News 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 won't 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 don't have a free market when the government overrides the markets opinion, and we don't 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 don't 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 don't 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 won't 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]

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 doesn't 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 don't 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, isn't 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 won't succeed at preventing monopolies until the consumer starts to realize that life isn't 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]

Where should I start?

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 doesn't 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 don't 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, isn't 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 won't succeed at preventing monopolies until the consumer starts to realize that life isn't 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.

Where should I start?

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.

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]

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 can't 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 can't control the system we have now by adding more regulations. Like I have said before let's 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 won't 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 can't 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. 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 can't 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 don't 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 doesn't 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") etc

Well, 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.