I'd only really say monopolies are bad when free entry is restricted by threats of violence.
I'd also say that no matter how much market share bitcoin ever acquires, it won't be a monopoly, because there will always be the threat of entry by competing currencies.
What often goes unappreciated when discussing monopolies is how broad the scope is for consumers to substitute with other goods and services, or alter their lifestyles to reduce their demand. As long as people aren't forced to buy something, monopoly power is pretty limited.
I think a better question is: "Is the cure worse than the disease?"
There are some markets, the "natural monopolies" as you mentioned, that would naturally gravitate towards a single supplier even if you let the market compete freely. And that's usually in a market where the largest supplier is actually the most efficient provider, due to strong economies of scale or network effects.
However, even in such markets, self interested monopolies will still behave in ways that maximize the profits to themselves, even if that behavior isn't the most "socially optimal".
So, traditionally, that has led to the economic theory that government intervention is needed to get the monopolies to behave in a more socially optimal manner.
In theory, I suppose it's possible to use regulation against monopolies to improve utilitarian outcomes. The question is, in practice, whether or not the government intervention causes more problems than it fixes.
What's lacking, in my opinion, in most Econ 101 treatments of the subject is that regulatory improvements are always assumed to be made by a "benevolent social planner." The problem is that a benevolent social planner doesn't exist in real life. Government itself is a game theoretic system with its own inefficiencies and corruptions.
So my final answer is, yes, self-interested monopolies could always behave in a more socially optimal way (from a utilitarian perspective), but it's not obvious that government regulation will improve the situation.
I think a better question is: "Is the cure worse than the disease?"
That is a better question!
What's lacking, in my opinion, in most Econ 101 treatments of the subject is that regulatory improvements are always assumed to be made by a "benevolent social planner." The problem is that a benevolent social planner doesn't exist in real life. Government itself is a game theoretic system with its own inefficiencies and corruptions.
Another great point. What is rarely discussed as well are tradeoffs. There are no solutions after all, only tradeoffs. Someone smarter than me said that once...
The story I've heard about Microsoft was that Gates and crew mostly ignored politics. It kinda makes senses because when MS came up there was a very strong crypto-anarchist bent in tech. They were building a new world that is above the old world. But after the anti-trust actions of the government MS started doing what other firms did. Lobbying politicians. In other words, spreading money around to get influence over policy.
So what ends up happening is that when the state tries to "fix" monopoly or market dominance they attract more focus from industry. The politicians become king makers and breakers.
Now, that is not to say that there wouldn't be tradeoffs with no state intervention. There would be. But is the cure worse than the disease? I would argue it is.
Yeah, Joe Stiglitz, an economist known for his progressive views, has a famous saying: "The reason the invisible hand often seems invisible is that it is often not there."
To which I'd reply, "Fair enough. But the problem with the benevolent social planner is that the benevolent social planner simply doesn't exist."
I was sort of shocked in PhD macro (and sometimes micro) that this lazy treatment was still so common. They never account for any costs of governance. I'm sure there are models out there that do, but we didn't discuss them.
Yeah, it seems to be a major blind spot in the profession. Oh, someone discovered a new kind of market failure / inefficiency and proposes a policy based on a benevolent social planner - without any analysis of the incentives of those who would implement the policy.
I had a similar feeling when we covered the more sophisticated treatment of externalities. The amount of stuff the planner has to know to actually correct that inefficiency is ridiculous and it doesn't seem to phase anyone that it's ridiculous.
This isn't totally related to what we're discussing, but my favorite example of dumb-policy-brain in the Econ profession is a job market talk I went to, where the candidate demonstrated empirically that living in a mixed race neighborhood is causally associated with more tolerant views.
His proposed policy was for the government to airdrop migrants into less diverse neighborhoods.
Yeah, and in the current climate where every election its the most important election of our lifetimes it is even more absurd. Both sides act like the other side is going to destroy civilization. And yet... they pretend that we should have no concern with grating it more broad and sweeping powers.
