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What prevents monopolies from forming in a free market?

Discussion in 'Politics' started by dragonriot, Apr 10, 2010.

  1. In one of the healthcare threads, hydrosRheaven asked what prevents monopolies from forming in a free market.

    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.

    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.
  2. So, if I want more than one choice for phone or cable provider, I need to let my phone or cable provider do whatever they want without regulations?
  3. Objectivism at its finest.

    Good read +rep

  4. All you'd need to do is remove their franchise monopoly privileges given by the state, but yes, you regulate with your purchasing power.

  5. In a free market, there wouldn't only be ONE phone or cable provider. It's actually gotten better in the cable industry, because the government "allowed" the satellite companies to provide phone and hard line video services in the last few years in all 50 states. Before that, the cable companies had local monopolies, and at one point, Bell companies had a monopoly across the whole country, until the government came back and split up the AT&T corporation into separate companies. Now you have companies like AT&T, Verizon, Qwest, Cincinnati Bell, BellSouth, Southwestern Bell, and Ameritech.

    As a bonus, we now have the dish providers running copper and fiber to the home, providing even more competition for the telco's, which lowers our prices because there's no monopoly anymore.

  6. Thanks. :) and considering I wrote it at 4am... I'm actually kinda impressed with myself that the sentence structure was actually understandable. lol
  7. orly

  8. But shouldn't people be entitled to the labors of their inventions/patents?

    Great, so now we have an oligopoly instead of a monopoly.

    Adding on to what Epoch said, what is to stop well-developed companies from gaining a larger share of the market? Think of Walmart.
  9. #9 Epoch-Flail-Guy, Apr 10, 2010
    Last edited by a moderator: Apr 10, 2010
    i think he means that if you're a pharma company and spend millions in r&d to come up with a new product your competitors should be able to produce generics and use predatory pricing to drive you out of business since they don't take on the costs for the r&d

    idk why though that sounds pretty gay imo.

    and idk why he thinks a natural monopolies are better then government created monopolies since they both screw the consumer except government granted monopolies are regulated by the government so they technically aren't allowed to screw consumers.

    lol? he's clearly pushing his "libertarian" agenda. there was absolutely nothing objective about that post.

  10. Actually, while you added NOTHING constructive to the discussion of your own, the link you gave only confirms what I just said about natural monopolies, and being able to compete. The more consumers you have, the lower cost you run to produce your good/service.

  11. What about walmart? Half of my original post was about walmart, and how it isn't THEIR fault that they have such a large customer base and low operating costs. That's their business model, to make a profit. Like I said, I hate the idea of Walmart, but they are the most successful example of a naturally forming monopoly.

    What's wrong with an oligopoly?? The definition of oligopoly is "few sellers"... so wait... You have a problem with one manufacturer of a product AND a problem with only a few stores carrying it? If there is profit in a product or industry, manufacturers and investors will flock to that product to make money on it. If there's no need for competition, because of low demand for an item, then why have a whole bunch of manufacturers of that product?

  12. What?? Are you stoned again? Dude, if a Pharma company does the R&D in a product, they have sole rights to sell that product for a specific amount of time, even in today's market. Most Name Brand drugs are available as name brand only for 5-10 years, so the developing company can make it's profits back on the research and development. After that time, the formula is then released to other companies to make generics, which sell for MUCH MUCH less than the name brand - but often work better in my experience. As I said before, patents and trademarks are there to protect inventors and researchers. Once the rights to "sole production" expire, they are made available to any competitor who wants to make the drug.

    What's gay is the amount of Moochers on this forum, who think they actually deserve the rewards of someone else's labor.

    Except natural monopolies do NOT screw the consumer... They screw the small town business owners that can't compete with the big dogs. Like I said before, I DO NOT like or approve of Walmart's business practice of driving local businesses OUT as soon as they move in. A natural monopoly, if it begins to "screw" the consumer, has no protection from another guy coming in, making a similar product and selling it for less... A coercive monopoly has the government protecting it from the competition. Your argument is flawed, and backwards.

