How Does a Free Market Prevent a Monopoly?

[TheStatutoryApe]

I have seen the claim many times now that a free market would of itself prevent the formation of monopolies absent any laws or regulations of this aim.

Those that hold this opinion, please explain.

I know some of the arguments so I will come back and post some opinions of those arguments if I do not see them otherwise presented.

Also I am having an ongoing discussion of this topic in another thread and wish to move it here where it will be on topic.

[TheStatutoryApe]

The hurdle you refer to is the hurdle that resulted in Standard Oil creating a trust. Obviously that's not the same hurdle(s) that held back their competition.
Remember this post?
A perfect example of government regulation enabling a monopoly, then creating more regulation to "fix" the problem caused by the previous regulation.

State regulations were the only reason there was ever such a thing as a "trust". There would be no purpose for a trust in a (perfectly) free market. And anti-trust legislation was to prevent trusts.

Thanks for the great example.
You say that corporate trusts are a perfect example of regulations enabling a monopoly though we are talking about regulations aimed at preventing monopolies.
And trusts already existed, it was the corporate 'trust of trusts' that was created as a work around to regulations against a monopoly.
Trusts would exist in a free market. There would be nothing stopping anyone from making one of any sort they wanted for any reason they wished. There just wouldn't be much impetus to create a corporate trust of trusts since there would be nothing stopping them from creating their monopoly or cartel the old fashioned way.


Are you claiming there was a shortage of potential competitors? Other rich people just had no interest in getting richer, so they just chose not to enter the market? It wasn't the regulatory barriers to entry, it was a lack of interest?
You'll note that I actually said the opposite multiple times. That Rockefeller had plenty of competition and took them all out. Apparently to you this means that there was a shortage of competition due to regulation because obviously he otherwise would not have been able to create a monopoly in a free market. That's called circular reasoning. And yes I would say that there were likely plenty of people who may have competed with Rockefeller but who probably decided not to though I would think it was likely more because Rockefeller was a ruthless competitor who had already claimed the market for himself rather than because of any regulations.

Are we talking about completely different things here? A market in which competition is hindered by any artificial means is by definition not a (completely) free market. Are you claiming that Standard Oil achieved a monopoly without any artificial barriers to entry for any potential competitor? They just decided they weren't interested in profit? Among other things. Does this mean that you now agree that, whether you support those particular types of regulations or not, clearly they are generally a competitive advantage for large companies over small companies?
In this case there are plenty of common hindrances to a free market. Among them we might count laws against fraud, theft, false advertising, libel, assault, battery, ect. I mean really all of these laws just keep potential competitors out of the market. I am quite certain that I could make more money than the electronics shop down the street if only I could steal merchandise rather than paying for it and then advertise it as brand new with a warranty that I have no intention of honouring.

I am certain that we can agree there are certain practices that should be illegal, including certain types of business practices. These are what laws and regulations are supposed to be for. While there may be some laws and regulations today that were specifically designed to help corporations over their smaller competitors I do not believe that many such laws existed during Rockefeller's days. In fact I believe that Rockefeller and other industrialists creating their monopolies virtually unchecked and pissing off smaller business owners that could not compete were what originally spurred regulation, and mostly regulation aimed at preventing monopolies and the unethical business practices which they relied upon for their edge in the market.

[Al68]

You say that corporate trusts are a perfect example of regulations enabling a monopoly though we are talking about regulations aimed at preventing monopolies.No, we weren't. At least I wasn't when I said that.
And trusts already existed, it was the corporate 'trust of trusts' that was created as a work around to regulations against a monopoly.
Trusts would exist in a free market. There would be nothing stopping anyone from making one of any sort they wanted for any reason they wished. There just wouldn't be much impetus to create a corporate trust of trusts since there would be nothing stopping them from creating their monopoly or cartel the old fashioned way.The fact that a company could create a monopoly without a trust doesn't equal "nothing stopping them."That Rockefeller had plenty of competition and took them all out.Sounds like zero competition to me. "Plenty" minus "them all" equals zero. But of course that's not actually true. Rockefeller didn't actually take them all out. But the other companies did have a hard time actually trying to compete with Standard Oil. Apparently to you this means that there was a shortage of competition due to regulation because obviously he otherwise would not have been able to create a monopoly in a free market. That's called circular reasoning.No, you implied there was a shortage of competitors since the U.S. ran out of them. I said that regulation helped reduce their competitiveness, helping Standard Oil take them out. How is it circular reasoning to suggest that regulations that helped "take down" the competition made it easier to create a monopoly? And yes I would say that there were likely plenty of people who may have competed with Rockefeller but who probably decided not to though I would think it was likely more because Rockefeller was a ruthless competitor who had already claimed the market for himself rather than because of any regulations.It was both.In this case there are plenty of common hindrances to a free market. Among them we might count laws against fraud, theft, false advertising, libel, assault, battery, ect.Those are not hindrances to a free market, and are not commonly called "regulation" since they are not targeted and apply to everyone equally. A free market requires laws against force and fraud by definition. "Free" means free from force and fraud, by government or otherwise. Is this the source of our disagreement? A free market, by definition, is free from force, fraud, and coercion. While there may be some laws and regulations today that were specifically designed to help corporations over their smaller competitors I do not believe that many such laws existed during Rockefeller's days.I agree. I never mentioned any law or regulation specifically designed to help corporations over their smaller competitors. But that's the effect of virtually all regulations. In fact I believe that Rockefeller and other industrialists creating their monopolies virtually unchecked and pissing off smaller business owners that could not compete were what originally spurred regulation, and mostly regulation aimed at preventing monopolies and the unethical business practices which they relied upon for their edge in the market.Unchecked? How about aided by government?

Standard Oil's monopoly was the result of a combination of Standard Oil's actions and government's actions. Regardless of how we divide up which had the greater effect, the fact is that it was both. And between the two of them, the actions of only one were as agents of the people, and therefore politically relevant.

And if you believe Standard Oil would have become a monopoly in a free market (free from force, fraud, and coercion), then either you are using a different definition of "free market" or a different definition of "monopoly." And I don't want to argue semantics anymore today.

[TheStatutoryApe]

Standard Oil's monopoly was the result of a combination of Standard Oil's actions and government's actions. Regardless of how we divide up which had the greater effect, the fact is that it was both. And between the two of them, the actions of only one were as agents of the people, and therefore politically relevant.

And if you believe Standard Oil would have become a monopoly in a free market (free from force, fraud, and coercion), then either you are using a different definition of "free market" or a different definition of "monopoly." And I don't want to argue semantics anymore today.

Lets pare this down a bit.

What regulations do you believe led to Standard Oil achieving a monopoly?

Also, again, we can agree that there ought to be laws and regulations preventing certain unethical business practices yes?
You say that you define as free market as being free of force fraud and coercion. What about force fraud and coercion from businesses? Do we not need laws and regulations to prevent these things?

[Jasongreat]

I think a lot of this argument has to do with the definition of a free market, IMO there is no such thing as a free(no regulation whatever) market. Just as there is no such thing as free speech, as that was originally meant to mean no governmental influence(censor boards), it has never meant that we could say whatever we want(self censorship). The whole argument for "free" just implies no governmental regulation not that there is no regulation. A free market is regulated by consumers, if the consumers wont support a monopoly, a monopoly could never exist unless a different enity supports that monopoly such as a governmental enity. If the government for example say that it is more efficient for one company to do whatever without having to worry about competition, then the consumer no longer has a choice, if consumers want electricity they have to support GE. If consumers wanted a phone, they had to do buisiness with AT&T. What the government loves to do is to prop up a buisiness(i think for the most part unwittingly) that has already grown to a huge size by supposedly making regulations to tame their practices, but all they do is add other obstacles in front of the next buisiness from reaching this level, and therefore they stiffle the competition, which in essence creates a monopoly. IMO it will be hard to show a case where the government directly created a monopoly(except for maybe RCA), but it is easy to see that they have bolstered a buisinesses market share by inserting obstacles in front of those that follow that the original never had to deal with. So imo it is pretty apparent that government supports monoplolies though it is through indirect means. We could also look at recent events, the market said banks were over valued, but the government said that was not the case and propped up the banks by taking money from the taxpayer that they normally were withholding from the banks and then they gave it to the banks for the consumers best interest(the economy would collapse they said, I would argue that the economy would collapse to its true value). We dont have a free market when the government overrides the markets opinion, and we dont have a free market when consumers allow buisinesses to take advantage of them because they really want something. It is the consumers job to keep profits in check, just as it is the ceo's job to make as much profit as possible, the trouble comes when the government thinks they know the market better than those directly involved and thinks it is in the consumers best interest to lose their voice in the process.
Imo laws do not prevent anything, the sec was made to stop greed on wall street but here we are 90 years later and are arguing that the sec just needs more power to accomplish the goal they have been trying to succeed at for 90 yrs, why dont we get rid of the sec(which I feel is just a false sense of security) and allow people to realize they need to take responsbility for their own choices. We have had ethics laws in congress for a while now and we still have corrupted politicians, is it because laws dont work to prevent corruption or do we just need stronger ethics laws?

[Al68]

Lets pare this down a bit.

What regulations do you believe led to Standard Oil achieving a monopoly?

Also, again, we can agree that there ought to be laws and regulations preventing certain unethical business practices yes?
You say that you define as free market as being free of force fraud and coercion. What about force fraud and coercion from businesses? Do we not need laws and regulations to prevent these things?Of course laws against fraud and force are staples of a free market. The word "regulation" isn't normally used to refer to such laws, since they apply to everyone. Businesses are only forbidden to do the things that are forbidden for every citizen.

The claim that monopolies are impossible in a free market is equivalent to saying that monopolies are impossible without force, fraud, or coercion. Does that help anything?

If you really want to discuss the regulatory environment for Standard Oil and its competitors in detail, I'd need time for a little research.

As far as "unethical business practices", that's in the eye of the beholder, and it reminds me of a Democrat's speech (don't remember who) demanding that CEO's give a small percentage of profits to charity. That's obviously not only unethical, but outright theft, because the money simply doesn't belong to the CEO, it belongs to the shareholders. Asking a CEO to steal from shareholders is obviously unethical, and it's irrelevant how "good" the charity would be. Yet some would consider it just fine.

If an "unethical" business practice constitutes force or fraud, then it would be illegal under the same laws that apply to every citizen. Otherwise, it's just necessarily a consequence of freedom that you don't get to tell others what to do.

[Mattara]

http://www.nathanielbranden.com/catalog/articles_essays/question_of_monopolies.html

A government cannot prevent a monopoly since it is itself by definition a monopoly (on the legitimate initiation of the use of force). Therefore, using a government to try and prevent monopolies is like trying to drink sulfuric acid to get rid of your heart burn.

Monopolies by the definition of the word can't exist because they aren't charging whatever they like, they still have to compete with the market. Anyone is allowed to produce and sell a cheaper product if they can. But the bigger a company is, the more they can produce and sell, the less likely someone else could possibly compete. That's not a monopoly, that's good business sense. The public is not paying huge prices for a product that could be made by someone else cheaper, which is what we mean when we think of oppressive monopolies.

One of the worst fallacies in the field of economics—propagated by Karl Marx and accepted by almost everyone today, including many businessmen—is that the development of monopolies is an inescapable and intrinsic result of the operation of a free, unregulated economy. In fact, the exact opposite is true. It is a free market that makes monopolies impossible.

It is imperative that one be clear and specific in one’s understanding of the meaning of “monopoly.” When people speak in an economic or political context, of the dangers and evils of monopoly, what they mean is a coercive monopoly—that is; exclusive control of a given field of production which is closed to and exempt from competition, so that those controlling the field are able to set arbitrary production policies and charge arbitrary prices, independent of the market, immune from the law of supply and demand. Such a monopoly, it is important to note, entails more than the absence of competition; it entails the impossibility of competition. That is a coercive monopoly’s characteristic attribute-and is essential to any condemnation of such a monopoly.

