Pick the correct economic answer:
17. Do markets create and sustain monopolies and what should be done about it?
A. If the history of capitalism shows us anything, it is that it leads to business concentration. With fewer and fewer firms dictating the terms, the result is ever higher prices combined with ever lower wages. Unions and antitrust enforcement have had some measure of success in curbing this, but neither institution goes far enough to counter the trend toward monopoly within market settings. We must also question the idea that competition itself should be a policy goal. Most often, it is socially wasteful and a slogan repeated by monopolists to justify exploitative behavior. The ideal of cooperation between all, a truly democratic economy, should be the ideal.
B. The market tends to generate monopolies of varying sizes and types. Business should not be permitted to exercise monopoly power in pricing. It can be detected by various formulas comparing costs with output price according to a perfectly competitive model. Geographic monopolies may not be as important as they once were due to advances in transportation technology. What we face today are a variety of technologically driven monopolies, such as the example of Microsoft shows. Still, regulators need to be constantly on the lookout for businesses that attempt to employ market power, enriching themselves at consumer expense. Competition needs rigorous enforcement.
C. Economists of the classical school were right to define a monopoly as a government-grant privilege, for gaining legal rights to be a preferred producer is the only way to maintain a monopoly in a market setting. Predatory pricing cannot be sustained over the long haul, and not even the attempt should be regretted since it is a great benefit to consumers. Attempted cartel-type behavior typically collapses, and where it does not, it serves a market function. The term "monopoly price" has no effective meaning in real market settings, which are not snapshots in time but processes of change. A market society needs no antitrust policy at all; indeed, the state is the very source of the remaining monopolies we see in education, law, courts, and other areas.
D. Monopoly regulation has caused more harm than good by protecting particular competitors, not competition. Some types of regulation against trusts are based on flawed models that fail to understand that some firms gain market share solely because of their products' desirability to consumers. Most cited cases of "path dependency" turn out to be mythical. What is left for regulators to do? As Adam Smith said, they should prevent business conspiracy, blatantly predatory behavior, and otherwise assure a level playing field leading toward genuine competition. Finally, some goods lend themselves to being best provided by monopolies, e.g. courts and defense. |