I am left thinking either most people do not think, or most people that vote are morons. Probably a bit of both.
That sounds dark but I do think these tactics are slowly losing their effectiveness. But maybe that's just because of my circle of young people. They all seem to not fall for this stuff.
From what I observe the biggest problem is that most people give maybe only 0.1% of their attention to actually thinking about the issues carefully.
They may know something's wrong, like grocery bills are too high, or their insurance rates are going up, or this or that, but they spend very little time thinking about why. Instead, they rely on the bits and pieces they hear through the mainstream media, which almost universally leans left.
I do think more and more people are losing trust in mainstream media... but whether that translates to a more realistic view of how the economy and society functions is debatable.
Yeah, that's fair. Most people are mostly consumed with making ends meet and their own welfare. This is also why populism and demagogues dominate politics.
Right, and I'm not really blaming the regular people (by much; I do think most people could do a little more to be engaged in this stuff).
But no one can be expected to be an expert at everything. So reserve more blame for MSM journalists who don't really think critically (which allows politicians to get away with foolish claims), and I blame our education system for not teaching people better on how to think about economic issues.
That's a good point. It's easy to get lost in abstract theoretical arguments, but ultimately we're talking about individual actors.
There's no particular reason that someone enjoying a natural monopoly couldn't also be driven to provide high quality products, without charging as much as the market will bear.
Yeah, this is a good example. I mean you could say a king is a dictatorship. Even a just king could be corrupted by power. But, because the monopoly is clear and simple it is more obvious who is at fault. As a system becomes more complex it is harder to do that.
edit I asked ChatGPT and it gave Microsoft in the 90s as an example. Very convenient that its an example from the past? Because monopolies are not actually real methinks
edit2 I asked about an example from current day and it mentions Google, then i ask if there is no alternatives to google and it lists 8 alternatives.
They exist but pure ones tend to be limited to geographical monopolies enforced by government.
Police
Fire Fightors
Hospitals
Power companies
Goverment itself is a monopoly
If you read revisionist history you find that the monopolies we hear about abusing thier power in the past and had started abusing their position were starting to lose their position to upstarts before government action.
There is no clear definition of a monopoly and people who try to define them usually refer to within a geographical area.
If you are allowed to do this then for example if a town has 1 dentist and 1 doctor, each one has a monopoly?
But there are also about 200 sovereign governments in the world, so not even government is a monopoly. So i think talking about monopolies is kind of silly when they dont exist?
Answered elsewhere but I have no problem with natural monopolies. They are destroyed naturally when the monopoly starts to abuse their position. I have a problem with the state monopoly on violence that creates privileged positions and monopolies. The state at best is a gate keeper centrally planning the economy.
Why make a distinction between a natural monopoly and a state monopoly. Its unspecific and pointless? No offense.
I understand "state monopolies" are a problem because of the inherent violence, so it has nothing to do with a monopoly? Its the violence that is the problem? In which case why talk about monopolies then, they dont exist. The violence does, i assume. Do you know what i mean?
In a geographic area like a county your local government or state government is keeping competition out of the area and harming the public.
Moving to another country is no small effort and you just trade one monopoly for another. And the state holds multiple monopolies at once. It would be one thing if they were just arbiters of law or defense. Pointing to invisible monopolies is a way to shift your thinking. Most people instinctively see the problem with monopoly. But they think we should use the state monopoly to fix the problem. If there were not state monopoly I think you would be correct.
If you only have one doctor in a town then it is likely that is all that area can support. It is possible the same is true in many cases. That's fine. It doesn't matter IMO. But when an outside force (the state) is using their monopoly position to put their thumb on the free market (freedom) then we have a problem
The truth is the most democratic thing ever is free choice. The free market. Each person deciding how to use their earnings (life energy). The state is a mostly uninterested third party overseeing and manipulating free markets.