In the whole history of capitalism, no one has been able to establish a coercive monopoly by means of competition on a free market. There is only one way to forbid entry into a given field of production: by law. Every single coercive monopoly that exists or ever has existed—in the United States, in Europe or anywhere else in the world—was created and made possible only by an act of government: by special franchises, licenses, subsidies, by legislative actions which granted special privileges (not obtainable on a free market) to a man or a group of men, and forbade all others to enter that particular field.

A coercive monopoly is not the result of laissez-faire; it can result only from the abrogation of laissez-faire and from the introduction of the opposite principle—the principle of statism.

[TheStatutoryApe]

I think a lot of this argument has to do with the definition of a free market, IMO there is no such thing as a free(no regulation whatever) market. Just as there is no such thing as free speech, as that was originally meant to mean no governmental influence(censor boards), it has never meant that we could say whatever we want(self censorship). The whole argument for "free" just implies no governmental regulation not that there is no regulation. A free market is regulated by consumers, if the consumers wont support a monopoly, a monopoly could never exist unless a different enity supports that monopoly such as a governmental enity.
I snipped out the rest of your comment because it deals with the current conditions of the market that create monopolies and near monopolies. I am more than willing to concede that regulations, particularly of certain types, can enable a monopoly or support a large company over a smaller company. I am more interested in the supposed mechanisms of the 'free market' which are said to prevent monopolies.

I failed to come back and reference the arguments I am aware of but you remind me of one here in your post.
Many people seem to think that consumers will not allow a monopoly, that if a corporation grabs too much power in the market people will boycott and protest and that this will dissolve the powerhold or at least assist in doing so.
I don't see this as necessarily the case. It would seem to me that if people are happy with the products that they are receiving they are more likely to support the monopoly (voting with their money) than not. A strong element in this is that in a consumer society people often identify themselves partly by the brands which they choose to purchase. We still see it today though I think it was much stronger around the turn of the previous century and corporations tend to be rather deft at exploiting this.
Going back to Standard Oil, most consumers benefited by the monopoly from having a higher quality product for lower prices. Those that protested and boycotted were the small businesses which were being hurt by SO's unethical business practices and driven from the market especially when SO bought out a rail company and attempted to control the means of product distribution.


Of course laws against fraud and force are staples of a free market. The word "regulation" isn't normally used to refer to such laws, since they apply to everyone. Businesses are only forbidden to do the things that are forbidden for every citizen.

The claim that monopolies are impossible in a free market is equivalent to saying that monopolies are impossible without force, fraud, or coercion. Does that help anything?

If you really want to discuss the regulatory environment for Standard Oil and its competitors in detail, I'd need time for a little research.

As far as "unethical business practices", that's in the eye of the beholder, and it reminds me of a Democrat's speech (don't remember who) demanding that CEO's give a small percentage of profits to charity. That's obviously not only unethical, but outright theft, because the money simply doesn't belong to the CEO, it belongs to the shareholders. Asking a CEO to steal from shareholders is obviously unethical, and it's irrelevant how "good" the charity would be. Yet some would consider it just fine.

If an "unethical" business practice constitutes force or fraud, then it would be illegal under the same laws that apply to every citizen. Otherwise, it's just necessarily a consequence of freedom that you don't get to tell others what to do.

Essentially any law or regulation that limits or controls the actions of a company or corporation applies to anyone since anyone can create a company or corporation so long as they have the funds, even though not everyone has the funds. Similarly the laws and regulations that govern the use of a motor vehicle apply equally to everyone since anyone who can afford to purchase and operate one is effected, regardless of the fact that not every one can afford a vehicle.

As for unethical business practices there are many. While I am sure that there are many who will argue all manner of silly things as being unethical business practices I will stick to things that are the hallmarks of a corporation seeking a monopoly. In other words, anything that serves to limit competition by unduly infringing upon the ability of competitors to compete in the market. The most effective are generally controlling the resources needed for production and controlling the means of distribution.
Would you agree that controlling the means of distributing product and giving your own corporation price breaks or even selling the service at cost or a loss to be made up for in profits by the producing corporation is an unethical business practice?

[TheStatutoryApe]

http://www.nathanielbranden.com/catalog/articles_essays/question_of_monopolies.html

A government cannot prevent a monopoly since it is itself by definition a monopoly (on the legitimate initiation of the use of force). Therefore, using a government to try and prevent monopolies is like trying to drink sulfuric acid to get rid of your heart burn.
That is an argument requiring discussion. For now let us discuss the supposed mechanisms of a free market that prevent monopoly.

Monopolies by the definition of the word can't exist because they aren't charging whatever they like, they still have to compete with the market. Anyone is allowed to produce and sell a cheaper product if they can. But the bigger a company is, the more they can produce and sell, the less likely someone else could possibly compete. That's not a monopoly, that's good business sense. The public is not paying huge prices for a product that could be made by someone else cheaper, which is what we mean when we think of oppressive monopolies.
Even monopolies that are not complete (100% control of the market) can work toward that goal and can raise the relative price of their goods or services by being the only one in the market that can afford to sell at a cheaper price. If other companies were capable of becoming as large and dominating as the monopoly (or near monopoly) they could sell at lower prices and become competitive with the monopolizing corporation forcing them to lower their prices further. With no true competition on their level of playing field the corporation more or less has the capacity to set prices as the choose with in limits.

[Al68]

Essentially any law or regulation that limits or controls the actions of a company or corporation applies to anyone since anyone can create a company or corporation so long as they have the funds, even though not everyone has the funds.I was talking about laws that apply to everyone, whether they create a company or not. It's illegal for me to defraud people, use non-defensive force against people, steal from people, whether I own a business or not. That's why those laws are not normally considered "gov't regulation".Would you agree that controlling the means of distributing product and giving your own corporation price breaks or even selling the service at cost or a loss to be made up for in profits by the producing corporation is an unethical business practice?No, of course not, not by itself. If such a thing is done for the purpose of fraud or theft, then the fraud and theft should be illegal, just like they are illegal for everyone else, regardless of the specific means used to commit the act.

If I commit fraud by selling a painting that I painted myself while claiming it's a lost Da Vinci painting, it's the fraud that's illegal, not the act of painting a picture, by itself. Fraud should be illegal. The act of painting a picture, by itself, should not be.

If the example you give is for the purpose of defrauding stockholders, then defrauding stockholders should be illegal, but not just because of the specific means used.

[Mattara]

Even monopolies that are not complete (100% control of the market) can work toward that goal and can raise the relative price of their goods or services by being the only one in the market that can afford to sell at a cheaper price. If other companies were capable of becoming as large and dominating as the monopoly (or near monopoly) they could sell at lower prices and become competitive with the monopolizing corporation forcing them to lower their prices further. With no true competition on their level of playing field the corporation more or less has the capacity to set prices as the choose with in limits.

You are still equivocating the very thing the article i linked to refuted. There is a huge economic incentive to undercut any monopoly that tries to artificially raise prices, both for new entrepreneurs and for parts of the corporation itself either with the exact same product or with similar products. You can always set whatever price you want, but customers won't by your products.

The only way you can reach such a dominant coercive monopoly is by having a government intervene with force into a free market by supporting special corporations or making private options illegal.

[TheStatutoryApe]

I was talking about laws that apply to everyone, whether they create a company or not. It's illegal for me to defraud people, use non-defensive force against people, steal from people, whether I own a business or not. That's why those laws are not normally considered "gov't regulation".
Laws regarding fraud only apply to you if you commit an act that may be construed as fraud. Laws restricting your use of force would not even enter your mind unless you actually had some means of force to utilize.
Laws are all situational and if you never are in a situation or of a mind to commit the acts regulated by these laws then they hardly apply to you until such a situation arises. The same goes for business regulations, they obviously do not apply unless you are in a situation where they have relevance.
You might say that anyone could potentially arrive in a situation where they have the opportunity to use force. But I would obviously counter that anyone could potentially arrive in a situation where they own a business.
Technically, at least in most countries with a modern system of law, no law or regulation may be made that applies specifically to a certain class of people unless the distinction is naturally inescapable. For example a law against abortion, barring any argument of constitutional freedom, would not be illegal even though only women can get abortions. Similarly a law against same sex marriage, barring arguments of constitutional freedom, would not be illegal even though only homosexuals desire to marry someone of the same sex.
So no law or regulation pertaining to businesses would be legal save for the fact that any person may start a business and so it applies to everyone equally.


No, of course not, not by itself. If such a thing is done for the purpose of fraud or theft, then the fraud and theft should be illegal, just like they are illegal for everyone else, regardless of the specific means used to commit the act.

If I commit fraud by selling a painting that I painted myself while claiming it's a lost Da Vinci painting, it's the fraud that's illegal, not the act of painting a picture, by itself. Fraud should be illegal. The act of painting a picture, by itself, should not be.

If the example you give is for the purpose of defrauding stockholders, then defrauding stockholders should be illegal, but not just because of the specific means used.

Perhaps you missed my point. Are you saying that it should be legal for a corporation to own the means of distribution for its market and use that control as leverage against its competitors through discriminatory pricing and the like?

[TheStatutoryApe]

You are still equivocating the very thing the article i linked to refuted. There is a huge economic incentive to undercut any monopoly that tries to artificially raise prices, both for new entrepreneurs and for parts of the corporation itself either with the exact same product or with similar products. You can always set whatever price you want, but customers won't by your products.

The only way you can reach such a dominant coercive monopoly is by having a government intervene with force into a free market by supporting special corporations or making private options illegal.
I already treated this. You, and your article, are saying that a monopoly is not a monopoly unless it has complete control of the market and can set prices as it chooses. I am saying that a 'near monopoly' (owning say >50% of the market) can have virtually the same effect as a strict (100%) monopoly. That is to say that if by sheer size a company is capable of providing a similar quality product/service for a lower price and still making greater returns than the competition it can undercut and hedge out its competition continually growing and grabbing at larger shares of the market. Lacking regulation against monopolies and near monopolies these vast resources can also be used to fund other means of reducing competition such as buying out and controlling resources for production, means of distribution, and even controlling the market place itself.

edit: while in a free market there may always be someone to be a competitor it does not mean that there will ever be a true competition once market dominance is claimed by the monopoly (or near monopoly).

[Al68]

So no law or regulation pertaining to businesses would be legal save for the fact that any person may start a business and so it applies to everyone equally.That me be a popular standard, but it's not the libertarian standard, obviously, or mine. "Everyone" includes both those that start a business and those that do not. What if a law applied only to people with shaved heads? Would such a law "apply equally to everyone" because anyone can shave their head. Perhaps you missed my point. Are you saying that it should be legal for a corporation to own the means of distribution for its market and use that control as leverage against its competitors through discriminatory pricing and the like?If I decide to make and sell a painting, it is legal for me to own both the means of production (canvas and paint) and distribution (my car) and set the price, yes, that should be legal.

Unless you are asking me if that should be illegal for a corporation, although legal for me? Then we're back to laws applying to everyone equally.

That's what I meant by laws applying equally. A law that allowed me to do "something" but prohibited a corporation from doing the same "something" isn't applying to everyone equally just because I could form a corporation.

