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SpiRitsにより編集済み: 3/1/2018 6:18:32 PM
7

Economic Ignorance - "Natural Monopoly in the Free Market"

Before entering this discussion, let's put up an expanded definition and description of the “Free Market” and “Competition”. Lets use Chase Rachels descriptions: [i]Free Market[/i] “The notion of a “freed market” or an “unhampered market” is a conception of a market operating quickly, spontaneously, and unpredictably. It is a market where every person can negotiate the terms of every exchange he makes and fully owns every good he intends to trade. It is a system of maximally free trade. Taxes, tariffs, quotas, price restrictions, mandated licensure, labor regulation, and intellectual property never exist in this market. Everyone is free to copy and remix others' work, acquire cheaper materials, and produce a good in any industry. With the absence of aggressive barriers to entry into any industry, competition becomes fierce and unrelenting. Without occupational licensing or securities regulations or taxes by which to abide, even small discrepancies in customer satisfaction can allow newcomers to instantly topple an established giant. Operations that produced the same service indefinitely would be rare and unsuccessful. These dynamic markets organically emerge from the free, spontaneous interplay of people.” Before moving onto competition, the above description is extremely different from the status quo. So when entering this discussion you must release this prejudice of the current atmosphere of transactions and exchange. To conflate the existing state capitalist system with the free market will not allow us to fully understand the true merits of unrestricted competition. The underlying premise of free markets is the mass network of mutually beneficially voluntary exchange and the absence of coerced or forced transaction. The state greatly inflicts with the competitive nature of markets and posits itself the position of relative to this topic, “breaks up market monopolies and encourages competition”. This couldn’t be farther from the truth. [i]Competition[/i] “In a free market, all businesses are competing for consumer patronage. Competition exists between all firms in every industry. For example, one who sells ice cream competes not only with Ben and Jerry’s, but also with movie theaters, as one can always choose not to purchase ice cream and instead attend the movies. This is the true meaning of cost: the foregone next most-favored course of action. Should one choose to spend the afternoon having a sundae at an ice cream parlor, he cannot also spend it at the cinema. One cannot be at both places at the same time. Hence, the price and attractiveness of the movie is relevant to one's decision when choosing to buy ice cream, not merely the price and attractiveness of the ice cream. There are two types of competition: active and potential. Active competition is the businesses or competitors that actually exist today. Potential competition, on the other hand, consists of those businesses or competitors which may manifest should a given business' services or products satisfy consumer demands less and less.” Now we need to define monopoly. There is, and I have seen this through my discussions on this site, much confusion in the proper definition of monopoly. I have run into this assertion multiple times: “A firm that is the single provider of a specific good or service.” As much as this definition is thrown around, it is useless. Asserting monopoly is a single producer implies the smallest differentiation of a product that could be monopolized. For example, I SpiRits, based on this definition, might have a monopoly on “Red striped lollipops”, and Mad Max might have a monopoly on, “coffee flavored Popsicles”. Usually someone will try and refute this and claim: “Well, what about homogeneous goods!” Ok sure, take fruits for example, and from that definition, ghost4201990 might have a monopoly on “ghost4201990”s fruit and ECCHO SIERRA a monopoly on “ECCHO SIERRA”s fruit. While fruits still do technically compete on the grounds of different farming techniques, or green vs red apples, whatever, this definition will never yield useful economic information, as it virtually renders all suppliers as monopolists. Monopoly originally refers to the exclusive privilege to produce a given good or service, grated by an authoritarian power. Favored producers, backed by force, could exclude competition from the markets. Monopoly defined by Murray Rothbard: “Monopoly is a grant of special privilege by the State, reserving a certain area of production to one particular individual or group. Entry into the field is prohibited to others and this prohibition is enforced by the gendarmes of the State.” This will be the definition I will proceed with, and with the absence of force and coerced transaction in the free market, we can see how in that context it doesn't apply, the my claim I will prove: [b]Under free competition in the free market, monopolies at the hand of the state and force could not exist.[/b] It is only by institutionalized aggression that a monopoly can be upheld and maintained, which is quite clearly not in line with our description of the free market and spontaneous market mechanisms. Were going to stick with Water Supply firms as they are the usual target of this definition and criticism towards the free market. So generally speaking, it may be only technologically feasible for one water supplier to exist for some town or city; therefore we need state interference to to curb this firm from monopoly pricing. This would be called a “limited - space monopoly”, Murray Rothbard explains: ““Limited-space monopoly” is just one case in which only one firm in a field is profitable. How many firms will be profitable in any line of production is an institutional question and depends on such concrete data as the degree of consumer demand, the type of product sold, the physical productivity of the processes, the supply and pricing of factors, the forecasting of entrepreneurs, etc. Spatial limitations may be unimportant; as in the case of the grocers, the spatial limits may allow only the narrowest of “monopolies”—the monopoly over the portion of sidewalk owned by the seller. On the other hand, conditions may be such that only one firm may be feasible in the industry” His point here is that the term monopoly is a meaningless application unless monopoly price is achieved. Again: [b]Unless monopoly price is achieved, the use of the term monopoly is moot[/b]. Notice, monopoly price is not able to be determined on the free market. There is no way to determine if monopoly price is being charged or not. This concept applies to all circumstances, whether it be the water supply company, cable, or great football player, again, they are all monopolists in their respective fields, per the fallaciousness of this definition I described earlier. [b]Yet, in all these cases, the logical dichotomy between “monopoly price” and “competitive price” is a false one. This comparison is nothing more than an illusion. Therefore, from this logical conclusion, because “monopoly price” can not be determined in the free market, ALL prices are competitive.[/b] Stepping outside deduction, let’s look at an actual example. Again, let's take at a water supply company as they are the typical go to criticisms: So I’m going to take the worst case scenario and refute such a situation, again, in respect to the free market. The situations is as follows: [u]A water company decides to triple its rates without a corresponding increase in the cost of production.[/u] Well, the first question will be how will market participants respond to this increase in price, with no respect to any normative theories on price theory. First off, future and potential customers will be detoured from moving into this area, while current residents will be incentivized to move out of the area. This will result in a loss of income for the water company. Not only this, current customers will be incentivized to act more conservative with water usage. This could be anything from not watering the lawn as often to collecting rainwater, to taking showers together, the “how” isn’t really relevant. Again, resulting in a decreased income for the water company. If the water company were to resort back to it original prices, it would have destroyed its market reputation which is one of the biggest factors in consumer sovereignty. This would be the last firm consumers would patronize, not to mention if consumers saved money from conserving water, they might continue these actions after they lower the price back, and again results in loss of income. With the consumers trust being undermined, consumers will be switching services, even if the prices are marginally higher. In order for the water company to even have a chance of achieving some status of “monopoly” it would have first be required to gain the trust of the consumers and beat of competitors. The chances of this business overtly changing their business practices is low. I know there are other criticisms I haven't addressed like cartels, "predatory pricing", production fixation, etc...I would, but I want to keep the scope narrowed on this notion of the free market monopoly. If you have concerns with these other criticisms let me know, and Ill respond accordingly; however don't derail topically and bitch about Environmentalism, while the free market addresses these problems much more effectively and efficiently then the state, I want to keep to the topic of monopoly and competition.

