- Capitalism and Alternatives -

Monopoly OR How to lose your shirt in business

Posted by: Joel Jacobson ( none, USA ) on March 24, 1999 at 11:35:22:

In Reply to: Buh-buh-bill buts in... posted by Red Deathy on March 23, 1999 at 11:01:46:

Since nobody here seems to understand monopoly (which is not the same as monopsony), I'll explain:

There are 3 forms of monopoly

1) Natural - where the nature of the market for a particular product or servic makes a monopoly the most efficient producer. In such a case, no such coercive pressure is needed to keep market share. Such a monopolist, like any smart producer, simply produces and prices goods where marginal cost equals marginal cost. Economists are very sceptical regarding the existence of natural monopolies - off the bat I can't think of one. Off the top of my head I don't think anything less than space travel or teleportation could fall into this category. Nuff said.

2) Artificial - where a producer tries to use predatory business tactics to establish a monopoly where one does not naturally occur. Let's suppose that a firm manages to acquire 99% of the market by underselling the rest of the competition and then try to administer it from the top. Remember, this isn't a natural monopoly, so in order to get that last 1% the artificial monopolist (AM) must sell below the small competitor (SC) in order to force it from the industry. Now the SC can stay in business by selling at cost and this forces the AM to sell below their unit costs in order to force out the SC. But now the AM is losing money 99 times as fast as the SC and, in fact, the SC can momentarily cut back on production as the AM must sell to all comers in order to maintain market share. All this time the AM is losing money and its investors are dropping off like rats from a sinking ship. I'm actually referring to the case of U.S. Steel which formed with over 60% of the industry and ended up with less than 25%. Needless to say, unless a monopoly goes to options 1 or 3 it will not stay a monopoly for long.

3) State - where a political government takes it upon itself, such as the military or the post office, or colludes with a corporation to produce a monopoly where one would not naturally exist. Such an action benefits the particular parties involved to the detriment of the rest of society. (And, please, don't give me the mumbo-jumbo about 'class interest'. Such relations between the state and capitalist class are purely deductive reasoning based upon the, I believe I shown to be false, premise of historical materialism).

Obviously, anarcho-capitalism would only contain Natural monopolies, which are perfectly acceptable.

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