mobile (conservatism is also found in location), have more flexibility in production, and can purchase necessary producers goods without driving up their own prices. They also are very often better innovators, they are less bureaucratic, and are more open to new ideas and methods. Critically, they are not stuck with aging capital goods, and can build new facilities using the most efficient methods, while larger established businesses must economize their capital goods and continue to use outdated methods until the newer methods become economically feasible (this was seen historically with both Standard Oil and U.S. Steel, utilizing new methods much later than their competitors). In other words, just as you don't get rid of your car just because a new better model came out without losing tremendous money, large established businesses must economize their capital goods which often means using outdated methods. This is yet another area which philosophers fail to understand, evidenced by their lamenting the use of inefficient capital goods and methods, not understanding the necessity of allocating scarce resources and economizing their capital structure. This results from the erroneous view that capital has independent production capacity rather than being reducible to land and labor. The entire monopoly theory is a result of erroneous neoclassical Pareto optimal models of perfectly competitive equilibriums, which is a blatant nirvana fallacy. This is seen in the link provided by the old windbag, but since I know she just did a quick Google search and has no comprehension of what she posted, she will be completely unable to fathom the logical impossibility of the horizontal demand functions which define the perfect competition which is used to justify misallocation as can be seen with the equivalence of price and cost on the y axis of the graph. More importantly, the graph provided in her link is irrelevant since it assumes away the very entrepreneurial activity that is being investigated! However, that’s just “libertarian fundamentalism” according to her, but I digress.

The mention of Microsoft is pure nonsense. It’s amusing that while IBM was involved in more than a decade of anti-trust litigation while never approaching anything close to a monopoly, during this time little companies called Microsoft and Intel emerged. Later on, Microsoft found itself in legal trouble for requiring an internet browser to be bundled with their operating system in order to have the license for the operating system. There was no charge for it, and there is no preventing consumers from downloading different browsers as most people tend to do. To call this a monopoly or anti-competitive behavior is absurd and hardly worth mention.

If the only grocery store in town is considered to be a monopoly because they are the only grocery store "in the market," problems with this definition become immediately evident. In the U.S., this is a common situation in many small towns throughout the country. Such a town may have only one grocery store and one gas station, and while slightly higher prices relative to the general area are typically observed, very high prices are not found. Why? If they attempted to restrict output to obtain a monopoly price they would suddenly find out that businesses apparently "outside the market" would undercut them. Customers may drive to the next town for groceries, food may be shipped in by other companies (or even Amazon Pantry now), or businesses will emerge to compete for the profit which undercuts the original store. This might start as merely a delivery service and perhaps move to a store location with enough savings and lack of competition from the original store. What is evident is that these businesses were not outside the market and the grocery store never had a monopoly nor could it extract a monopoly price.

To say that "free market prices can still be higher than they would be in a non-monopoly - i.e. in a market with more than one seller" doesn’t help. Yes, the prices of the only grocery store in town is higher than if there was another grocery store in town, but this is arbitrary since if there were three grocery stores in town then there would be even lower prices, so is this the price that should be enforced? Why stop there? What if there were more competitors? The profits would tend toward zero if this is continued, so where stop? How is the "fair" price determined? (as a side note, the neoclassical “perfect competition” model that eliminates profit is what is normally used but it is entirely illogical) The only grocery store in town is not a monopoly because it will become evident as already described if they attempt to dramatically raise their prices to extract a monopoly price that there they are not the only source of groceries in the market.

If you say that a monopoly is being the only seller of a particular product, you have to define the market and the product explicitly. Furthermore, in and of itself, being the only seller is not against the wishes of the customers--indeed the only producer may do an excellent job providing service as ALCOA did--but it is only if that single producer can extract a monopoly price by restricting output that the monopoly could be considered detrimental. Once again, you have trouble defining what a monopoly price even is, because you can arbitrarily imagine that there are more competitors and imagine —not calculate—what the lower prices might be. But this is all fancy, for it seems rather arbitrary to say that the price should be what one imagines it would be, or that it should be any particular number not dictated by the consumer—even though this cannot be calculated—if there were just one more competitor, for the consumer would always be happier if there were more competitors and even lower prices. It is just as difficult to try to define what the market is, as demonstrated with the grocery store example. ALCOA is actually another excellent example of this, for they were the only U.S. producer of aluminum for a time, although one must keep in mind this was assisted through patents and purchasing the patent of a competitor legally which provided a legal monopoly on the production process for a length of time. Nevertheless, they certainly did not have high prices or attempt to extract a monopoly price, nor did they prevent competition in any way other than low prices and good products (you should read the appeal case for the anti-trust litigation where they judge rather pathetically and laughably condemned them for having "superior skill, foresight, and industry" as being “exclusionary” and illegal). Had they attempted to do so, not only would they find that foreign manufacturers of aluminum really were in their market, they would also see entry into their business by entrepreneurs with large amounts of capital in order to cash in on the monopoly profits that are now worth their investment.

