The free market is what prevents monopolies from forming... It is the opposite of a free market that causes monopolies to form in the first place. We're not talking about there being only one company that makes or markets a specific product, we're talking about coercive monopolies, where by law, no one but that company is allowed to make or market that product. There's only one way to end up with a coercive monopoly, and that's by legislation from your government.
A patent on your new invention, a license to use a specific logo, a franchise business that only a specific group of people get to use, these are coercive monopolies, because they require input and interference from the government to make them that way. Intellectual Property Law is another great example - though I believe if you write/invent something you should get royalties from its public use.... but not forever - especially in the musical world. Some composer writes a bass line, and sells the license to use that track to one person, who adds other tracks that he's purchased licenses for... etc, etc, etc...
A coercive monopoly is not the result of laissez-faire, it can result only from the abolition of laissez-faire and from the introduction of the opposite principal of Statism. Power companies are - in every possible definition of the term - coercive monopolies. The government gives them a franchise contract over a specific area of the country, and no one else is allowed to build power stations to compete for clientèle with that company. The competitor would be stopped by the laws that made the first franchise possible.
The free market prevents people from "cornering the market", because there is always someone else that is capable and/or willing to make the same product for the same or lesser price. People constantly tried to corner the market on corn and cotton, only to fail because someone figured out they could just produce more of it for less money because they had more acreage than the other guy... Eventually, if that keeps going, everything will be free in the free market, or rather, people will start trading for goods and services again, like they used to.
Of course, along this path to free produce, you have the interruption of the Laws of Supply and Demand, where you eventually have too much product for the demand, and can no longer make a profit because of your losses. Price Wars eventually even themselves out, because at a certain price, everyone will be able to buy your product, and then no one else will need it anymore.
“If entry [into a given field of production] is not impeded by Government regulations, franchises or subsidies, the ultimate regulator of competition in a free economy is the capital market. So long as capital is free to flow, it will tend to seek those areas of maximum rate of return. The capital market acts as a regulator of prices, not necessarily of profits. It leaves any individual producer free to earn as much as he can by lowering his costs and by increasing his efficiency relative to others. Thus, it constitutes the mechanism which generates greater incentives to increased productivity, thereby leading to a rising standard of living.”
When you have a high demand for a product, the price is naturally high... This obviously attracts investors and manufacturers to that field in order to make as much profit as possible. As more competitors enter that field of production, the prices for the product fall accordingly, until the supply meets the demand, and prices regulate based on 1. the cost to produce, and 2. the fact that everyone already has one and likely doesn't need another right now.
In the early days of the automotive market, Ford used to say "You can have the Model-T in any color you want, as long as it's black." Then Chevrolet came in with more color choices, and to compete, Ford had to change its policy or they would have fallen off the face of the Earth.
The only kind of monopoly that can exist in a free market, is a non-coercive monopoly. Say for instance, a general store in a town of 3000 people. The owner of that store may technically have a monopoly on general stores in the town, but no one thinks of it that way, because there's no market for ANOTHER general store, and no reason to build another one. However, if someone WANTED to compete with the general store owner, all he would have to do is build the store, make sure his prices are lower than the other store, and there would be competition in the market because people will begin to "shop around." This is especially true when the town decides to have a growth spurt... The original store may not be able to keep up with the demand of the new residents of the expanding city. Economic Sprawl causes people to compete with each other for clients again.
If you're able to build a non-coercive monopoly, I.E. one that has no government interference or laws saying that no competition is allowed to exist, then you shouldn't condemn that store owner, you should commend him for having a superior product and great prices that no one else desires to compete with. The man deserves a hand shake, and a key to the city. The free market rewards ability and works for everyone except the ones who desire what they don't deserve.
Walmart is a perfect example of a non-coercive monopoly. No one in the government said "Hey, Walton Family, we're gonna give you these territories to build your stores, and no one else can compete with you..." Rather, the Walton Family just opened a store in a town with that old general store I talked about before, and put the shopkeeper out of business because they have a more efficient method of doing business. No one can fault walmart for that, in fact it's the shopkeeper's responsibility - if he wants to compete in the free market - to figure out how to compete with Walmart, not Walmart's responsibility to cater to the local guy, just because. It would be nice, if when Walmart moved into a small town it didn't immediately shut down every local business, and instead would talk to the local shop owners and say "Hey, we're gonna compete with you by making SOME of our products cheaper than yours, and you make some of your products cheaper than ours, that way we're all happy campers..." but Blades, this is America, and Walmart is in it for the profit, not to compete with the little guys. (By the way, I fucking hate Walmart)
There's nothing technically "cruel" or "evil" about Walmart walking into a city and shutting down local businesses. If the locals want to compete, they need to band together and compete, rather than whine about being undercut by the "big guys." In the non-coercive meaning of monopoly, every working man is his own monopolist, because he controls the goods and services he produces. He is the sole owner of his own product and efforts. Only by Socialists, is the monopolist considered "evil", because he is out for himself, and his family, above all else.
If you want to prevent coercive monopolies from forming, get the government intervention out of the market. The separation of State and Economics is what is needed to eliminate any monopolies that may exist now, or in the future. When government is not allowed to intervene in the production and trade of goods, no monopolies are permitted to form, except by superior product, and lower prices... Natural effects of the Free Market.