[Al68]

I already treated this. You, and your article, are saying that a monopoly is not a monopoly unless it has complete control of the market and can set prices as it chooses. I am saying that a 'near monopoly' (owning say >50% of the market) can have virtually the same effect as a strict (100%) monopoly. That is to say that if by sheer size a company is capable of providing a similar quality product/service for a lower price and still making greater returns than the competition it can undercut and hedge out its competition continually growing and grabbing at larger shares of the market. Lacking regulation against monopolies and near monopolies these vast resources can also be used to fund other means of reducing competition such as buying out and controlling resources for production, means of distribution, and even controlling the market place itself.Well, that example of a monopoly makes it sound like a good thing.

[TheStatutoryApe]

That me be a popular standard, but it's not the libertarian standard, obviously, or mine.
Its a logical standard. It makes no sense to prevent the creation of laws or regulations that are aimed at people abusing a position of power, arguing that they are applied unevenly, simply because not everyone are currently in similar positions of power.

If I decide to make and sell a painting, it is legal for me to own both the means of production (canvas and paint) and distribution (my car) and set the price, yes, that should be legal.

Unless you are asking me if that should be illegal for a corporation, although legal for me? Then we're back to laws applying to everyone equally.
Again you seem to misunderstand. Imagine instead that you are in control of all or most of the means of production and distribution and are actively preempting others from being able to produce or distribute. Does that not hinder a free market?

[TheStatutoryApe]

Well, that example of a monopoly makes it sound like a good thing.

The problem here is that they may eventually become complete (100%) monopolies and as they reach larger and larger sizes they become capable of greater influence of politics and regulation to further their dominance, as we have seen. Have you read much cyberpunk?

The problem with the free market argument is that it says monopolies never existed and came about due to government interference. The fact* is that the monopolies did exist and due to their influence were capable of manipulating politics and government regulation to their benefit which secured them their future.

*OK, this is my perception, not necessarily fact. I do not know for sure how it all went down.

[Jasongreat]

[QUOTE]I am more than willing to concede that regulations, particularly of certain types, can enable a monopoly or support a large company over a smaller company. I am more interested in the supposed mechanisms of the 'free market' which are said to prevent monopolies.

The only mechanism of control in a free market is the consumer, if there is another it is no longer a free market. It seems to me by looking at the history of the US, the consumer kept buisiness in check very well until the government switched to the national form in the 1860's. It doesnt seem we had any huge corporations in the US until the 1870's and on, and that seems to be about the exact time government started to back buisiness. It seems to me that the start of monopolies in the US coincided with the belief in a national government to solve our problems. So in short my answer is the consumer does a good job of controlling the market, until the consumer believes that it is someone elses job to do so.


Many people seem to think that consumers will not allow a monopoly, that if a corporation grabs too much power in the market people will boycott and protest and that this will dissolve the powerhold or at least assist in doing so.
I don't see this as necessarily the case. It would seem to me that if people are happy with the products that they are receiving they are more likely to support the monopoly (voting with their money) than not. A strong element in this is that in a consumer society people often identify themselves partly by the brands which they choose to purchase. We still see it today though I think it was much stronger around the turn of the previous century and corporations tend to be rather deft at exploiting this.

I dont think a corporation can assume power, they can be given it though, either by the consumer or by the government. If the consumer allows it, isnt it still a free market? Or at least a voluntary market. I do agree with you that consumers are not a perfect solution but imo they are a far better option since they are reaching into their own pocket while deciding if a product is worth the price. IMO we wont succeed at preventing monopolies until the consumer starts to realize that life isnt about what you own(avarice) but about who you are and what you stand for(principled).


Essentially any law or regulation that limits or controls the actions of a company or corporation applies to anyone since anyone can create a company or corporation so long as they have the funds, even though not everyone has the funds.

They will apply to everyone that follows, but since the corporation already had used whatever you are now regulating they are basically exempt. It will only stand in the way of future buisinesses, so imo you are helping the present buisiness through the regulation that is meant to control them, while controlling the companies that are trying to compete.


As for unethical business practices there are many. While I am sure that there are many who will argue all manner of silly things as being unethical business practices I will stick to things that are the hallmarks of a corporation seeking a monopoly. In other words, anything that serves to limit competition by unduly infringing upon the ability of competitors to compete in the market.

Like regulation? I always wonder why many buisiness leaders are for regulation once they are the ones with the power. Could it be that the new regulation hurts the next competitor more than it hurts them?


QUOTE]

[WhoWee]

:eek:Where should I start?:rofl:

How about this - would you agree it is very difficult for a highly regulated US corporation to compete against a state sponsored entity in a country such as China?

[TheStatutoryApe]

The only mechanism of control in a free market is the consumer, if there is another it is no longer a free market. It seems to me by looking at the history of the US, the consumer kept buisiness in check very well until the government switched to the national form in the 1860's. It doesnt seem we had any huge corporations in the US until the 1870's and on, and that seems to be about the exact time government started to back buisiness. It seems to me that the start of monopolies in the US coincided with the belief in a national government to solve our problems. So in short my answer is the consumer does a good job of controlling the market, until the consumer believes that it is someone elses job to do so.
My argument is that (lacking laws and regulation) large corporations can control the resources, distribution, market place, and to some degree even the consumer.

Early federal regulation of commerce was directed at the purpose of protecting and expanding american enterprise, not limiting it, primarily through regulation of imports, infrastructure, and shipping lanes.



I dont think a corporation can assume power, they can be given it though, either by the consumer or by the government. If the consumer allows it, isnt it still a free market? Or at least a voluntary market. I do agree with you that consumers are not a perfect solution but imo they are a far better option since they are reaching into their own pocket while deciding if a product is worth the price. IMO we wont succeed at preventing monopolies until the consumer starts to realize that life isnt about what you own(avarice) but about who you are and what you stand for(principled).
This is my very point though I would contend that there are intraindustry practices outside the common knowledge and view of the average consumer that can be used to control the industry and market. The help of consumer support only makes these things more possible.

They will apply to everyone that follows, but since the corporation already had used whatever you are now regulating they are basically exempt. It will only stand in the way of future buisinesses, so imo you are helping the present buisiness through the regulation that is meant to control them, while controlling the companies that are trying to compete.
The cost of doing business is the cost of doing business. I pointed out in the other thread that laws against theft, fraud, and threats curtail the capacity of others to compete in the market as well but we certainly consider these good laws to have. We have these laws to preserve the liberty of individuals from infringement by others. I see no reason to think that there should be no laws governing the sort of infringements of liberty unique to the position of companies and corporations. If a company or corporation can not get started without infringing upon the freedoms of others then it should not be.
I am arguing versus complete deregulation so please do not cite overregulation in modern markets on which score I would likely mostly agree with you.


Like regulation? I always wonder why many buisiness leaders are for regulation once they are the ones with the power. Could it be that the new regulation hurts the next competitor more than it hurts them?
I was referring to options available to large corporations and near monopolies in a completely unregulated market to control and impede a free market. The fact that the government can do this as well is no argument against this. In short, can you defend the idea that a free market naturally makes a monopoly impossible? or do you simply think that a free market is the better alternative? At the moment I am only interested in the former.


:eek:Where should I start?:rofl:

How about this - would you agree it is very difficult for a highly regulated US corporation to compete against a state sponsored entity in a country such as China?
Read above. I did not make this thread to argue a regulated 'semi-free' market versus a fascist corporatist market.

Sorry to be blunt.

[Al68]

It makes no sense to prevent the creation of laws or regulations that are aimed at people abusing a position of power, arguing that they are applied unevenly, simply because not everyone are currently in similar positions of power.How about this analogy: You can't argue that drunk driving laws treat drunk people and sober people equally, just because everyone is free to drink. There is no reason for those of us that support those laws to claim that drunk people and sober people are treated equally by it, because clearly they're not. But we can argue that treating drunk people and sober people differently is justified.

It seems like your real position is not that people who operate a business shouldn't be treated differently than those that don't, but that treating them differently is similarly justified. Do I have that right?Again you seem to misunderstand. Imagine instead that you are in control of all or most of the means of production and distribution and are actively preempting others from being able to produce or distribute. Does that not hinder a free market?No, my imagining that I'm in that position doesn't hinder a free market. :biggrin:

Seriously, it depends on whether "actively preempting others" involves fraud or force. The "free" in free market means free from fraud and force, not free from other people owning "means of production and distribution."

If owning or controlling property (means of production) is being restricted by force, then it's not a free market. Whether the force is applied by government or a private entity is irrelevant.

[Al68]

I see no reason to think that there should be no laws governing the sort of infringements of liberty unique to the position of companies and corporations.What sort of infringements of liberty are unique to the position of companies and corporations? I can't think of any.

Regardless, I don't think anyone has argued against such laws.

[jambaugh]

An Ayn Rand style laissez faire capitalistic free market technically cannot prevent a monopoly. It automatically prevents the holder of a monopoly from driving the price of the product above the level at which competitors may make a profit (except for a short period of time it takes for potential competitors to react to this condition). This either means that the monopoly holder is making a fair profit or taking a loss.

Of course there is the situation where an individual or group can drive out competitors by taking a loss and pushing down the price in the hopes that once they've eliminated competition they can recoup the loss with raised prices. To do this of course they must have an oversupply of the product in question and sufficient running capital to wait out their competition.

This is where the "evil" speculators plays their role in the free market. They see what's going on and purchase the under priced product to sell later. Speculators give inertia to market prices making it harder for them to be manipulated by an individual or small group. Note that a speculator can only sell to a buyer or buy from a seller who may himself be a speculator but ultimately there must be suppliers and consumers. Thus in a market bad speculators will loose their capital and drop out. By bad speculators I mean those who jump on price swings without researching their cause in terms of fundamental supply and demand.

This same inertia which makes manipulation difficult can cause over-swing of prices. The good speculator will recognize this and bet counter to the swing when it passes its new equilibrium point. In the absence of fundamental support for the price the bad speculators cannot drive maintain an elevated price indefinitely. The bubble must burst and the more off equilibrium it bursts the louder the pop. The group of good speculators are also the more successful speculators and so over time have more money and hence more influence on market prices. The money flows to reward the speculators who most efficiently moderate price fluctuations.

Finally I would point out that the gap between the large concern and potential competitors is the bridged by the small business. When a corporation begins behaving "unfairly" many small businesses though less efficient are able to join the market. This basically defines "unfairly" in a free market. That small startups can compete even with less experience and lack of scale efficiency means the large concern is over pricing goods or underpaying workers.

The free market ideal works best when small business is most able to compete.
However if you add to the unavoidable overhead of small businesses all the social engineering regulations requiring minimum wages, matching social security payments, hyper-progressive taxes of business income as personal income, and the administrative overhead that comes with all these taxes, fees and regulations then you give the large concerns that much more room to overcharge, underpay, and produce inferior quality merchandise or services.

It takes a larger portion of venture capital and more time and risk to get a competitor up and running. The scale of their business must be large enough to afford legal and accounting staff to deal with this added overhead. If it fails the entrepreneurs lose far more capital in a single chunk and so they wait until the offending company is much more egregiously "unfair" in its practices. Even then they must hope that the company can't drop prices long enough to bankrupt the enterprise. Fortunately large companies also tend to acquire their on inefficiencies over time and when given regulatory advantage especially with regard to reacting to change. Still each added regulatory burden to small business has a highly amplified negative impact on the consumer.

[WhoWee]

Read above. I did not make this thread to argue a regulated 'semi-free' market versus a fascist corporatist market.

Sorry to be blunt.

A regulated private company can not compete evenly with a Government sponsored monopoly - I too apologize for being blunt.

[jgens]

If owning or controlling property (means of production) is being restricted by force, then it's not a free market. Whether the force is applied by government or a private entity is irrelevant.

Sure, but then the free market concept seems completely philosophical: It's not reasonable to suppose that a captain of industry would not undercut another competitor who might potentially reduce his/her company's profits.