On a free market, to really be the exclusive seller that extracts a monopoly prices there must be an artificial barrier created by law to limit the market (say to a particular country), or to limit entry through patents or licenses (such as Henry Ford had to deal with to enter the auto industry). While we can construct some rather unlikely scenarios in which a monopoly might naturally arise, these are inconsequential to the market system. If a country has a free market, there is a world market for goods, and the more advanced the economy the more and more difficult it becomes to even approach anything close to a monopoly since there is far more capital available for investment, far more technological methods (which themselves require capital for implementation), and far more competitors to jump on any opportunity.

One could only hope that an understanding of economics could provide an improved efficiency on the market by avoiding the costly errors of attempted monopolization and cartelization. An excellent example of this comes from an annual report from the National Biscuit Company, which was formed in 1898 as a combination of three major companies in an attempt to monopolize the biscuit market:

“[...] when this company started, it was thought that we must control competition, and that to do this we must either fight competition or buy it. The first means a ruinous war of prices, and the greater loss of profit; the second, a constantly increasing capitalization. Experience soon proved to us that, instead of bringing success, either of these courses, if persevered, must bring disaster. This led us to reflect whether it was necessary to control competition [...] we soon satisfied ourselves that within the Company itself we must look for success.”

While this is somewhat excusable considering the time period, for sound economic theory did not come to the U.S. until well into the 20th century, today there is no such excuse for such ignorance.

When you say "we do not meet as buyers and sellers as equals; both are already in a situation, both have already committed themselves to a particular economic role which means they are dependent on others," I don't think you realize that this goes both ways. In fact, the business is often far more committed to a particular economic role than the buyer. Imagine you invest all your savings into capital goods which are not readily convertible and all of a sudden the market changes and you're left with capital goods that you will take heavy losses. You seem to think that it is the entrepreneur that sets the prices, but it is the consumer that sets the prices for all goods on a free market. If you lament a particular economic state of affairs, do not blame the business, but blame your fellow man for their purchasing patterns instead.
By the way, the subjective theory of value has nothing in common with idealized physics. First, one deals with physical causation with invariant quantitative relations and the other with Intentional causation with variant qualitative relations. Importantly, the subjective theory of value does not make any assumptions that there must be a free market or any idealized circumstances, but rather precisely covers any situation that may arise, whether in a free market or a totalitarian socialist regime. That economics is only idealized theory is a pernicious myth right up there with homo economicus with no basis in reality.

The answer is a complete separation of government and economics, which would prevent the massive corruption that has always existed. The West revolutionized government by separating religion and government, and it would another profound revolution to separate government from economics. The only way to beneficially regulate the market is through strict enforcement of the rights of everyone, particularly the strict enforcement of property rights, and a 100% reserve gold standard monetary policy. In the U.S., this should become part of the constitution and not a matter of democratic election. It never ceases to amaze me that amount of things that are determined by election that have absolutely no business to be. The increasing democratic involvement in economic matters is a menace to civilization. This is particularly the case when combined with a utilitarian interpretation of law and the nonsense of “implied powers,” both of which are philosophical nonsense.

Alias
Posts: 2178
Joined: November 26th, 2011, 8:10 pm
Favorite Philosopher: Terry Pratchett

Re: Are monopolies/cartels always a result of government interference in the free market?

Post by Alias » March 7th, 2018, 10:30 am

The answer is a complete separation of government and economics, which would prevent the massive corruption that has always existed. The West revolutionized government by separating religion and government, and it would another profound revolution to separate government from economics.
Who produces the currency?
The only way to beneficially regulate the market is through strict enforcement of the rights of everyone, particularly the strict enforcement of property rights,
How are these "rights" established in the first place? Particularly property rights? Particularly the ownership and transfer of land, rights-of-way, water access, resource use and waste disposal?
and a 100% reserve gold standard monetary policy.
What would be the point of the government sitting on a pile of gold, if the government wasn't involved in economics?
In the U.S., this should become part of the constitution and not a matter of democratic election.
An elected body would have to pass such an amendment, curtailing half of its own powers and two thirds of its own functions; disbanding half or more of its agencies, and get it thorough the Supreme Court, and then hope the country survives the loss of those government functions.
It never ceases to amaze me that amount of things that are determined by election that have absolutely no business to be.
It never ceases to amaze me how many people keep hoping that a philosopher-king will fix everything the stupid populace messed up.
Those who can induce you to believe absurdities can induce you to commit atrocities. - Voltaire

Post Reply