Can any moral implications be derived from the existence of
a natural or hypothetical monopoly? Can such a firm be considered evil merely
for being a monopoly? The answer is
no!
According to the standard neoclassical interpretation, a
monopoly is a firm that is the sole producer of a good or service. This firm
has the ability to restrict its supply given some level of demand and thereby
raises the final price of that product. The profit maximizing formula for this
particular kind of firm, the optimum output so to say, can be found for any
such firm by equating its marginal production with the marginal cost of
producing its product.
What makes a monopoly unique then is its ability to restrict
output to increase profits. There is certainly nothing morally repugnant about
profit seeking behavior. If this particular firm’s structure of production was
not acquired by the aid of theft, fraud or political privilege, then its owners
should be free to dispose of their property as they see fit.
At best, such a scenario may be considered undesirable for
some number of consumers. When the market for such a product is compared with
the hypothetical case of the same market for the product under perfect
competition, a neat geometric proof shows that a large portion of consumers are
excluded from access to the product due to a higher price.
However, this hypothetical comparison of a monopolistically
determined output and price to that of a “perfectly competitive” one is an
atrociously misguided framework for an understanding of reality and hence, history.
The comparison between two polar opposite industry concentrations and cetaris paribus assumptions make the
implications worthless. Nonetheless, these abstractions are often the basis on
which well-intentioned economists condemn the existence or even idea of
monopolies.
Profit, regardless of how it comes from, is still quite a good proxy and measure for success, innovation and brilliance. Or maybe I am just deliberately ignoring all those rent-seeking oil/gas companies!
ReplyDeleteIsn't this just begging the question? If your premises contain something like "There is certainly nothing morally repugnant about profit seeking behaviour," you're assuming the conclusion to be true. The general argument against monopoly is that it is, in and of itself, a form of power, able to coerce in a way analogous to theft, fraud, or political privilege. Is there a counter-argument? Or do we simply have to start from the premise that only certain types of power are not okay?
ReplyDeleteI disagree. Economics has long moved beyond comparing monopoly and perfect competition. Moreover, the idea that monopolies are detrimental does not come only from their comparison with perfectly competitive firms, but with any other form of market structure.
DeleteMonopolies are extremely inefficient, and they always arise thanks to some form of barrier to entry into the market. Otherwise they are sure to be very short lived. If the barriers to entry are endemic to the sector or the product we have natural monopolies. And here I support beyond any doubt the need of strict regulation.
If the barriers are artificial, well they have to be taken down. The fact that governments sometimes favour both natural and artificial monopolies is also very true. Does that mean that we have to accept the situation and live with them? To me the answer is clearly no. Progress in economic policy is possible and I am not keen to take the current constraints as given.
I disagree with Alex not with Peer, if it was not clear :-)
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