[Mattara]

An Ayn Rand style laissez faire capitalistic free market technically cannot prevent a monopoly. It automatically prevents the holder of a monopoly from driving the price of the product above the level at which competitors may make a profit (except for a short period of time it takes for potential competitors to react to this condition). This either means that the monopoly holder is making a fair profit or taking a loss.

Of course there is the situation where an individual or group can drive out competitors by taking a loss and pushing down the price in the hopes that once they've eliminated competition they can recoup the loss with raised prices. To do this of course they must have an oversupply of the product in question and sufficient running capital to wait out their competition.

This is where the "evil" speculators plays their role in the free market. They see what's going on and purchase the under priced product to sell later. Speculators give inertia to market prices making it harder for them to be manipulated by an individual or small group. Note that a speculator can only sell to a buyer or buy from a seller who may himself be a speculator but ultimately there must be suppliers and consumers. Thus in a market bad speculators will loose their capital and drop out. By bad speculators I mean those who jump on price swings without researching their cause in terms of fundamental supply and demand.

This same inertia which makes manipulation difficult can cause over-swing of prices. The good speculator will recognize this and bet counter to the swing when it passes its new equilibrium point. In the absence of fundamental support for the price the bad speculators cannot drive maintain an elevated price indefinitely. The bubble must burst and the more off equilibrium it bursts the louder the pop. The group of good speculators are also the more successful speculators and so over time have more money and hence more influence on market prices. The money flows to reward the speculators who most efficiently moderate price fluctuations.

Finally I would point out that the gap between the large concern and potential competitors is the bridged by the small business. When a corporation begins behaving "unfairly" many small businesses though less efficient are able to join the market. This basically defines "unfairly" in a free market. That small startups can compete even with less experience and lack of scale efficiency means the large concern is over pricing goods or underpaying workers.

The free market ideal works best when small business is most able to compete.
However if you add to the unavoidable overhead of small businesses all the social engineering regulations requiring minimum wages, matching social security payments, hyper-progressive taxes of business income as personal income, and the administrative overhead that comes with all these taxes, fees and regulations then you give the large concerns that much more room to overcharge, underpay, and produce inferior quality merchandise or services.

It takes a larger portion of venture capital and more time and risk to get a competitor up and running. The scale of their business must be large enough to afford legal and accounting staff to deal with this added overhead. If it fails the entrepreneurs lose far more capital in a single chunk and so they wait until the offending company is much more egregiously "unfair" in its practices. Even then they must hope that the company can't drop prices long enough to bankrupt the enterprise. Fortunately large companies also tend to acquire their on inefficiencies over time and when given regulatory advantage especially with regard to reacting to change. Still each added regulatory burden to small business has a highly amplified negative impact on the consumer.

Since "evil speculators" by definition are not rational, your argument does not apply to the free market. Claiming that irrational people can undermine a free market is nothing surprising or anything that is unique to a free market. A socialist representative democracy or a fascist dictatorship or whatever political position you can imagine can be undermined by irrational people and thus, cannot be considered and argument against the free market.

[Al68]

If owning or controlling property (means of production) is being restricted by force, then it's not a free market. Whether the force is applied by government or a private entity is irrelevant.Sure, but then the free market concept seems completely philosophical: It's not reasonable to suppose that a captain of industry would not undercut another competitor who might potentially reduce his/her company's profits.It's reasonable to suppose the "captain of industry" is not free to use force for that purpose.

[Office_Shredder]

A lot of arguments here assume that competitors in a free market can act 'fast'. As an example, let's take cars. Suppose you had a car company that was able to drive itself to a near monopoly using economy of scale (which certainly exists for car companies; there's a fairly flat cost to design a car and the factory to make it, which gives increased profit margins for more cars sold). It then decides to jack up the price of their cars. Any company that wants to enter the market now needs to design its own car to sell that can compete with the monopoly, build a factory to produce these cars, and then start making enough of them to be considered competition.

Assuming you do not have current engine designs and car designs available and are truly starting from scratch - and this monopoly now rolling in dough may be able to afford to overpay and overhire engineers for the purpose of preventing someone else from picking them up, leaving your knowledge base limited - then it can take half a decade to roll your product off the line. But of course the monopoly isn't being run by a bunch of nimwits; a month before your product hits the market they hold a 50% off sale for the next six months, undercutting your price dramatically and running you out of business before you even started.

[Mattara]

A lot of arguments here assume that competitors in a free market can act 'fast'. As an example, let's take cars. Suppose you had a car company that was able to drive itself to a near monopoly using economy of scale (which certainly exists for car companies; there's a fairly flat cost to design a car and the factory to make it, which gives increased profit margins for more cars sold). It then decides to jack up the price of their cars. Any company that wants to enter the market now needs to design its own car to sell that can compete with the monopoly, build a factory to produce these cars, and then start making enough of them to be considered competition.

Assuming you do not have current engine designs and car designs available and are truly starting from scratch - and this monopoly now rolling in dough may be able to afford to overpay and overhire engineers for the purpose of preventing someone else from picking them up, leaving your knowledge base limited - then it can take half a decade to roll your product off the line. But of course the monopoly isn't being run by a bunch of nimwits; a month before your product hits the market they hold a 50% off sale for the next six months, undercutting your price dramatically and running you out of business before you even started.

You are making the equally invalid assumption that a monopoly happens over night with no time for market counter measures to be put into place. The moment a company tries to take over the market and jack up prices, already existing car companies will notice this and lower their prices and take the customers, since there is an enormous incentive to undermine monopolies.

[Office_Shredder]

You are making the equally invalid assumption that a monopoly happens over night with no time for market counter measures to be put into place. The moment a company tries to take over the market and jack up prices, already existing car companies will notice this and lower their prices and take the customers, since there is an enormous incentive to undermine monopolies.

Using economy of scale, the largest car company can theoretically (by this, I mean assuming they are run as well as the competition) undercut all their competition until nobody else sells cars. It's at this point, when there is no competing car manufacturing infrastructure in place, that the monopoly jacks up its price. The competitors can't react because there are no competitors anymore, and there can't be for five years

[Mattara]

Using economy of scale, the largest car company can theoretically (by this, I mean assuming they are run as well as the competition) undercut all their competition until nobody else sells cars. It's at this point, when there is no competing car manufacturing infrastructure in place, that the monopoly jacks up its price. The competitors can't react because there are no competitors anymore, and there can't be for five years

How? They will be loosing revenue by the day, which is hardly in their rational self-interest. Stockholders, investors and banks are unlikely to tolerate this.

[ThomasT]

Sure, but then the free market concept seems completely philosophical: It's not reasonable to suppose that a captain of industry would not undercut another competitor who might potentially reduce his/her company's profits.Yes, the notion of free markets seems to be an unattainable ideal. That is, it seems to me to be reasonable to suppose that a free market cannot exist, and never has existed.

So, the question is, how do we control the coercive power of gigantic corporations (including the federal government)? My answer is that, for the most part, we can't.

[Office_Shredder]

How? They will be loosing revenue by the day, which is hardly in their rational self-interest. Stockholders, investors and banks are unlikely to tolerate this.

Losing revenue in what sense? Stockholders, investors and banks often prefer it when companies sacrifice short term profit for long term gains. It's not like the company would actually be losing money, they can undercut their competitors because of economy of scale; note that this is different from selling at a loss.

Your argument seems to be that the only rational way this company can act is by being less competitive than it can be, which is antithetical to the idea of a free market, so is slightly ironic

[Mattara]

Yes, the notion of free markets seems to be an unattainable ideal. That is, it seems to me to be reasonable to suppose that a free market cannot exist, and never has existed.

So, the question is, how do we control the coercive power of gigantic corporations (including the federal government)? My answer is that, for the most part, we can't.

Free market corporations are not coercive. They are not initiating violence against anyone.

[ThomasT]

Free market corporations are not coercive. They are not initiating violence against anyone.Coercion doesn't imply violence. It's often more efficient to control things via positive, rather than negative, reinforcement. The carrot vs. the stick.

Coercion means causing things to happen. Just because we don't identify the causes doesn't mean there aren't any.

[Mattara]

Coercion doesn't imply violence. It's often more efficient to control things via positive, rather than negative, reinforcement. The carrot vs. the stick.

Coercion means causing things to happen. Just because we don't identify the causes doesn't mean there aren't any.

http://www.thefreedictionary.com/coerce

co·erce (k-ûrs)
tr.v. co·erced, co·erc·ing, co·erc·es
1. To force to act or think in a certain way by use of pressure, threats, or intimidation; compel.
2. To dominate, restrain, or control forcibly: coerced the strikers into compliance. See Synonyms at force.
3. To bring about by force or threat: efforts to coerce agreement.

[jgens]

Mattara, notice that your first definition does not necessarily imply that coercion must initiate violence. Large corporations can pressure smaller businesses to withdraw from a specific market by undercutting their prices as many members have noted. Thus, free market corporations are often coercive.

[f95toli]

Politics aside, shouldn't this -at least in principle- be a scientific question?

Does anyone know what the "typical" results are when markets are simulated in mathematical models?

Also, are these results modified when elements of real human -as opposed to idealized (by idealized I mean the idea of the "rational agent" that used to be very popular in economics)- human behaviour is introduced?

I know there is some very active research going which combines results from economics, psychology and neurology and as far as I understand some of the results they are not in agreement with classical economical models in situations relating to how/why we collaborate (a problem directly related to the rise of monopolies).
One interesting example (among many)is that if we are asked to value an object the value we give it depends on whether we own it or not, meaning we attribute a higher monetary value to things we own. A very basic results which obviously gives rise to a bias that as far as I know (I might be wrong) wasn't until quite recently no included in models of the economy.

It is perhaps worth nothing that one of the favourites for winning this years Nobel prize in economics is Ernst Fehr who is working in "behavioural economics", he used fMRI and other techniques; i.e. is is quite far from the traditional view of economics sd just being about liberal political ideas.

I think it is a bit odd that there is whole discipline (economics) which is supposedly trying to give us real (apolitical) answers to question such as the one asked by the OP which does not seem to have any impact whatsoever on the debate.

[Jasongreat]

[QUOTE]My argument is that (lacking laws and regulation) large corporations can control the resources, distribution, market place, and to some degree even the consumer.

I understand that but IMO you can not deny that we have laws and regulations already in place and large corporations still control the resources, distribution, market place and I would go as far to say they control the consumer to a large degree, since large corporations basically control politics in the US today, and at no other time in history has the national government devled so deeply into our individual lives. The only way to control them is not to give them the power in the first place which our government was doing very well until the mid 1800's. It kind of goes along the same line as how our founders felt about the federal government, they only gave them the power they needed inorder to survive not to thrive. In a decade following the civil war the national government gave the railroads 100 million in taxpayer dollars and 200 million acres of land, how can a new startup compete when they have to buy their land and come up with their own capital and on top of that they have to overcome the regulation that the federal government put in place to control a corporation they had given a huge amount of leverage to. I do see your the point that I think you are making that we cant go from the system we have now to a completely free market until we first take away the power of corporations, in that regard I agree, but IMO we cant control the system we have now by adding more regulations. Like I have said before lets try to cure the problem instead of just bandaging it, if you have a nail sticking up from the floor and you step on it although a bandage will help it heal it wont stop it from happening again and you will not be safe until you remove or at least bend over the nail. I found an interesting article while looking at the history of corporations, it is not peer reviewed and as such cant be considered as fact in this forum but I am including it since it is pretty much my opinion on corporations, its not 100% but I didnt see any points that I completely disagree with until the third paragraph of the third page and on where it starts to make the argument for regulating the already powerful corporation like during the 1930's and on. click here (http://citizenworks.org/corp/dg/s2r1.pdf)


Early federal regulation of commerce was directed at the purpose of protecting and expanding american enterprise, not limiting it, primarily through regulation of imports, infrastructure, and shipping lanes.

