If a good becomes available at a lower price, and an additional unit of the good was only marginally short of being purchased before, then its subjective marginal utility must be forced down to roughly match that of its price.
The marginal utility of the last wigit bought might be lower then the marginal utility of the last wigit bought when prices where higher but it still must be higher then the marginal utility of anything else bought with that same amount of money or something else would have been purchased.
Over all, some consumers are rewarded by the lower price at the expense of others whose more desired products must see increased prices and reduced production.
If the lower prices are a result of greater efficiency then the overall production is higher the additional widgets may be bought without reducing consumption of other goods or at least without reducing production and consumption of other goods to an extent that the total marginal utility decreases.
I know Austrian economics says you can't add marginal utility of different consumers, but I'm not sure I agree 100%. I don't think you can actually measure them the sum in the real world, and I think that any planed economy targeted at maximizing total utility is doomed to failure, but I think in simplified models like what we are talking about total marginal utility has some usefulness. In any case you seem to be using the concept a bit yourself.
Even if efficiency does not increase but merely stays the same I don't see why the price for other products would have to increase. If more resources are going to produce wigits the supply might be down, but if more money is going to buy wigits the demand will be down. The price for other products could be higher, lower, or the same.
The risk of comfortable management is universal, certainly not restricted to monopolies,
True but monopolies or near monopolies are most often the most comfortable.
Consider the two limit cases.
How about we consider some real world cases. For example the production of CPUs for PCs. Intel never was quite a monopoly, but AMD was at times no more then just enough competition to keep the Feds off of Intel's back. Intel charged very high prices because it could. Even though the CPU was only one component of a PC it was expensive enough to affect the price of PCs and reduce unit demand. Then AMD came out with the Athlon processor. Intel was (and is) still the biggest most powerful producer. But now it had to deal with a competitive environment rather then just the theoretical threat of competition. Even before the more general economic slowdown (which is outside of the scope of this post) Intel had to lower prices, and AMD and Intel also competed on quality. The speed of chips from both companies shot up faster then it had been before (the move from 600mhz to 1ghz was unusually fast). Consumers can get better PCs for less, and those consumers include companies that use the PCs and can produce goods or services faster or cheaper. Intel eventually began to focus its investment more efficently, and AMD also made more effort to focus on its core areas of business (CPUs and flash memory).
True this wasn't forced competiton it was normal market competition but would we be better off with Intel as a monopoly? I don't think so.
In the second case, competition is mandated for all products. The large profits of innovators do not exist. Most manufacturers are losing money, cutting jobs and expenses and are worrying about next week's payroll rather than planning for the future. There is little incentive to start a new business as success will not be adequately rewarded.
I think you underestimate the inital profits that can be generated even without a monopoly. If your new product is better then your competitors (better in this case includes consideration of the cost of the product) then youre sales will normally increase. AMD and Intel for example both make computer chips but if either comes out with a chip design or a much better process that allows them to make faster chips that blows away the competing chips they will get a lot of money from it (in practice marketing, and current contracts and business relationships complicate this for example Dell will be very unlikely to use AMD chips even if there next generation product is much better then Intel's)
Im not arguing that the government mandate and enforce competition for all products. For example I am not arguing against patent protection. Also a market can include products that can act as replacements for each other. I don't want the government to get extremely involved in the economy, rooting out all situations where there is little or no competition. I'm just saying that in general a monopoly is a less then ideal situation. I think it will lead to less total wealth and a larger percentage of that wealth will go to the monopolist. I don't support the idea of soaking the rich, but I think it best if one big rich company isn't the only place people can go for an important product. I think most monopolies are created by the government (which in a sense is itself the bigger monopoly) and I think the government should avoid doing that. For example I would like to see the post office's monopoly on first class mail ended.
Tim |