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  • Economics is theoretical in nature. While you try to sound intellectual you miss the entire purpose of these words. Google definition: Monopoly- the exclusive possession or control of the supply or trade in a commodity or service. This is really the opposite extreme of another theoretical term [i]perfect competition[/i]. Google definition: the situation prevailing in a market in which buyers and sellers are so numerous and well informed that all elements of monopoly are absent and the market price of a commodity is beyond the control of individual buyers and sellers. Neither of these truly exist in real life but they are vital in accessing prices. If you know basic microeconomics perfect competition sellers make zero profits while monopolists are able to set the price that will maximize their profits. If you estimate the demand and supply for a product you can determine which type of market you are closer to. There’s a lot of very complicated factors that influence how big a difference there is in monopoly vs competitive pricing that varies for every market. So monopolies are not always super bad. Your assumption that monopolies only exist when the government allows them too isn’t true either. Natural monopolies exist based on many things but prime examples are limited resources, intellectual property, and incredibly high market entry costs. The government antitrust department actively prevents it. An easy hypothetical to understand is if all ISPs joined and then raised prices to the profit maximizing price. No one could possible enter the market as the infrastructure is far too difficult and costly to implement especially with the knowledge that the existing monopoly could drop prices dramatically and run the new firm out of business then go back to its higher prices. If you need more research antitrust cases and learn microeconomic modeling. It’s pretty basic and easy to see the implementation of the term monopoly and that economics as a whole doesn’t necessarily describe the market but describes a theoretical one that can help understand our own.

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    5 通の返信
    • I’ve thought about all of this before and I thought that the only time the government should be involved in the economy is to break up monopolies. Thanks to you I now have a new perspective on why the government shouldn’t be involved in the economy at all.

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      23 通の返信
      • Where is my tl;dr version?