According to my reading most of the regulation was in each state, and I would say pretty powerful regulation but it was equal regulation because it was decided on before the people formed corporations, the only time the federal government regulated commerce was in interstate cases, and foreign trade. That was until the mid 1800's when the federal government became a national government and started to regulate everything, well at least they said they were regulating. Was it a coincidence that before national regulation the managers of a company were responsible for the actions of the company and after regulation they hold no moral responsibility whatsoever?

This is my very point though I would contend that there are intraindustry practices outside the common knowledge and view of the average consumer that can be used to control the industry and market. The help of consumer support only makes these things more possible.

I cant argue with the above statement at all, I just read the last lone inventor which was about the individual inventor, Philo Farnsworth, against the all powerful government backed monopoly which was RCA(completely made by the gov.) and how they used the exact things you are talking about to destroy Philo. In todays market I think that corporations dont even need to rely on consumers since they can make money on just their stocks, or from government sources, or imo the worst species is to destroy a corporation while pulling money out(liquidating) and are no longer completely dependent on the consumer.

The cost of doing business is the cost of doing business. I pointed out in the other thread that laws against theft, fraud, and threats curtail the capacity of others to compete in the market as well but we certainly consider these good laws to have. We have these laws to preserve the liberty of individuals from infringement by others. I see no reason to think that there should be no laws governing the sort of infringements of liberty unique to the position of companies and corporations. If a company or corporation can not get started without infringing upon the freedoms of others then it should not be.I am arguing versus complete deregulation so please do not cite overregulation in modern markets on which score I would likely mostly agree with you.

I disagree, I think that laws are in place to punish after the fact, since laws will never stop an action from happening, but if I remember right we argued that point in a different thread. I am not arguing against having laws, I am arguing about laws that are put into place after an action has already happened inorder to control that action in the future, since IMO all that will do is give an advantage to the company you are trying to punish. As far as the last sentence I quoted of yours, I completely agree. The problem I see is inorder for my plan to go forward all corporate charters would be declared null and void, where they would then have to petition the state government where they are going to reside to be re-instated, but before we start to re-instate the states would set the laws all corporations are going to have to follow, which I would be satisfied if they were just the same laws we had pre 1830. A free market does not mean free(unregulated) it means that the government doesnt get to pick winners and losers through regulation, and therefore everyone is equally free to succeed or to fail.

[jambaugh]

Mattara, notice that your first definition does not necessarily imply that coercion must initiate violence. Large corporations can pressure smaller businesses to withdraw from a specific market by undercutting their prices as many members have noted. Thus, free market corporations are often coercive.

That is not coercion. Coercion is the threat of the use of force. If you stretch the definition that far you can stretch it to mean any influence of a type you disagree with. Stick to specific meanings. If you want to label it call it "unfair trade practices" or "illicit practice" or something but coercion is when I threaten to punch you if you don't stop misusing the word "coercion".

I pointed out that speculators undermine the ability of a corporation to undercut.

[jgens]

That is not coercion. Coercion is the threat of the use of force. If you stretch the definition that far you can stretch it to mean any influence of a type you disagree with. Stick to specific meanings. If you want to label it call it "unfair trade practices" or "illicit practice" or something but coercion is when I threaten to punch you if you don't stop misusing the word "coercion".

I pointed out that speculators undermine the ability of a corporation to undercut.

Based on the definition of coercion that Mattara provided, that certainly is coercion - note that his first definition specifies pressure, threats, or intimidation. You can use your own personal definition if you like, disregarding pressure, but then any discussion would cease to be useless if we all modify definitions as we please.

Edit: Sorry if this last post seems disrespectful, that's not my intent.

[ThomasT]

Maybe I should have phrased it in terms of a greater ability (wrt dominant players) to control or unduly influence important variables, rather than "coercive power". It wasn't my intention to start a nitpicking contest wrt the meaning of coercion.

Anyway, my view is that markets free of government regulation of any sort will manifest all sorts of abuses of the labor pool -- as well as, eventually, coercive monopolies.

[WhoWee]

Perhaps it would be better to discuss a "monopoly" type example? MicroSoft was tested, and Google is aware of perceptions. Otherwise, why not take a look at the the phone companies.

[ThomasT]

At this point, can someone specify the mechanism(s) by which a free market might prevent the formation of monopolies (without assuming that monopolies are necessarily either a good or bad thing).

From Wikipedia:
In economics, a monopoly exists when a specific individual or an enterprise has sufficient control over a particular product or service to determine significantly the terms on which other individuals shall have access to it. [1] Monopolies are thus characterized by a lack of economic competition for the good or service that they provide and a lack of viable substitute goods. [2] The verb "monopolize" refers to the process by which a firm gains persistently greater market share than what is expected under perfect competition.

Assuming a free market, the conjecture is that the playing field inevitably becomes uneven. Dominant companies, and eventually monopolies, will emerge.

[f95toli]

At this point, can someone specify the mechanism(s) by which a free market might prevent the formation of monopolies (without assuming that monopolies are necessarily either a good or bad thing).


I think the "classical" game theory answer to that is that the equilibrium situation on a free market is for everyone to "defect" (to use the terminology of the Prisoner's dilemma) from a monopoly/trust. However -as I pointed out above- as far as I understand this might not be true in the real word because this assumes that everyone involved are "rational agents".

In the iterated Prisoner's dilemma (when the game is played many times) more complex models can give rise to a equilibrium that involves everyone cooperating, which in the real world means that a free market sometimes can give rise to a trust (which is also often seen in experiments with real people). This means that even in models of an "idealized" free market there is no guarantee of "free and fair competition".
Note that in "classical" economic theory there is no way for this to happen, companies would always defect even in the iterated scheme. But as far as I understand, this is now considered to be incorrect.

[Al68]

At this point, can someone specify the mechanism(s) by which a free market might prevent the formation of monopolies (without assuming that monopolies are necessarily either a good or bad thing).The mechanism is profit motive.

In the absence of artificial barriers to entry or restrictions to competition, profit motive will lure competition into the market.

[f95toli]

The mechanism is profit motive.

In the absence of artificial barriers to entry or restrictions to competition, profit motive will lure competition into the market.

This is classical economic theory that -once again- might not turn out to be correct (and by that I mean that the mathematical models used to reach that conclusion might be too simplistic).
I might be wrong, but I don't think there is much scientific (as opposed to political) support for the idea that this will always happen. Remember that there are also incentives NOT to compete with a larger company and instead e.g. be bought up by them. This is a very complex question and is -as far as I understand- very much an area of active research.

[Al68]

This is classical economic theory that -once again- might not turn out to be correct (and by that I mean that the mathematical models used to reach that conclusion might be too simplistic).
I might be wrong, but I don't think there is much scientific (as opposed to political) support for the idea that this will always happen. Remember that there are also incentives NOT to compete with a larger company and instead e.g. be bought up by them. This is a very complex question and is -as far as I understand- very much an area of active research.The question was, what is the mechanism? It's not a matter of theory that profit motive exists as such a mechanism.

The actual effectiveness of that mechanism is an area of research, but since no monopoly has ever existed without the help of government provided barriers to entry for competition, I'd say it's pretty effective.

It's impossible to prove that it would never happen, since like anything else, the fact that something has never happened isn't proof that it can't happen.

But, by definition, a free market is one in which competitors are free to compete, so the only way a monopoly could exist in a free market is if there were nobody that had the means and interest to compete, which is not a reasonable thing to expect in reality.

[f95toli]

But, by definition, a free market is one in which competitors are free to compete, so the only way a monopoly could exist in a free market is if there were nobody that had the means and interest to compete, which is not a reasonable thing to expect in reality.


I am not talking about proving anything since as you say this would be impossible. It is -however- possible to ask questions like: Assuming the agents act according to a certain set of rules, what is the Nash equilibrium (if there is one) etc?
Another thing one can do is to perform experiments on groups of people and see how they react when asked to collaborate or compete given a certain set of rules. This will -hopefully- give us some idea of how people/companies actually behave (as opposed to how we wish that they would behave) and this can then be feed into the models. Whether or not situations can arise where no one think it is worth the "effort" (or has the ability because the competitor can "block" all trade because of its size) to to compete with a large company is definitely an open question, it has to do with factors like how we e.g. react to the prospects of short -term vs. long term rewards ("sell to the competitor now or let the company grow and reap the benefits later") etc.

One thing we can be sure of is that we can never judge the merits of theory by how "reasonable" it is, the real world is full of examples of complicated systems that behave in an "unreasonable" manner (before computers came along many of the results of chaos theory would have been considered unreasonable) and that is before we even consider the fact that it is ultimately people making the decisions even in a company, and people do unreasonable things all the time

[Al68]

I am not talking about proving anything since as you say this would be impossible. It is -however- possible to ask questions like: Assuming the agents act according to a certain set of rules, what is the Nash equilibrium (if there is one) etc?
Another thing one can do is to perform experiments on groups of people and see how they react when asked to collaborate or compete given a certain set of rules. This will -hopefully- give us some idea of how people/companies actually behave (as opposed to how we wish that they would behave) and this can then be feed into the models. Whether or not situations can arise where no one think it is worth the "effort" (or has the ability because the competitor can "block" all trade because of its size) to to compete with a large company is definitely an open question, it has to do with factors like how we e.g. react to the prospects of short -term vs. long term rewards ("sell to the competitor now or let the company grow and reap the benefits later") etcWell, we do have large scale "experimental" results in the U.S. alone. Relatively unregulated industries have plenty of competition, good value to consumers, and prices that would not have even been believed in the past (adjusted by inflation). Highly regulated industries, well just think of health care.

A big problem with the study of economics today is politics. Everyone has their own political beliefs, including economists. The reason there is disagreement about economic matters between economists is more a reflection of their political beliefs than anything else.

It's easy to say that a monopoly is theoretically possible in a free market, just like it's theoretically possible for randomly tossed scrabble pieces to spell out the U.S. constitution. And it's impossible for anyone to "prove" that it wouldn't happen. But there is certainly no shortage of data to show that in a free market, a monopoly is extremely unlikely, while becoming more and more likely with government regulatory barriers to competition.

[TheStatutoryApe]

Sorry I let this go for a few days and now it is much longer and has much more to respond to. I'll try to respond to as much as possible.

How about this analogy: You can't argue that drunk driving laws treat drunk people and sober people equally, just because everyone is free to drink. There is no reason for those of us that support those laws to claim that drunk people and sober people are treated equally by it, because clearly they're not. But we can argue that treating drunk people and sober people differently is justified.

It seems like your real position is not that people who operate a business shouldn't be treated differently than those that don't, but that treating them differently is similarly justified. Do I have that right?
Your drunk/sober argument muddies the waters as you treat the issue as if there are "drunk people" and "sober people" as opposed to there simply being people who may be either drunk or sober at any given time. Similarly, laws regarding business owners treat all people who may own a business. There are not "business owners" and "not business owners". There are only people, all of whom have the ability to potentially own a business but only some of which currently own businesses.
So yes, there is a similar justification; but no, no one is being treated differently.

No, my imagining that I'm in that position doesn't hinder a free market. :biggrin:

Seriously, it depends on whether "actively preempting others" involves fraud or force. The "free" in free market means free from fraud and force, not free from other people owning "means of production and distribution."