    HEY THERE YOU ARE!!! I was waiting for your hardcore liberalism to show through in this thread, like it does in every other thread you post on. Actually, my entire post was completely objective, I explained how monopolies WORK, and added nothing of my own opinion to the post. Now, I have an opinion... You have absolutely no idea what you're talking about here, or in the Health Care Thread when you attempt to discuss Economics. <--- THIS is not objective.
  13. Are people really defending monopolies and oligopolies now? FFS.

  14. What? Jesus, you guys need to actually READ the posts... No one is DEFENDING Oligopoly or Monopoly. Where do you see me, or anyone else doing so? I explained the idea of a monopoly and explained why they won't naturally form in a free market society... you and epic-fail-guy are the only people who have read anything close to "opinion" in my posts. Critical Thinking is key to understanding Economics... Some people can, some people can't... it's not a big deal if you can't, but don't throw your opinion around like it's fact.

  15. This sounds to me like the beginning of an attempt at defense.

    Your arguement on why monopolies won't form is flawed because you use corn and wheat markets, the closest markets to perfect competition, as an example. Most other markets are controlled mostly by a few large companies with many other smaller firms controlling less. Once again, economies of scale.

    Just because there are two firms in a market does not mean there will be competition, more profits could be made if they cooperated, whether legally or illegally.

    The automotive industry is competitive, right?
    List of Automobile Manufacturers - Wikicars
    Yet a few manufacturers control the majority of the market, working at higher production capacities and thus beating out competitors in terms of price while still earning high amounts of profit.
  16. Wal-Mart sucks! I support an economic system that turns all companies into Wal-Mart!

  17. Ugh.... I'm sorry, would you like me to use examples of manufacturing processes instead?? I used Corn and Cotton because they were handy, and I don't need statistics to explain that farmers used to attempt to corner the market. It was just an example, and you took it as my calling it "perfect competition", which makes absolutely no sense to begin with.

    Sure, there's only a few controlling companies in the auto industry, at least for the big manufacturers anyway, but that doesn't mean they're automatically making more profit than another car company, just that they make more profit than they did before buying out the other company.

    I'm gonna channel Ayn Rand for a moment... pardon me if you're someone who is offended by the single most pertinent fiction book of our time, which has now become non-fiction, but Atlas Shrugged is possibly one of the greatest novels ever written in the history of the modern world. The following quote is not from the book.

    You see, if the government had not given sole power to the Central Pacific Railroad, there never would have been a monopoly in the first place, because the natural effect of a free market, is that other people/companies get involved in that business, and compete with the company who would have had a monopoly had the other businesses shown up.

  18. ooooookay wombat... we believe you.....
  19. Before we start this whole thing:
    Are you a normal political thinker or do you refuse to recognize the existence of public goods?


    You fail by saying that Wal-Mart is an example of a
    1. Non-coercive monopoly
    2. If the locals want to compete, they need to band together and compete, rather than whine about being undercut by the "big guys." Economy of scale fail.

    You realize that Wal-Mart is unique in the global economic scheme because it was pretty much the first (unless my history is wrong) time that a retailer gained power over its suppliers. This is something that, unless literally every small retailer banded together (and even then it would be iffy) would not happen with any other small companies.
    That's to #2.
    To #1: You think that Wal-Mart doesn't influence the government? That the THIRD LARGEST CORPORATION IN THE WORLD doesn't influence the government in any way to make conditions more favorable. Not like, maintaining favorable monetary policy, or keeping trade barriers low, or promoting "free trade" agreements. Ok, just clarifying that.

    In addition, you fail to say actually why a monopoly wouldn't form, as you didn't address any counter arguments and your hypothesis supposes nice things like "perfect competition" and excludes the possibility of vertical integration.
    Or can vertical integration not happen in a free market as well?
  20. No, it isn't. Why do you think Europe has so many more car companies than the US?

    How does WalMart gain power over their suppliers? I've read the propaganda, but it just looks like idiots (see: Vlasic) get in over their head, can't sustain themselves, then they get beat out by the competition. What's wrong with that?

    Selling your product at WalMart for dirt cheap is degrading, a lot of brands refuse to do it and for good reason.

    Check this: Penn&Teller's Bullshit: WalMart Hatred

    All you "progressives" are being crazy reactionaries, the change from mom&pop to global economy was inevitable.

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