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.
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.