If owning or controlling property (means of production) is being restricted by force, then it's not a free market. Whether the force is applied by government or a private entity is irrelevant.
Fraud or force are not necessary to hinder a free market. So you run a business. You make alot of money so you purchase the source of resources for your business. This is profitable for you so you purchase more of them. Eventually you own all or most of the resources necessary for your type of business so that anyone else who wishes to compete must purchase those resources from you. You don't need to buy resources from your self so you have a higher profit margin naturally and so are capable of selling at lower prices than your competition. You also find that it is profitable to buy up the means of distribution. Now you own your resources, produce your own product, and distribute it yourself greatly increasing your profit margin while any competition must pay you in order to get resources and distribute their product. You will be able to price your product well below theirs and still make a profit and they will not be able to compete.
You have now hindered the free market by making it impossible for anyone to compete with you and without the possibility of competition there is no free market. And you have not necessarily even done anything wrong.

What sort of infringements of liberty are unique to the position of companies and corporations? I can't think of any.
A basic and common one is that if you are a seller of products it is your responsibility to make sure that those products are safe for your consumers. Legally speaking a consumer has the right to a reasonable expectation that your products are safe. If there is some wholly unknown issue with the product you may not necessarily be held accountable legally but if there is a known issue with the type of product you sell and you have not gone through reasonable measures to assure its safety then you are liable. More than that since there has been quite a problem in the past with businesses not making sure to sell only safe products which have hurt several people our government has set up safety standards (regulations) in these industries to minimize the ability of businesses and corporations to hurt their consumers in this fashion. Theoretically any person who is hurt by a business may take legal action against them so why the regulation? Well getting injured, realizing that it is due to a certain product, getting a lawyer, taking a civil suit out against them, and eventually winning is a very long process and not one that all people are capable of. In the mean time the company can still operate and sell more product and injure more people. Eventually even if you win your suit and are paid damages the sum total of damages to you and any other of their consumers may be so much that the business may not be able to afford it. Then the business will go bankrupt and any number of people will be left harmed by poor business practices without any means of restitution. So to minimize this (it even happens often still) there a regulations put in place as a preventative measure.

Regardless, I don't think anyone has argued against such laws.
You seemed to have indicated that you are against any laws/regulations which pertain specifically to businesses or corporations as likely hindrances to a free and fair market.

A regulated private company can not compete evenly with a Government sponsored monopoly - I too apologize for being blunt.
Again, please read what I responded before. I am not interested in discussing how a regulated market can stand up to a state sponsored monopoly. I am interested in discussing the often cited mechanisms that supposedly exist naturally in a wholly unregulated market which will prevent a monopoly.

[Al68]

Your drunk/sober argument muddies the waters as you treat the issue as if there are "drunk people" and "sober people" as opposed to there simply being people who may be either drunk or sober at any given time. Similarly, laws regarding business owners treat all people who may own a business. There are not "business owners" and "not business owners". There are only people, all of whom have the ability to potentially own a business but only some of which currently own businesses.
So yes, there is a similar justification; but no, no one is being treated differently.You just explained how my analogy was perfect, since like sober/drunk everyone potentially could own a business while only some do at a given time. Treating someone differently is still treating them differently even if they chose to enter the category that is treated differently. But unless it is unclear what I meant by "business specific" regulations, there is no reason to argue semantics.Fraud or force are not necessary to hinder a free market.the means of distribution. Now you own your resources, produce your own product, and distribute it yourself greatly increasing your profit margin while any competition must pay you in order to get resources and distribute their product. You will be able to price your product well below theirs and still make a profit and they will not be able to compete.
You have now hindered the free market by making it impossible for anyone to compete with you and without the possibility of competition there is no free market. And you have not necessarily even done anything wrong.You are describing a monopoly rising in an unhindered free market as an example of a free market being hindered? Regardless, no monopoly has ever existed without force or fraud (by the monopoly or government), so it's a moot point.What sort of infringements of liberty are unique to the position of companies and corporations? I can't think of any.
A basic and common one is that if you are a seller of products it is your responsibility to make sure that those products are safe for your consumers. Legally speaking a consumer has the right to a reasonable expectation that your products are safe. If there is some wholly unknown issue with the product you may not necessarily be held accountable legally but if there is a known issue with the type of product you sell and you have not gone through reasonable measures to assure its safety then you are liable.Hurting people that way is "unique" to companies?You seemed to have indicated that you are against any laws/regulations which pertain specifically to businesses or corporations as likely hindrances to a free and fair market.Yes, but I'm not against generally applicable laws against infringements of liberty.

[TheStatutoryApe]

You just explained how my analogy was perfect, since like sober/drunk everyone potentially could own a business while only some do at a given time. Treating someone differently is still treating them differently even if they chose to enter the category that is treated differently. But unless it is unclear what I meant by "business specific" regulations, there is no reason to argue semantics.
Legally speaking to be "treated differently" means that the law was made to apply to only certain people and not others. So while you may be arrested for some offense another person will not be arrested for committing that same offense. This is illegal in a modern common law legal system. It is an important and imminently logical distinction. Otherwise you are placing laws that "only effect drunk people" into the same category as laws that "only effect black people".

You are describing a monopoly rising in an unhindered free market as an example of a free market being hindered? Regardless, no monopoly has ever existed without force or fraud (by the monopoly or government), so it's a moot point.
I meant to reply to this assertion again earlier. Monopolies have been very common in history and still occur today even. It all depends on the scale that you are considering. It was quite common in many small towns that there was only one grocer or newspaper or radio station. The industrial revolution changed the size of the playing field. Now we normally would not think of a monopoly on such a scale as a single town, we only think of monopolies on a nation wide scale. Monopolies on the nation wide scale were never even possible until the industrial revolution.

During the industrial revolution we saw massive business growth and the emergence of large scale monopolies. http://eh.net/bookreviews/library/0280

Of course you will only criticise this as being due to government regulation but as far as I am aware most if not all of regulations directed towards business in this era were for the purpose of encouraging business and growth, not hindering it. Laws designed to act against businesses were later made for the purpose of controlling the monopolies that were getting out of hand.

Hurting people that way is "unique" to companies?
Yes. Business people are the ones who sell merchandise. You're average person does not and is not legally held to the same standard. If I had a cow and I gave some meat from it to a person and believed in good faith that it was good meat I will not be held liable if it turns out to have had something wrong with it even if I sold it or traded it to them. On the other hand a business is assumed to be responsible for making sure that their products are safe for their consumers. There's that nagging little distinction again. Any person can theoretically sell stuff. If they do this for a living or as a source of income though they are held to a different standard because they are considered to be running a business.

[WhoWee]

This is a timely topic, given that insurance companies now face anti-trust legislation - after being exempt since 1945.
http://online.wsj.com/article/BT-CO-20091014-711740.html

[Al68]

Legally speaking to be "treated differently" means that the law was made to apply to only certain people and not others. So while you may be arrested for some offense another person will not be arrested for committing that same offense. This is illegal in a modern common law legal system. It is an important and imminently logical distinction. Otherwise you are placing laws that "only effect drunk people" into the same category as laws that "only effect black people".I never suggested those were in the same category. And I'm well aware of the difference between "treated differently" and "treated differently because of race".Of course you will only criticise this as being due to government regulation but as far as I am aware most if not all of regulations directed towards business in this era were for the purpose of encouraging business and growth, not hindering it.Yes, that's why government gave Standard Oil land and loans, etc. Laws designed to act against businesses were later made for the purpose of controlling the monopolies that were getting out of hand.Yes, the same monopolies that government was previously partnered with, "encouraging business and growth".Hurting people that way is "unique" to companies?Business people are the ones who sell merchandise. You're average person does not and is not legally held to the same standard. If I had a cow and I gave some meat from it to a person and believed in good faith that it was good meat I will not be held liable if it turns out to have had something wrong with it even if I sold it or traded it to them.This is how hurting people is "unique" to businesses? The fact that you might hurt someone the same way? One of us obviously misunderstood what the other said. On the other hand a business is assumed to be responsible for making sure that their products are safe for their consumers. There's that nagging little distinction again. Any person can theoretically sell stuff. If they do this for a living or as a source of income though they are held to a different standard because they are considered to be running a business.That's exactly what I mean. But yes, if you sold someone meat that made them sick, they can sue you (common law). The fact that a business is more likely to be sued is because of their deeper pockets, and a greater number of people getting sick, not because they are subject to some law that you are not.

You are responsible in common law for your actions, too. The difference isn't artificially created by government or enacted into law. Their greater "meat safety responsibility" is a result of more meat being sold to more people, not some law that says they can be sued while you are exempt.

But to use your example, my position is that any law against selling unsafe meat should apply to everyone. Obviously it will affect a meat business more, but that's because they sell more meat, not because the law only applies to them.

[mheslep]

...Regardless, no monopoly has ever existed without force or fraud (by the monopoly or government), so it's a moot point....Where are you going with this? Granted force and fraud can play a role in monopoly creation, but are you saying that a primary path to monopoly - predatory pricing (http://en.wikipedia.org/wiki/Predatory_pricing)- does not exist, or that somehow predatory pricing requires fraud?

[TheStatutoryApe]

I never suggested those were in the same category. And I'm well aware of the difference between "treated differently" and "treated differently because of race".
"Treated differently" is "Treated differently". The reasons can be many and varied from race to religion to gender to sexuality. There is a reason why there is a distinction, as I have pointed out. You can not simply leave it up to judges, juries, and law enforcement to realize that there was some underlying assumption which makes the distinction. The distinction must be part and parcel to your system of law. If we are going to discuss laws then we need to keep this in mind. If a law regards businesses and all people are capable of running businesses then the law is equitable.

Yes, that's why government gave Standard Oil land and loans, etc.

Yes, the same monopolies that government was previously partnered with, "encouraging business and growth".
The government is a legitimate consumer. If it needs something done it may pay someone to get it done. As for giving land, yes I'm sure that many oil companies were given land. Only one company can drill in the same place so only one company can be given rights to drill on any given piece of land. Whom ever out bids the others gets the prize. As a capitalist I am sure that you would see this as proper yes?

This is how hurting people is "unique" to businesses? The fact that you might hurt someone the same way? One of us obviously misunderstood what the other said.

That's exactly what I mean. But yes, if you sold someone meat that made them sick, they can sue you (common law). The fact that a business is more likely to be sued is because of their deeper pockets, and a greater number of people getting sick, not because they are subject to some law that you are not.

You are responsible in common law for your actions, too. The difference isn't artificially created by government or enacted into law. Their greater "meat safety responsibility" is a result of more meat being sold to more people, not some law that says they can be sued while you are exempt.

But to use your example, my position is that any law against selling unsafe meat should apply to everyone. Obviously it will affect a meat business more, but that's because they sell more meat, not because the law only applies to them.

Anyone can sue anyone for anything, that does not mean that they will win. If I, in good faith, give meat to a neighbour I am not liable. They may sue me and they may try to prove in a court of law that it was not in good faith but rather that I was negligent, but if I was not negligent and they are unable to convince a judge or jury then I will not be held liable.

On the other hand a business is held to a different standard and will be found negligent if they did not take reasonable precautions to assure the safety of the meat. This is, as you say, because they are in the business of distributing meat to several persons. So those people have the reasonable expectation that the business will take such precautions. There is no such expectation for a private individual, only if that individual could have reasonably deduced there was something wrong with the meat would they be considered negligent. The law makes this distinction, through laws and regulations, otherwise a business distributing meat will be held to no other standard of safety than a judge or jury decides is reasonable which can be either good or bad for that business depending on the temperament of the judge and jury.

