Is Monopoly a Justification for Government Regulation?
08 Jun 2016 Leave a comment
in applied price theory, Austrian economics, economics, economics of regulation, industrial organisation, survivor principle Tags: antitrust economics, competition and monopoly, monopoly, natural monopolies
Welfare economics of monopoly and rent seeking
04 Jul 2014 Leave a comment
in applied price theory, applied welfare economics Tags: monopoly, rent seeking, Tullock
Monopolisation has resulted in a higher price being paid (Pm not Pc) and the quantity bought (Qm not Qc) has been reduced. Part of the consumer surplus triangle has been shifted to producers as excess profits but part of it is totally lost to society as shown by the reduction in output from Qc to Qm.
The monopolised industry may result in more efficient production techniques and lowered costs. The net welfare gain or loss to the total economy is the difference between the red and blue areas.
Tullock’s (1967) argument is that if a successful monopolist can extort the excess profits from his customers such as through a government licence giving them a monopoly, such a large prize is worth the investment of up to an equivalent amount of resources equal to the capitalised value of the future monopoly profits.
Rational entrepreneurs should be willing to invest resources in attempts to form a monopoly until the marginal cost equals the properly discounted marginal return. Under certain assumptions (see Posner 1975) the competitive outlays to establish a monopoly will exactly equal the present value of the profit rectangle.
The Tullock rectangle may have to be added to the Harberger triangle when calculating the potential loss of welfare associated with monopoly.
Economic Theory and the Meaning of Competition
22 Jun 2014 Leave a comment
in entrepreneurship, industrial organisation Tags: blackboard economics, competition is process, meaning of competition, monopoly, Paul J McNulty, perfect competition, Schumpeter, the market process
As it is, it is one of the great paradoxes of economic science that every act of competition on the part of a businessman is evidence, in economic theory, of some degree of monopoly power, while the concepts of monopoly and perfect competition have this important common feature: both are situations in which the possibility of any competitive behaviour has been ruled out by definition
Paul J McNulty, Economic Theory and the Meaning of Competition
Good monopolies and bad price cuts
10 Jun 2014 Leave a comment
in industrial organisation, liberalism Tags: monopoly, progressivism
A surprising number of well-meaning people want to protect consumers from the scourge of lower prices. These abominations come from imports, new entry or cost reductions.
Richard Epstein talked about how progressives think they can tell the difference between a good monopoly and a bad monopoly.
There is one instance in which monopoly could arise in the free market – exclusive ownership of an essential input (Kirzner 1973):
Monopoly … in a market free of government obstacles to entry, means for us the position of a producer whose exclusive control over necessary inputs blocks competitive entry into the production of his product.
Monopoly thus does not refer to the position of a producer who, without any control over resources, happens to be the only producer of a particular product. This producer is fully subject to the competitive market process, since other entrepreneurs are entirely free to compete with him.
In all other cases, monopoly is the grant by government of an exclusive privilege to produce or sell a product (Rothbard 1962). This definition is from the common law as per Lord Coke:
A monopoly is an institution or allowance by the king, by his grant, commission, or otherwise . . . to any person or persons, bodies politic or corporate, for the sole buying, selling, making, working, or using of anything, whereby any person or persons, bodies politic or corporate, are sought to be restrained of any freedom or liberty that they had before, or hindered in their lawful trade.
Ronald Coase and the preoccupation with monopoly
23 May 2014 Leave a comment
in industrial organisation, law and economics, Ronald Coase Tags: market process, monopoly
One important result of this preoccupation with the monopoly problem is that if an economist finds something—a business practice of one sort or other—that he does not understand, he looks for a monopoly explanation. And as in this field we are very ignorant, the number of ununderstandable practices tends to be rather large, and the reliance on a monopoly explanation, frequent.
After this foray written in 1971, Coase went further in an appreciation written for George Stigler’s Nobel Prize in 1982:
…for reasons which are not altogether clear to me, it is a field [of industrial organisation] which has come to concentrate on The Monopoly Problem and, more specifically in the United States, on the problems thrown up by the administration of the antitrust laws.
The result has not been a happy one for economics.
By concentrating on the problem of monopoly in dealing with an economic system which is, broadly speaking, competitive, economists have had their attention misdirected and as a consequence they have left unexplained many of the salient features of our economic system or have been content with very defective explanations.
Utopia, you are standing in it! 
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