Re: OT ~ More Power to the Bureaucrats?

On Sat, 07 Jun 2008 23:17:50 -0500, Bob Giddings wrote:



Interesting. Standard Oil was created by the government. Armour was
created by the government.

That's a novel version of history, Bruce. You keep working on that.

Bob

I have no expectation that you will read this, or learn anything if you
do, but give it a try. Careful though, it's from an organization that
promotes economic freedom.
Bruce



http://www.fff.org/freedom/0592c.asp

Monopoly
by D. T. Armentano, May 1992

I have been teaching economics at the university level for twenty-five
years. Easily the most often-asked questions relate to monopolies. The
questions are often put in the following form: "In an economy free of
governmental regulation, wouldn't a firm or group of firms obtain a
monopoly over some vital resource or product? And won't the monopoly then
exercise its power by raising prices?"

The issues most often revolve around the oil industry and the famous
Standard Oil Company antitrust case. The history of Standard Oil,
students frequently tell me, proves that monopolies exist in free markets
— and that they do raise prices arbitrarily — and that this is precisely
why we need antitrust laws.

Are monopolies truly an inherent problem in a free market? And do we need
antitrust laws to combat them?

The clearest definition of monopoly is one seller, with the law
prohibiting competitors from entering the market. Local telephone and
cable-television companies are examples — they are usually provided a
monopoly by their local governmental officials — that is, they are made
the only provider of the service in a certain locale — and competition is
prohibited by the local governing body. Obviously, this is not a monopoly
arising in a free market since it is the government not the market that
is dictating the number of suppliers. The best way to get competition in
these types of activities is to remove the legal restrictions on market
entry — which, by the way, is happening in some cable-television markets,
which has resulted in a decrease in prices.

Some domestic firms are monopolies or new-monopolies because our
government restricts foreign firms from competing against them. Again,
these monopolies are artificial — that is, caused by government — and can
be eliminated by ending all tariffs and import restrictions.

Some business organizations spend years, even decades, earning consumer
support. They produce innovative products which find favor with
consumers; and they price their products correctly. The result is that
they earn a significant share of the market. Competitors and left-wing
university professors are prone to call such firms "monopolies." But they
are mistaken — the market-share positions that these firms earn are
entirely a consequence of efficient firm management and consumer
satisfaction. And nothing is more deserving of praise than a business
that is able to increase its market share in a free and open market.

Ah, but won't firms that have earned high market share use their "power"
to restrict output thereby raising prices? They might attempt to do that.
But that sort of behavior will quickly attract competitors from both
within and without the industry. Thus, the result will be that consumers
will increasingly turn to other suppliers. Indeed, nothing will encourage
competition more than a dominant firm acting "dumb." Therefore, dominant
firms are far more Rely to attempt to lower their costs and prices in
order to maintain their market positions. And that of course, is
precisely the sort of competitive behavior we consumers want!

But can't firms collude and fix prices in free markets? The answer again
is — they are free to try. Certainly there have been numerous instances
of firms attempting to "stabilize" markets through price-fixing
agreements. But most credible college professors will inform their
students that historically such attempts have been abject failures. For
while there are incentives to fix prices, there are even stronger
incentives to cheat on price-fixing agreements — that is, incentives to
continue competing for higher revenues. Most of the classic antitrust
conspiracies have had little effect on market prices. The myth that firms
historically have succeeded in fixing prices is exactly that — a myth.

Let's go back to the Standard Oil "monopoly." Haven't we been taught that
Standard Oil monopolized in restraint of trade? Isn't this the prime
example that is provided in support of antitrust laws? The little-known
truth is that when the government took Standard Oil to court in 1907,
Standard Oil's market share had been declining for a decade. Far from
being a "monopoly," Standard's share of petroleum refining was
approximately 64% at the time of trial. Moreover, there were at least 147
other domestic oil-refining competitors in the market — and some of these
were large, vertically integrated firms such as Texaco, Gulf Oil, and
Sun. Kerosene outputs had expanded enormously (contrary to usual
monopolistic conduct); and prices for kerosene had fallen from more than
$2 per gallon in the early 1860s to approximately six cents per gallon at
the time of the trial. So much for the myth of the Standard Oil
"monopoly."

Should people be concerned about monopolies? Of course they should. But
we must understand the true source and causes of monopolies —
governmental barriers to free and open competition. The solution to the
monopoly problem, then, lies not in antitrust laws (which should be
repealed) but in the repeal of all governmental barriers to free and open
trade.

Dominick Armentano is professor of economics at the University of
Hartford and is the author of The Myths of Antitrust and Antitrust and
Monopoly. He also serves on the board of trustees of The Future of
Freedom Foundation.
.

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