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      • SpiRitsにより編集済み: 3/1/2018 6:38:08 PM
        SpiRits, THE STATE!!!!!!!! Ah yes, I almost forgot...[i][b]The State is the Ultimate Monopoly[/b][/i] The State has a legal monopoly on the right to use aggression against others in the form of taxation and compulsory edicts (legislation). Not only must “customers” pay into its operation without regard to their consent, but they must surrender to the rules its internal processes determine at all times. Additionally, the State has a monopoly on the provision of security, and has anointed itself as the ultimate arbiter in all conflicts, including those conflicts which involve its own agents. Agents of the State are motivated by profit and self-interest just like any given businessman. However, what separates the businessman from the State is that the former has to persuade you to pay for whatever is being offered, whereas the latter demands its citizens pay for its “services,” and unilaterally alters the price and scope of the "services" offered. Moreover, if payment towards an institution (the State) is guaranteed, then its services will tend to diminish in quality and increase in cost. [url=https://www.bungie.net/en/Forums/Post/242806080?sort=0&page=0]This is because the state has no sufficient means to produce much needed economic calculation.[/url] On this logic, it should be quite apparent that the state holds economic monopolies on Education, postal services, military, defense and security, legislation and law, police, fire services, streets and roads, etc...It seems that these services are extremely important. Yet those who criticize monopoly under free competition, are the first to praise compulsory monopolies by the state. After all, [i]What could such a monopoly possibly do better than the competitive market?[/i]

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        8 通の返信
        • WHAT ABOUT CARTELS/ECONOMIES OF SCALE!!!! [i]Cartel[/i] “A cartel is a group of individual firms in like-industries which decide to coordinate their practices as a means to maximize profits. These coordinating efforts can take the form of setting production quotas or “fixing” prices.” Just from this description we can see how absurd a practice is to keep prices above market equilibrium. Such practices is surely to be temporary under free competition. The hardest part of cartelizing is actually having entrepreneurial businessmen come together and decide on fixed prices and production. Entrepreneurs by their nature are efficient, and that is directly contrary to restriction in production. The second an efficient oriented member of cartel can break from such fixed production, he will do so. Even those remaining in the cartel will be tempted to lower prices from the fixed ones, or increase production to gain a larger market share. Even considering the scenario a cartel can successfully set fixed prices and production and remain so, outside competition can merely undercut and take customers. From these two main reasons of the actual difficulty in unanimously setting fixed prices and production while also having outside competition renders a free market cartel extremely unlikely. I want to hit on this idea again of comparing the status quo to the free market. Rachel explains why Cartels today are not representative of the free market and how the action of cartelizing is inherently voluntary: “It is important to remember that cartels today do operate outside market forces in anexploitative capacity, but they are only able to do so by purchasing and acquiring influence over the State. Only through the application of Statemandated price ceilings, price floors, regulations, occupational licensure, minimum wages, taxes, and even explicit grants of monopoly over certain industries, can a given firm or cartel exploit the consumer. Exploitation of the consumer only exists in this arrangement because the State is able to insulate a given business from market forces via legislation. Conversely, in a purely free market, the survival of these businesses would be predicated on how well they could satisfy the desires of the consumer relative to existing and potential competition. Where there is choice and an absence of coercive barriers to entry, there can be no exploitation. Finally, there are no rights violations associated with cartelization, as it merely represents the pooling of resources on an inter-company scale. Having property rights over resources entails the right to pool them with the resources of others in a voluntary manner.” There are also multiple benefits from cartels and merger in the market. The obvious benefit is an economic concept known as economies of scale. This idea that greater production through more efficient capital goods produces greater productive output. We see this when purchases are made in bulk, as this yields lower prices. The larger a firm, the more capital goods it acquires, greater division of labor, lower overhead costs, cheaper credit, etc… Access to greater amounts of capital, mergers can afford greater investment and expand resource capacity. With greater production from new and improved capital goods, employees can yield greater production with the same amount of resources driving up wages and lowering prices. Economies of scale is often criticized as a single firm will be able to produce a good or service at the lowest cost driving out other business, and then once no competition remains, increase prices. Without the states use of force to usurp and maintain monopoly privilege, competition always exists whether it be potential or direct. The firm must always take into consideration potential competition, especially incentivized by higher prices. Generally following the above criticism is “predatory pricing”. It is said that smaller businesses can't compete with these larger firms undercutting them and crush them. Well for one, such predatory pricing, could result in a smaller firm buying up inventory from the large firms low prices.Sit on the inventory until they “have some market power to raise their prices” and it will be seen as wasteful to exhaust these smaller firms in the first place. Not to mention, this price cutting is extremely good for the consumer, lower prices allowing consumers to save more expanding societal wealth. Even if a firm can undercut competition without a loss, no harm is done as failing businesses naturally lose command over demanded resources as they fall into the hands of the most efficient firms meeting consumer demand.This is great as consumers will enjoy wonderful low prices and increases in the standard of living.

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        • I was going to tear into this, but I’m about to go play a game with a friend, so I don’t have the time. That said, I’ll at least leave a question. Is the state a monopoly?

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          1 返信
          • Holy wall of text. Good post very informative

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