The Myth of Natural Monopoly

In a free market, it is impossible for monopolies to form without government intervention and regulation.

Dr. Thomas J. DiLorenzo provides us an epic lecture on "natural" monopolies.

It is a common myth perpetrated by statists that free markets in such industries as utilities, fuel, and others that have declining long run total costs, that natural monopolies will form in the market. Thus requiring government "anti-trust" regulation or nationalization of industry to ensure a "fair" market is achieved.

Dr. DiLorenzo explains why this is a fallacy and demonstrates why the free market is the best mechanism to ensure consumers get affordable, high quality, "public" services.

Natural monopolies are impossible.



The Myth of Natural Monopoly
Thomas DiLorenzo, The Review of Austrian Economics Vol. 9,No. 2 (1996):
43-58

The very term "public utility". ..is an absurd one. Every good is useful
"to the public," and almost every good. . . may be considered "neces-
sary." Any designation of a few industries as "public utilities" is
completely arbitrary and unjustified.

-Murray Rothbard, Power and Market

Most so-called public utilities have been granted governmen-
tal franchise monopolies because they are thought to be
"natural monopolies." Put simply, a natural monopoly is said
to occur when production technology, such as relatively high fixed
costs, causes long-run average total costs to decline as output expands.
In such industries, the theory goes, a single producer will eventually
be able to produce at a lower cost than any two other producers,
thereby creating a "natural" monopoly. Higher prices will result if
more than one producer supplies the market.

Furthermore, competition is said to cause consumer inconven-
ience because of the construction of duplicative facilities, e.g., dig-
ging up the streets to put in dual gas or water lines. Avoiding such
inconveniences is another reason offered for government franchise
monopolies for industries with declining long-run average total
costs.

It is a myth that natural monopoly theory was developed first by
economists, and then used by legislators to "justify" franchise monop-
olies. The truth is that the monopolies were created decades before the
theory was formalized by intervention-minded economists, who then
used the theory as an ex post rationale for government intervention. At
the time when the first government franchise monopolies were being
granted, the large majority of economists understood that large-scale,
capital intensive production did not lead to monopoly, but was an ab-
solutely desirable aspect of the competitive process.

The word "process" is important here. If competition is viewed as
a dynamic, rivalrous process of entrepreneurship, then the fact that a
single producer happens to have the lowest costs at any one point in
time is of little or no consequence. The enduring forces of competi-
tion-including potential competition-will render free-market mo-
nopoly an impossibility.

The theory of natural monopoly is also a-historical. There is no evi-
dence of the "natural monopoly" story ever having been carried out-of
one producer achieving lower long-run average total costs than every-
one else in the industry and thereby establishing a permanent monop-
oly. As discussed below, in many of the so-called public utility indus-
tries of the late eighteenth and early nineteenth centuries, there were
often literally dozens of competitors.

[edit on 15-7-2010 by mnemeth1]

no comments?

No communists want to challenge the professor?

Originally posted by mnemeth1
no comments?

No communists want to challenge the professor?

Patience.

The paradigms of the robber barons, reinforced by media and intellectual elites is a difficult addiction to break.

The truth is, such monopolies as we have allowed to exist do so only out of political expedience, and economics is not the motive factor of their stewardship by 'government' officiates and political celebrities. Unless you consider the 'personal' economics of corporate clubs and socio-ideological entities to be worthy of consideration as valid economic drivers of the entire population. I don't.

Originally posted by Maxmars

Originally posted by mnemeth1
no comments?

No communists want to challenge the professor?

Patience.

Patience indeed!

You post an hour long video, and wonder why there are no comments 20 minutes later?

I just found this topic, so I'll post in about an hour if I think I can challenge him, although I'm not a commie, I'm a capitalist in the main, just not an ultra capitalist.


[edit on 15/7/2010 by harpsounds]

smore

I'm not a commie but I will chime in.

I have not and probably won't watch the vid cause it is my experience that free markets stop being free as soon as someone makes enough to start controlling the market. Then they set up a form of government or start corrupting the one in place to enable monopolies. The US being the best example of this.

This doesn't happen in a perfect world but it does in this one.

[edit on 15-7-2010 by daskakik]

reply to post by daskakik


I like to randomly comment on stuff I haven't read or watched either with my own inane opinions backed up by "my experience."

It makes for fun trolling.

Its also much easier than refuting the actual arguments presented in the information.







[edit on 15-7-2010 by mnemeth1]

reply to post by mnemeth1


Not trolling and I gave a good example.

I have yet to see an example of a large (national) market that is free of manipulation by the wealthy. So whatever is in the vid is academic theory and I have heard it before.

People don't need government if they use violence to enforce their monopoly.

You just can't accept that governments are people and they would still be tyrannical even if government didn't exist.

[edit on 15-7-2010 by daskakik]

reply to post by daskakik


No, you didn't give a good example.

And since you didn't listen to the lecture, haven't read the paper, and don't plan on making any real logical arguments against the information presented, its pretty much trolling.

reply to post by mnemeth1


Alright read through the pdf. Nothing new there. Government grants monopolies because it's supposed to make it cheaper, lower redundancy then he goes on to expose cable, electric, phone etc.

Fine. So what? There are no free markets because when people start building wealth they realize that if they become friends with the policy makers they will be able to have the monopoly in the market. This may not be natural but it is what happens because of the accruement of wealth which is one of the main points of capitalism. It's a catch 22.