Are you not familiar with how governments do this?
Power companies have a state enforced monopoly over a geo area. The state requires licenses and approvals to operate
Hospitals: Many if not all states in the US have boards that decide and approve or deny when a company wants to build a hospital.
Law enforcement: Only government entities are allowed to operate as law enforcers. Private security exists but is extremely limited.
In general the governments (local, state, national) are gate keepers for almost every business sector. In some sectors they restrict the free market creating monopolies. Its central planning. In some cases like your example a dentist in a small town may be the only dentist the market would support. No need for the state to restrict it.
I'm not suggesting regulation is not of benefit. It is. But we have a monopoly on regulation instead of a free market for governance and regulation. The state is the "invisible" monopoly.
Power companies aka someone deciding to generate electricity and sell it has to get approval from the government? Why doesn't he just generate electricity and sell it
Government will shut him down? Why would he let them do that?
Im not sure we are talking about monopolies anymore but i g2g
I don't think monopolies are inherently a bad thing, we usually centralise resources around a winner who most effectively turns capital into goods and services we want and drives the most deflation and in turn provides the most value, as long as they do that, they retain their position
If they fail at their job competition constantly at their heels waiting for the monopoly to slip up and they either have to improve or buy them out, it's not easy to manage things at a certain scale, so you always opening yourself up for an attack in one or other verticle of your business
Yes, in most cases. Monopolies are never good for the long run. While incredibly efficient, they always fall prey to human failings and greed settles in.
IMO, Yes, monopolies are always bad. No matter how good someone is, when power comes into their hands, the likelihood of corruption increases. And we knew that corruption is not good for that.
I think a monopoly is generally bad, in that it's better to have competition.
But competition is not always economically viable. When it's not, it's just the reality you can't easily change and not something to rebel against, as it would be like complaining that 2+2 is not 5.
Also the network effect can lead to monopoly formation. In that case, people may use something not because it's the best, but because it's used by the most, and it takes a large critical mass to push them out of it and into something better. It's like a Nash equilibrium.
Yeah, the network effect is real and powerful. This is where the "Google is a monopoly" people have a point. Its hard to overcome. But, I always think there are alternatives and that fact keeps Google in check to some extent.
I personally only use Google because I have to with work but personally I've removed almost 100% of it from my life.
The truth is that it seems to me that monopolies from the point of view have their good side or their bad side. For example, here in Lima, Peru, where I have lived for more than 7 years, there are several business monopolies, one of them is, for example, the monopoly of the beer here there is only one company that manages the entire monopoly of the different brands of beer, manages the prices and obviously manages what people are going to buy, everyone who goes to see a beer here in Lima Peru buys the same business monopoly And on the other hand, the monopoly of pharmacies or pharmacies, they call it, also seems bad to me. Here there is a living place near a large hospital in the south of Lima and in front of or on the avenues adjacent to the hospital there are endless pharmacies or pharmacies. But all or almost all of them belong to the same monopoly, which means that they all manage the price as they want at their convenience and take advantage of the people who need those medicines or who have an emergency with a family member and that seems really bad to me... on the other hand It seems to me that there are people who have struggled for many years to create their product to create their company to expand in a market and well if today they have managed to advance by calling it correctly and have been able to launch different brands and have had acceptance For the public, it is also valid that they are people who fought and achieved it, so as I said, it has its pros and cons.
Are these monopolies enforced by the state? Maybe that's to specific. Are there barriers that make it harder for upstarts to enter the market for beer or medical care?