[Al68]

If a law regards businesses and all people are capable of running businesses then the law is equitable.When I used the words "treated differently", I didn't mean it as a reference to illegal discrimination, or any comparison to it. I only meant that if engaging in free enterprise results in such a change in legal status, then it's not really "free". The reason it's called free enterprise is because people are free to do it. If we were talking about engaging in some other activity that we agreed people have a right to do, such as free speech, abortion, owning guns, etc, and engaging in that activity resulted in a drastic change in the person's legal status, it would be considered a restriction of those rights. The "different treatment" of people engaged in business serves as restrictions of the right to engage in free enterprise, whether you think those restrictions are justified or not.As for giving land, yes I'm sure that many oil companies were given land. Only one company can drill in the same place so only one company can be given rights to drill on any given piece of land. Whom ever out bids the others gets the prize. As a capitalist I am sure that you would see this as proper yes?My point here was that, as you said, government used its power to "encourage growth" of businesses, then when one grew too much, government used its power to "prevent monopolies". You just can't then say "look what happens when government does nothing".The law makes this distinction, through laws and regulations, otherwise a business distributing meat will be held to no other standard of safety than a judge or jury decides is reasonable which can be either good or bad for that business depending on the temperament of the judge and jury.I never said the law didn't make the distinction, clearly it does, otherwise I wouldn't have mentioned it. We were talking about the context of suits in common law, not statutes enacted by government.

In suits in common law, people, whether in business or not, in fact are "held to no other standard than a judge or jury decides is reasonable".

As far as government enacted statutes, I didn't say that current "meat safety laws" applied equally to everyone who sold meat, I just said that they should. As a specific example, if we hypothetically decide to pass a law that makes it illegal to sell unfrozen/uncanned meat over 3 days old, then nobody should be permitted to do so. If it's unsafe for a business to do it, it's unsafe for anyone to do it.

As far as regulations that enable government to exercise ownership rights of a business by actually partially managing the internal operations of a business, clearly the practical result is that the business is no longer a private business. That's a pretty obvious case of being "treated differently". (no comparison to racial or gender discrimination intended)

[TheStatutoryApe]

When I used the words "treated differently", I didn't mean it as a reference to illegal discrimination, or any comparison to it. I only meant that if engaging in free enterprise results in such a change in legal status, then it's not really "free". The reason it's called free enterprise is because people are free to do it. If we were talking about engaging in some other activity that we agreed people have a right to do, such as free speech, abortion, owning guns, etc, and engaging in that activity resulted in a drastic change in the person's legal status, it would be considered a restriction of those rights. The "different treatment" of people engaged in business serves as restrictions of the right to engage in free enterprise, whether you think those restrictions are justified or not.
As I already stated previously, any law what so ever can be labeled as a restriction on free enterprise. Whether or not it focuses particularly on businesses is irrelevant. If a law does not effect persons who are not running businesses and effects all persons who are running businesses how in the world does this make the market no longer free? The playing field is still level. Any person who decides to run a business can do so and will be effected by the law. There is no greater hindrance to the market by these laws than by any law which effects all persons regardless of whether or not they own a business. This is why I keep harping on the legal distinction. There is no inequity.

My point here was that, as you said, government used its power to "encourage growth" of businesses, then when one grew too much, government used its power to "prevent monopolies". You just can't then say "look what happens when government does nothing".
The idea that the government could be completely and utterly separate from the economy is ridiculous. If they decide that the country needs more infrastructure and so takes actions to get that done how do you expect them to go about it other than to hire someone or have people bid for the job? Should the government allow anyone who wants to to lay down rails for a railroad? What limit would you put on the number of parallel railroads laid down by competing companies? Or would that be government interference? What happens to the rails laid by companies that it turned out could not compete? Do they just stay there unless someone else wants to buy them? So we could theoretically have five parallel rails with only one or two operating because they are the only ones that can afford to do business there at the moment?

I never said the law didn't make the distinction, clearly it does, otherwise I wouldn't have mentioned it. We were talking about the context of suits in common law, not statutes enacted by government.
Common law is made up in part by the statutes enacted by the government.

In suits in common law, people, whether in business or not, in fact are "held to no other standard than a judge or jury decides is reasonable".
Guided by the law. A judge has no authority to make any decision he wishes without respect for the law. Juries are a slightly different matter but they are still guided by the law which theoretically gives them an idea of what is considered reasonable for certain circumstances.

As far as government enacted statutes, I didn't say that current "meat safety laws" applied equally to everyone who sold meat, I just said that they should. As a specific example, if we hypothetically decide to pass a law that makes it illegal to sell unfrozen/uncanned meat over 3 days old, then nobody should be permitted to do so. If it's unsafe for a business to do it, it's unsafe for anyone to do it.
So you believe a man who owns a farm with a cow on it should be held to the same standard as any business? He should make sure that if he slaughters the cow it should be tested by a lab or something to be sure that it is safe? Otherwise if he gives some to his neighbour and the neighbour's family gets sick and one of them dies he should be held liable? How about if he and his own family eat the meat aswell and his whole family die except for him? He should be held liable by the court for the deaths of his neighbours family member and his own family? Go to jail, lose his farm, lose any money he has, probably rot and die in prison all because he couldn't afford to send samples from his cow off to get tested in a lab somewhere? What better way to promote monopolies than by making it impossible for anyone to afford the liability of producing their own food.

Or do you think it should be ok for a large company to mass produce and distribute meat and give no more attention to the safety of it than a simple visual inspection of the animal before slaughter?

As far as regulations that enable government to exercise ownership rights of a business by actually partially managing the internal operations of a business, clearly the practical result is that the business is no longer a private business. That's a pretty obvious case of being "treated differently". (no comparison to racial or gender discrimination intended)
Well when I have a dispute with my neighbour and those nosey buggers come in and haul me away for resolving our own private dispute with my gun I am obviously no longer a private citizen. The government is managing my life for me and treating me differently than those persons that call the police or go to court to resolve their disputes.

[Quincy]

But, by definition, a free market is one in which competitors are free to compete, so the only way a monopoly could exist in a free market is if there were nobody that had the means and interest to compete, which is not a reasonable thing to expect in reality.

Competition doesn't prevent the existence of monopolies...

[WhoWee]

Competition doesn't prevent the existence of monopolies...

There's an old saying, "he who has the Gold - makes the Rules", and it's true - Capital is the key to growth.

Normally income (after taxes) is the slow but steady route to growth, the ability to borrow large sums is a faster track, and funds obtained through an IPO (often based upon future growth projections) can lead to exponential growth.

Typically, a company will move through all 3 phases - unless they have a unique concept that is successful overnight.

Once a company is publicly owned, it may use it's stock as "acquisition capital" to gobble competitors. Sometimes this is the only way to sustain growth (and support market share price - to acquire more competitors).

The Government controls interest rates and bank lending policies through regulation (and now participation?). The banks decide winners and losers (as well as the Government in some cases through SBA and tax incentives) with loan selection. The Government also regulates international trade and imposes taxes - both very important to the way business is conducted. Investment banks pick winners and losers and the Market verifies suitability.

Normally, the ultimate goal is to win, to be the best. To oversimplify (as this post is already too long), in business the ultimate winner is labeled a "Monopoly" and "busted up" - by the Government that enabled it in the first place.

[Al68]

If a law does not effect persons who are not running businesses and effects all persons who are running businesses how in the world does this make the market no longer free?I was referring to the "free" in "free enterprise", not "free market". The freedom to engage in business is what is limited by "legal distinctions" made as a result.This is why I keep harping on the legal distinction.What is the difference between making a "legal distinction" between people and "treating them differently"? The fact that others and current law makes such a distinction doesn't obligate me to make it.So you believe a man who owns a farm with a cow on it should be held to the same standard as any business?....
Or do you think it should be ok for a large company to mass produce and distribute meat and give no more attention to the safety of it than a simple visual inspection of the animal before slaughter?I think that they should not be treated differently by government (no arbitrary legal distinction) in statutes. And the distinction is arbitrary, since presumably there is an arbitrary number of cows owned above which one would be treated differently by the law (legal distinction, if you prefer). And whatever number is chosen, for example 10 cows, it's not like there is something inherently special about that number. The distinction is completely arbitrary and not based on the actual action performed, since it is identical in either case. Either way, someone sold bad meat.

Of course if a law requires only every tenth cow to be sampled, then both the small and big business may sell their first 9 unsampled, so there would be no "legal distinction", and no objection on my part. But if a law required every cow to be sampled, then no cow should be sold (as meat) that wasn't sampled, and the number of cows owned should be irrelevant.

A better example might be the laws that apply only to businesses with 50 or more employees. There is nothing inherently special about the number 50, it was arbitrarily chosen. Hiring that 50th employee has a regulatory cost to a business that is many times the employee's salary, to say the least. I'm sure you aware of the disproportionate number of businesses that have 48 or 49 employees.

This is a big reason many small businesses have a hard time competing with larger ones, government is artificially limiting the number of people they can hire.Well when I have a dispute with my neighbour and those nosey buggers come in and haul me away for resolving our own private dispute with my gun I am obviously no longer a private citizen. The government is managing my life for me and treating me differently than those persons that call the police or go to court to resolve their disputes.Comparing shooting someone with "managing the internal operations of their business"? The force used by government to imprison murderers is defensive force to protect the public, not management of someone's private business.

Yes, government is justified in treating a criminal differently from the person that called the police.

[Al68]

Where are you going with this? Granted force and fraud can play a role in monopoly creation, but are you saying that a primary path to monopoly - predatory pricing (http://en.wikipedia.org/wiki/Predatory_pricing)- does not exist, or that somehow predatory pricing requires fraud?Despite the fact that your link points out that there isn't a single example of this ever happening, such a situation sounds like Walmart to me. Walmart's prices have caused many competitors to go out of business, and they are the leading retailer by far. But the term "predatory pricing" doesn't refer to a company trying to sell at lower prices to increase profits, it refers to a company selling at low prices, even at a loss, to put competitors out of business in order to make huge profits then with high prices. This just won't work in a free market, because, like Walmart, they know that if they try to raise their prices enough to make up for previous losses and come out ahead, potential competitors will pounce like a lion on a wounded lamb.

So, yes, I would say that path does not exist in a free market.

[mheslep]

Despite the fact that your link points out that there isn't a single example of this ever happening, Huh?
http://en.wikipedia.org/wiki/Predatory_pricing#Examples_of_alleged_predatory_pr icing

such a situation sounds like Walmart to me. Walmart's prices have caused many competitors to go out of business, and they are the leading retailer by far. But the term "predatory pricing" doesn't refer to a company trying to sell at lower prices to increase profits,Right

it refers to a company selling at low prices, even at a loss, to put competitors out of business in order to make huge profits then with high prices.Right

This just won't work in a free market, because, like Walmart, they know that if they try to raise their prices enough to make up for previous losses and come out ahead, potential competitors will pounce like a lion on a wounded lamb.

So, yes, I would say that path does not exist in a free market.I would say you are ignoring some barriers to entry, perfectly efficient markets, etc.

Now it happens that I generally agree that predatory pricing claims are way overblown. There's a respected academic study that looked at all of the pred. pricing claims about Standard Oil and found them essentially non-existent. Furthermore, I agree that governments enable monopolistic pricing as you have outlined above.

That said, monopolies are acknowledged to exist in free market systems all by themselves. Waving them away misses the larger point: What can or should be done about them? I like Milton Friedman's point on the subject. The only alternatives to monopoly are either 1) public monopolies such as the post office, or 2) high restrictive regulation. Friedman's point is that both of those alternatives have very high carrying costs, and that if we compare those government imposed costs to the higher prices imposed by monopolies, we find that we're better off with monopolies, esp. given the monopolies tend to eventually fall apart because of the reasons you outlined above, and the public monopolies live forever.

[Al68]

That said, monopolies are acknowledged to exist in free market systems all by themselves.There are no such examples, simply because there are no completely free markets. Monopolies have existed in relatively free mixed economies like the U.S., but only with the aid of government.The only alternatives to monopoly are either 1) public monopolies such as the post office, or 2) high restrictive regulation.I think we mostly agree, but notice that those "alternatives" to monopolies are just worse monopolies, especially #2.

