Without government, Monopolies?

First of all, government is the last institution which anybody who is worried about monopolies should support. Government IS itself nothing more than a forcibly funded monopoly.

That said, market monopolies on highly demanded, producible goods and services cannot realistically exist without a government to implement them. They are a product of government. Even laws theoretically intended to prevent monopolies, like antitrust laws, are in reality weaponized by major corporations like Microsoft to crush smaller competitors.

“Monopolies can happen when big businesses just buy out all the competition”… Doesn’t work that way. Let’s say there are 100 units in a condominium building. I want to buy the whole building to tear it down and build a bigger building, so I need to buy all the units. Let’s say they’re all small 2br/2bth units valued at $50k each, and I buy the first one at market price. I buy the second and third at that same price as well. Now the residents find out what I’m attempting. Will the price of my fourth purchase increase from $50k or decrease? It will increase! And it will continue to increase until the demand price of the final unit will be equal to a significant portion of the entire value of my total investment up till that point – the sum of the purchase price of all 99 other units. That’s just how supply and demand works. (I got that example from Yaakov Markel). You cannot simply buy out the competition and expect to be able to afford it, no matter how wealthy you are, and you cannot ensure they stay gone.

“But what about natural monopolies over high fixed cost, decreasing long run average total cost industries!” Yeah, no. Trying to establish a monopoly by undercutting the competition in price does not maximize profits, it greatly reduces profits. Firstly, even if you offer the absolute lowest prices, there’s no guarantee at even gaining a temporary monopoly, due to the diversity of demand and access. Honda could not gain a monopoly on cars because lots of people are loyal to the Ford name, or buying American. Where I’m from, it’s customary to see people walking around with tattoos of brand logos. Customers of company A are often willing to spend a little more out of loyalty to the company that has treated them well, or a preference of the service of company A. Perhaps McDonalds donates to Planned Parenthood, which Chic-Fil-A speaks out against publicly. Clearly for McDonalds to do this would be a gamble, as they’re surely losing the patronage of many pro-life people, but the pro-planned parenthood people will be much more likely to patronize McDonald’s. Many people prefer to buy local. Lots of people actively spend in a manner meant to support small business over big business. So for one company to greatly reduce its prices lower than all other competitors, doesn’t even guarantee it will gain a monopoly in the first place. Even if by some market miracle it does work, they’ve likely lost a lot more profits than they would’ve lost to the competition. Even if they do manage to pull it off though, there’s nothing to keep their monopoly in place. High fixed costs don’t inhibit competitors from selling their service infrastructure. Market competition is an endless process, not a once-and-for-all match. The common fear is that they will undercut the competition away, then jack prices back up. Jacking prices back up would be virtually a guarantee that they lose their monopoly, which they’d be incredibly lucky (and stupid) to have gained in the first place.

By Jake McCauley