I just cut to the chase with my other posts. The cause of manipulated markets is the ability of some to build wealth that then allows them to corrupt the markets and/or govs. Pointing out that in a free market this would not happen but then looking around and realizing that it always happens should lead you to the realization that trully free markets are impossible unless everyone agrees to play fair.

Edit - Just wanted to add that my using the US as an example is a good one.

According to A short history of corporations

ENDING COLONIAL MONOPOLY
After Independence, American corporations, like the British companies before them, were chartered to perform specific public functions -- digging canals, building bridges. Their charters lasted between 10 and 40 years, often requiring the termination of the corporation on completion of a specific task, setting limits on commercial interests and prohibiting any corporate participation in the political process.

Probably the best implementation of capitalism and free market ever done, so what happened?

[edit on 15-7-2010 by daskakik]

Fine. So what? There are no free markets because when people start building wealth they realize that if they become friends with the policy makers they will be able to have the monopoly in the market.

see, now you sound like an Austrian economist.

Read a few more papers and you might become an anarcho-capitalist.




[edit on 15-7-2010 by mnemeth1]

reply to post by daskakik


Now that you understand how monopolies are formed (by government colluding with industry), we just need to work on getting you to understand how the market punishes corporations while government prevents that punishment from taking place.

I should make a post on "market punishment" and government bailouts.

When property rights are strictly enforced, you don't need government regulation of markets.

This is the hardest part for most people to understand, that the market has built in punishments and doesn't require regulations.

Its also difficult to get people to understand the difference between FRAUD and REGULATIONS. Regulations are NOT laws against fraud. Regulations attempt to prevent fraud, but almost always make matters worse.

Regulations don't prevent fraud, punishing fraud prevents fraud.

Taking this one step further, the market enacts punishment against fraud all on its own, so even laws against fraud are ultimately unnecessary.

reply to post by mnemeth1


Sorry but I don't think I will ever be a proponent of Anarcho-capitalism because I firmly believe that it doesn't work in the real world.

This doesn't mean that all the things that you point out are not true. I know that they are. It's just that things always fall into this money/power/control thing for some and it always leads to corruption. Now government doesn't help and, as you point out, usually worsens the situation but the reason this is true is because they are one and the same (wealthy = government).

So you are right no government is better than any government but it's my belief that you can't get away from government because there will always be those that try to institutionalize their criminal activity. If there is nothing there it just makes it easier for them to install the type of government that they want. The only chance is to implement a government that will keep this at bay. I believe that was the idea behind the US gov as originally implemented but even it has succumbed.

[edit on 15-7-2010 by daskakik]

Statement A:

"You are right no government is better than any government"

Followed by statement B:

"If there is nothing there it just makes it easier for them to install the type of government that they want. "


Think about this.

Would there be chaos in the streets if the only government was local government?

Lets say, nothing above the size of a county government existed.

If this was the case, how easy would it be for industries to control all of those separate institutions of government?

You must work diligently to remove cognitive dissonance from your mind. If rationally the best situation is no government, then supporting government of any type would be in conflict with the first view.

reply to post by mnemeth1


There wouldn't be chaos in the streets if only local government existed but that does not mean that local government couldn't be corrupt.

Industries wouldn't have a hard time controlling all those institutions because they could just buy them off. That's what they always end up doing. If someone stands up to them they find someone to help get into office that will side with them.

Even if I can rationalize that no government is best but I know that those around me will set up some sort of government I would prefer one that is well thought out and looks to seperate business from politics instead of letting the wealthy/powerful set up what they want from the start because they would no doubt go with monarchism.

Now if I was convinced that everyone would play fair or that no one would compromise others rights in exchange for money I would be all for it but until then I must decline.

reply to post by daskakik


All government is corrupt, which is why the smaller it is, the better it is.

To limit corruption, one must limit government.

The market naturally limits corporations.

The people have to limit government.



[edit on 15-7-2010 by mnemeth1]

Originally posted by mnemeth1
reply to post by daskakik

 

All government is corrupt, which is why the smaller it is, the better it is.

To limit corruption, one must limit government.

The market naturally limits corporations.

The people have to limit government.

The problem I have is believing that anything happens naturally when men have vested interests. The market is made up of people. Government is made up of people. As long as someone can appeal to others greed to look the other way or get certain laws passed I say nothing is really limiting them.

This is how it always seems to play out.

reply to post by me-N-meth1

punishing fraud prevents fraud.

Fraud has been punished for probably thousands of years, yet.....

Originally posted by 12GaugePermissionSlip
reply to post by me-N-meth1

 

punishing fraud prevents fraud.

Fraud has been punished for probably thousands of years, yet.....

No it hasn't.

You were just defrauded of 23.7 trillion in banking bailouts.

That's not punishment.

The market would have bankrupted the banks and cleared the public debts through bankruptcy.

Instead, your criminal government decided to reward the banks with a handout of your tax dollars.

The criminal government will continue to defraud you by propping up the insolvent ponzi scheme of american fractional reserve fiat currency.

Oh, and lets not for the uber-ponzi schemes of socialist security and Medicare. 100 trillion in unfunded liabilities that will be taken out of your hide at gun point, courtesy of the IRS.





[edit on 15-7-2010 by mnemeth1]

reply to post by 12GaugePermissionSlip


yet letting it go unpunished results in institutions such as the Federal Reserve System. Your point?