If government is greatly controlling an industry by regulation, that's equivalent to a government monopoly, since the word "ownership" means the right to control. Whether such control results in government revenue, or who "owns" a business on paper, is not very relevant to consumers. They would have no choice but to buy that product from a government controlled enterprise.

And calling different businesses "competitors" only makes sense if they are each under at least mostly independent control.

[mheslep]

There are no such examples, simply because there are no completely free markets. Monopolies have existed in relatively free mixed economies like the U.S., but only with the aid of government.That's spurious. You're asserting it as a fact which demands some backup. Where is it? Just stating that government is involved in the marketplace (yes of course, though in some markets very slightly) doesn't necessarily mean the government facilitated every monopoly in large part, or even at all. If that's your implication, then it is a causation fallacy (http://en.wikipedia.org/wiki/Fallacy_of_the_single_cause).

I think we mostly agree, but notice that those "alternatives" to monopolies are just worse monopolies, especially #2.

If government is greatly controlling an industry by regulation, that's equivalent to a government monopoly, since the word "ownership" means the right to control. Whether such control results in government revenue, or who "owns" a business on paper, is not very relevant to consumers. They would have no choice but to buy that product from a government controlled enterprise.No, the USPS is not the equivalent of anti-trust regulation and, say, the break up of ATT. Though ATT is subject to some government controls, as is all business, in no way is it the same thing as the USPS. The major thing they have in common (relevant to this discussion) is that both cases (anti trust regulation and the USPS) are examples of increased costs to taxpayers.

[Al68]

That's spurious. You're asserting it as a fact which demands some backup. Where is it?I was pointing out that there is no evidence that a monopoly could arise without government help, not that there is empirical proof it couldn't. It's impossible to "prove a negative", so all we have empirically is a total lack of any examples of monopolies arising without government help. With the Standard Oil example, government gave them such help, so their becoming a monopoly isn't evidence that they would or wouldn't have also become a monopoly in the absence of such help. No, the USPS is not the equivalent of anti-trust regulation and, say, the break up of ATT. Though ATT is subject to some government controls, as is all business, in no way is it the same thing as the USPS.I didn't say any of that. :confused:

[mheslep]

Im referring to this statement, which is not a negative.:
Monopolies have existed in relatively free mixed economies like the U.S., but only with the aid of government.I don't think its supportable.

[russ_watters]

Nor do I.

Al68, you need to substantiate your claim that the government gave Standard Oil substantial aid to facilitate the growth and formation of the monopoly. Ie, after a quick read through the wiki on Standard Oil I see no mention of government aid at all, much less aid of a scale that could have helped facilitate the creation of the monopoly. On the contrary, I see a company that quickly developed and successfully implimented anti-competitive tactics and was fought amost every step along the way by local, state and federal governments until the Sherman Act finally stopped it.

Ie, the concept of a "trust" was developed by Rockerfeller for the purpose of circumventing legislation to limit the size of companies.

http://en.wikipedia.org/wiki/Standard_Oil

And how about the example of Microsoft? How was it government created?

In my opinion, this is an obvious argument against reality.

[TheStatutoryApe]

I was referring to the "free" in "free enterprise", not "free market". The freedom to engage in business is what is limited by "legal distinctions" made as a result.
My argument is still the same. What difference does it make if all people engaging in business are treated the same way? Laws that apply to all individuals whether or not they are engaged in business are just as restricting of freedom of enterprise as ones that only apply to people who are engaged in business.

What is the difference between making a "legal distinction" between people and "treating them differently"? The fact that others and current law makes such a distinction doesn't obligate me to make it.
I was referring to the distinction between treating people differently and treating situations differently. That "legal distinction" is that it is illegal to treat people differently, the law may only treat situations and circumstances differently. Owning a business is an element of circumstance, it is not fundamental to the person.

I think that they should not be treated differently by government (no arbitrary legal distinction) in statutes. And the distinction is arbitrary, since presumably there is an arbitrary number of cows owned above which one would be treated differently by the law (legal distinction, if you prefer). And whatever number is chosen, for example 10 cows, it's not like there is something inherently special about that number. The distinction is completely arbitrary and not based on the actual action performed, since it is identical in either case. Either way, someone sold bad meat.

Of course if a law requires only every tenth cow to be sampled, then both the small and big business may sell their first 9 unsampled, so there would be no "legal distinction", and no objection on my part. But if a law required every cow to be sampled, then no cow should be sold (as meat) that wasn't sampled, and the number of cows owned should be irrelevant.
So a company that raises, slaughters, and distributes meat from several cows a year should have no more expectation placed upon them to make sure the meat is safe than a man who owns a single cow and eventually slaughters it for meat once it is no longer giving milk? Even though by circumstance the company is far more likely to wind up with tainted meat? Or would you require the man who by circumstance is significantly less likely to wind up with tainted meat to go through the expense of having it tested?


Comparing shooting someone with "managing the internal operations of their business"? The force used by government to imprison murderers is defensive force to protect the public, not management of someone's private business.

Yes, government is justified in treating a criminal differently from the person that called the police.
My dispute between myself and my neighbour is private. Theoretically my actions, whether it be shooting punching or yelling at them, may have an impact on society and so it is deemed in the interest of society to have such 'private' interactions regulated by law. A business is by its very nature an amalgam of private contracts and interactions between several members of the public greatly increasing the power of the business to have broad effects on the community as a whole.
If I were to get pissed off and kill one neighbour per year every year I will still likely be connected to fewer deaths per year than most large food distributing corporations are connected to per year merely as incidental to doing said business. And thats with stringent government regulation.

[Al68]

Im referring to this statement, which is not a negative.:Monopolies have existed in relatively free mixed economies like the U.S., but only with the aid of government.I don't think its supportable.Sure it's a negative, since it asserts that there are no examples of a monopoly existing without government aid, which can't be proven. What if I reword it to say "There are no monopolies that were not aided by government"? The support lies only in the lack of evidence of any such examples existing.

It's similar to claiming that there are no cows that can fly. I can't prove it, but there are no examples otherwise.

[Al68]

Al68, you need to substantiate your claim that the government gave Standard Oil substantial aid to facilitate the growth and formation of the monopoly....
Ie, the concept of a "trust" was developed by Rockerfeller for the purpose of circumventing legislation to limit the size of companies.Well, you just gave an example of legislation that "aided" Standard Oil significantly, even if it's not obvious to everyone that it was beneficial to Standard Oil. Their competitors were effectively limited by the legislation while Standard Oil circumvented it.

In other words, you gave an example of legislation that kept Standard Oil's competition from being competitive.

I'll try to find some links to info about the government loans, land, and other examples related to Standard Oil.

[Al68]

My argument is still the same. What difference does it make if all people engaging in business are treated the same way? Laws that apply to all individuals whether or not they are engaged in business are just as restricting of freedom of enterprise as ones that only apply to people who are engaged in business.Yes, either way, everyone's freedom is restricted. But there is a distinct advantage to equality under the law.Owning a business is an element of circumstance, it is not fundamental to the person.I've already pointed out that it's not in the same category as racial discrimination, etc. I never meant the phrase "treated differently" as any reference to that sort of different treatment. Obviously people are not born owning a business or not, they have a choice. It's not like it's impossible to be "treated differently" for reasons that are not fundamental to the person.So a company that raises, slaughters, and distributes meat from several cows a year should have no more expectation placed upon them to make sure the meat is safe than a man who owns a single cow and eventually slaughters it for meat once it is no longer giving milk? Even though by circumstance the company is far more likely to wind up with tainted meat? Or would you require the man who by circumstance is significantly less likely to wind up with tainted meat to go through the expense of having it tested?I already addressed this. A law that required every tenth cow to be tested would allow both to sell the first 9 untested. But if it's that important that every single cow be tested, then yes, the single cow owner's cow should be tested if it's sold. Either it's important that every cow is tested or it's not.My dispute between myself and my neighbour is private. Theoretically my actions, whether it be shooting punching or yelling at them, may have an impact on society and so it is deemed in the interest of society to have such 'private' interactions regulated by law.That's not a private interaction. The dispute may be a private one where government should not be involved, but the shooting of someone is not. Similarly, a companies internal operations may be private while their external actions may not be.

[russ_watters]

Well, you just gave an example of legislation that "aided" Standard Oil significantly, even if it's not obvious to everyone that it was beneficial to Standard Oil. Their competitors were effectively limited by the legislation while Standard Oil circumvented it.

In other words, you gave an example of legislation that kept Standard Oil's competition from being competitive.

I'll try to find some links to info about the government loans, land, and other examples related to Standard Oil. That isn't good enough, Al68. Previously, you asserted (or seemed to assert) a direct link between government regulation and the rise of monopolies (that the government helped create the monopolies via the creation of a regulatory framework that aided their existence) - now you are only asserting the government failed to successfully prevent it, which is a very different assertion. Failure to hinder is not the same as actively helping. You need to substantiate or retract that previous assertion of the government actively working to help create monopolies as it is central to your thesis in this thread. What you are now saying about Standard Oil is in direct contradiction with your asssertion that monopolies cannot arise in a free market. The government did exactly the opposite of what you are asserting it did: the monopoly arose in spite of efforts to prevent it. This is prima facia evidence that monopolies can form in a free market: they can even form in a market that it set up with restrictions against them.

An example of the former would be (formerly) AT&T and the power companies, which are government sanctioned/sponsored monopolies: the government purposely helped create these monopolies because it recognized that large public utlities must have centralized/standardized infrastructure to function.

[Al68]

Well, you just gave an example of legislation that "aided" Standard Oil significantly, even if it's not obvious to everyone that it was beneficial to Standard Oil. Their competitors were effectively limited by the legislation while Standard Oil circumvented it.

In other words, you gave an example of legislation that kept Standard Oil's competition from being competitive.

I'll try to find some links to info about the government loans, land, and other examples related to Standard Oil.
That isn't good enough, Al68. Previously, you asserted (or seemed to assert) a direct link between government regulation and the rise of monopolies (that the government helped create the monopolies via the creation of a regulatory framework that aided their existence) - now you are only asserting the government failed to successfully prevent it, which is a very different assertion.You must have misunderstood, I never said that government only failed to prevent it. You gave an example of legislation that actively helped Standard Oil, not just fail to stop them. And in the case of your example, the help was indirect, not direct. Standard Oil successfully circumvented it completely, while its competitors didn't. The actual net result was (indirectly) beneficial to Standard Oil by its (direct) negative effect on their competition.

Any government action that in any way negatively effected Standard Oil's competition indirectly helped Standard Oil. Is that not obvious? Failure to hinder is not the same as actively helping.I agreeWhat you are now saying about Standard Oil is in direct contradiction with your asssertion that monopolies cannot arise in a free market. The government did exactly the opposite of what you are asserting it did: the monopoly arose in spite of efforts to prevent it. This is prima facia evidence that monopolies can form in a free market: they can even form in a market that it set up with restrictions against them. I never said a monopoly couldn't form in a market when government (unintentionally) helps one by its "efforts to prevent it." "Efforts to prevent it" is not the opposite of "unintentionally helping it".

A monopoly forming while government is trying to prevent them is obviously not evidence that a monopoly could form in a free market. And the "intent" of the regulation is completely irrelevant. Obviously actual effect is often very different from intended effect.

[russ_watters]

You have been given ample opportunity and failed to support your assertion. TheStatutoryApe, you have your answers: Monopolies are not prevented by free market economics and specifically, Standard Oil was not enabled by legislation, it arose naturally and was only failed to be prevented by legislation.

Thread locked.