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

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Londoner
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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.

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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.

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Count Lucanor
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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.

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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.
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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.

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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.
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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.
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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.
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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?

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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.

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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".

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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:

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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.
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