I keep getting told that completely unregulated, completely free markets can't work because monopolies will form due to someone having a competitive advantage.
I don't believe this, because I've watched actual multi-national corporations go about their business. An acquired business is quite often kept running as an independent unit and if it doesn't make enough money to justify keeping it, it will very often be spun off into a separate business that can be sold off. In the worst case, it can be closed down.
Mergers have another face to their coin.
But it seems to me that, as ever, the real issue is how words are defined. If you watch even a bit of this*, you will quickly see how genuine (and universal) understanding of the crucial economic concept of competition was completely rewritten for the benefit of technocrats and bureaucrats. You can also see how completely unnatural the current understanding of what competition is and how a competitive market in the real world actually works.
Intuitively, I've always looked at competition in the Austrian way, the pre-technocratic way. It is, of course, no surprise that socialists and statists argue about the impossibility of a textbook "free market". They are quite correct, that kind of free market doesn't exist and it is, in any event, of no real benefit to the consumer. Who wants to buy identical cars at identical prices which just have a different badge on them?
Mercedes have a monopoly on making Mercedes. They don't have a monopoly on making cars. But if they come up with a new innovation, within a couple of years, that innovation would be found on the lowliest Nissan or Daewoo.
The benefit of a free and unregulated market is genuine competition for your money: differentiating on price, on features, on service, on marketing. The fact that someone can enter the market easily and compete with you is genuinely more likely to keep you honest than any number of government-decreed boxes to tick.
If you have a natural monopoly and you abuse that, someone will be annoyed enough to take you on. If you have a government-decreed monopoly, people cannot take you on. Anybody moved to a new house? Seen what a complete pain in the cunt it is to get a new phone line installed? Reason? Legally, only BT can fit your home with a landline.
Historically, even natural monopoly is kept honest by the threat of competition. The only real burden to consumers is created by monopoly by fiat. That is, monopolies created by regulation.
*I was going to say you don't need to watch the whole video. But I did anyway. It's quite good.
16 comments:
This is what I continually bang on about, but it does not suffer repeating, so good stuff.
The Big Society will see the maintaining and I suspect an entrenching of monopoly in the "community" as Dave Spart is elbowed out by Hyacinth Bucket.
"I keep getting told that completely unregulated, completely free markets can't work because monopolies will form due to someone having a competitive advantage"
Clearly people with no understanding of economics at all. The point about unregulated free markets is that you can't stop me doing it however big your monopoly and however high up your friends in government are...
I can't seem to get to Davy's site at the moment, but assuming it's the MisesU lecture from a month ago, I was listening to this by chance yetserday in the audio version. Very good it is too. Like you, it seems that I have always been a bit simple. That I have always just assumed competition and monopoly were pretty well as the Ausrians tell us, even before I had heard about the Austrians.
Though I certainly remember some arcane pronouncements from bodies like the Monopolies and Mergers Commission on market share of merged entities and so on so I suppose I knew there must be something else going on.
It is a really, really crucial message to get out, because so many people see this, like law and order, as one of the things we cannot do without government to deliver. When by accepting that, we knw they are making life very much more difficult for people.
There was a good shorter YouTube vid expressing it much more simply for simpler people Davy highlighted a few days ago.
" if they come up with a new innovation"
Innovations are new by definition aren't they. [end pedantry]
It is possible to create an effective monopoly by fraud and conspiracy. Microsoft did this with the bogus error messages built into W3.11. OK, they settled with DRDOS for about $700M, but that was a decade later, DRDOS was dead and MS had made vastly more than $700M in that decade as a result of fraud. From us. That money was effectively stolen from us, the consumers.
You can get monopolies under any circumstances, unless there is effective anti-monopoly regulation. The state creates monopolies and so do businessmen.
About the only think JK Galbraith and Milton Friedman agreed on was that businessmen HATE the free market and subvert it at every opportunity, regardless of what they might say.
How do you gel this with things like the state invented limited liability corporation which appears to go against libertarian thinking by actively creating a way for a businessman to invent a fictional fall guy should things go wrong thus avoiding (certainly some) responsibility and come back.
I suspect if the Banks had been partnerships they would have behaved a bit more carefully.
Also, where do heavy handed government registered market distorting patents and copyrights come into the perfect free market?
I have found that a great many people on the right are all fall scrapping the bits of government and regulation that they do not like while trying to ingore the convenient money making bits and I worry that unless a coherent argument that covers all bases is formulated (by someone smarter than me) people will continue to think "meh, loony pipedream" and switch off
Oooo I love Monopoly,Im the shoe,I love shoe`s too,do you?.
Maybe all businesses are ultimately open to competition. But it's going to be a mighty tenacious enterprise that builds a couple of reservoirs and a sewerage system on the offchance someone isn't happy with Thames Water.
"I worry that unless a coherent argument that covers all bases is formulated..."
Worry not. von Mises, Rothbard and their colleagues have done this.
"Worry not. von Mises, Rothbard and their colleagues have done this."
what did they say about shifting responsibility to a shelf company or distorting the market with patent protection and copyright?
@Peter Risdon
I hope you aren't trying to claim that Microsoft have a monopoly!
As they clearly don't and never have had. Their market share is totally down to lazy customers.
SumoKing,
Here's something from Rothbard on patents and copyright.
http://www.ccsindia.org/ccsindia/lacs/7patents_copyrights.pdf
"If you have a government-decreed monopoly, people cannot take you on... The only real burden to consumers is created by monopoly by fiat. That is, monopolies created by regulation."
Correct, sure, yeah. But you are only looking where 'they' (whoever 'they' are) want you to look.
The biggest government sponsored/enforced/protected monopoly of all is of course land 'ownership', with the banks riding shotgun, and the productive or competitive economy loses out left, right and centre.
My business here in Oz is currently taking on a monopoly provider for rental goods in a large town.
Im killing them, they have abused their position so much customers throw themselves at my operation. My prices are currently high (comparatively for the market), and I currently spend little or nothing on advertising, word of mouth and happy customers see me flat out.
What is my biggest fear?
A third operator. Id have to adjust my prices downwards, advertise more and kiss ass (more)to my existing client base. Thats not a complaint as such, just the reality of business.
My brother franchises are operating in markets with up to 15 competitors, you cant afford to burn your customers in that environment, every sale is important.
Monopolies breed contempt for customers, inneficency and price gouging.
BTW: The government here has just changed the laws to make it "harder for unlicenced credit providers to open up" with a blizzard of regulation. In effect it makes it near impossible for new competitors to open legaly and reduces competition....
Another own goal...
"In effect it makes it near impossible for new competitors to open legally and reduces competition....Another own goal..."
Are you sure that wasn't what was intended all along?
@Mama(of the spastic).
And you also love me shitting in your mouth.
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