In reality, from what I have been able to read, the monopolies of pharmacies or pharmacies here in Peru are from the private sector... but it is surprising how many establishments they have nationwide... in addition to that, being a chain of businesses they pay a very complete amount of tributes or taxes to the state... we would say that in this way they would have the capacity to move influences in the high spheres and avoid supervision or inspection by the government... thus giving them good impunity... and in that way manage the prices and quantities as they want and when they want!!! and that is bad since we are talking about products that are for the benefit of people's health! At least I think about it that way, now the beer monopoly is total. I very much doubt that any different brand that wants to improvise that wants to start in the beer market can emerge or can advance against a monster or monopoly as big as the one that exists. It exists from the company Backus here in Peru
What it sounds like you are describing is a regulatory moat or maybe the simple bribery of government officials.
If starting a business requires the permission of the government you have regulation. I would be shocked if pharmacies are not under some form of regulation though I suspect it much more liberal than the US.
In the US, at least most states there are boards that decide if they will allow a hospital to be built. Maybe the intentions are well placed but the results are not great. These boards are highly influenced by the companies that operate the hospitals. As you can imagine they have a massive interest in maintaining their monopolies.
I once lived in a county where there was only one hospital within a 45 drive. This hospital is terrible. I know multiple people that have had bad outcomes. I know people that have worked at this hospital and confirmed the issues. It is well known to be a bad hospital. Even larger hospitals in the surrounding area are aware. People that work at this hospital say they would never use it unless they had no other option(Obviously in some situations you can drive to another hospital and in others you can't).
I have a family member that was a local politician at the time. I asked him about the hospital and if there was anything that could be done. This is when I learned about how it worked. He informed me that he had tried to get another hospital to come into the community. There was interest but every time the idea was brought to the board that approves hospitals it was denied. He shared that the existing hospital was financially supporting local, state, and national politicians that would make sure that never happened.
So the state was enforcing a monopoly with the idea of it being best for the community. But in reality the corporation was buying off the politicians to keep competition out. I'm sure there are many stories like this around the country but I thought I would share my story. To this day there is only one hospital in this county and it is still terrible. I have a family member that very likely will be suing this hospital.
I'm fairly knowledgeable about how government works and politics and before this conversation with my politician family member I had no idea how hospital construction was centralized. The citizens of this community are pretty much in the dark. Due to how democracy works it is unlikely things will change. The politicians that are bought off are powerful and do not like trouble makers like my family member. They force them out.
As @SimpleStacker said, often the cure is worse than the disease.
Plus hospitals rely so much on government funding in the form of Medicare and Medicaid that they have to do whatever the state or federal government mandates.
It's unconscionable that patients in your county are stuck with one terrible hospital.
Imagine a hospital that accepted no Medicare, no Medicaid, only 'private' insurance? I put private in quotes because 'private' health insurance is also a cartel. A hospital that didn't rely on government reimbursements would actually break even or better and run more efficiently.
There is an excellent urgent care clinic in my neighborhood. They are not part of any insurance network. They accept cash and PPO insurance. No HMO and no Medicaid. The clinic has been in business since 1984 and patient satisfaction is high. I have never had a terrible experience there. Some of the Physician Assistants are reluctant to prescribe certain medications but that's a relatively minor problem.
No Medicaid and no HMO is the model for urgent care and hospitals.
Monopolies are fine if they are not government mandated. The best example I have heard is De Beers, the diamond company. Even Standard Oil before 1911 was a monopoly that created consumer surplus. Ironically Standard Oil market share was 60 percent in 1911 vs 90 percent in 1890.
Almost every monopoly today is created by government: Post Office, Amtrak, public schools K-12
Government monopolies are terrible. Private monopolies can be beneficial for the consumer and rarely last for more than a few years.
What is the definition of a monopoly? Standard Oil had 60 percent market share in oil refining in 1911 when it was ordered to break up. Does 60 percent market share constitute a monopoly? Regardless, John Rockefeller did a lot of good for this country (and I am not talking about his philanthropy which was also extensive).
Its wrong when the company is abusing its monopoly.
But if a company has a monopoly and is making it cheap, where others cantbeat....l dont see how that is bad.
But all companies turn up their greed valve after time.
Hospital Monopolies