Coercive monopoly
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Competition law |
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Basic concepts |
Anti-competitive practices |
Enforcement authorities and organizations |
In
Coercive monopolies can arise in free market or via
Contrasted with other monopolies
Exclusive control of electricity supply due to government-imposed "utility" status is a coercive monopoly because consumers have no choice but to pay the price that the monopolist demands. Consumers do not have an alternative to purchase electricity from a cheaper competitor, because the wires running into their homes belong to the monopolist.
Exclusive control of Coca-Cola, by contrast, is not a coercive monopoly because consumers have other cola brands to choose from and the Coca-Cola company is subject to competitive forces. Consequently, there is an upper limit to which the company can raise its prices before profits begin to erode because of the presence of viable substitute goods.
To maintain a non-coercive monopoly, a monopolist must make pricing and production decisions knowing that, if prices are too high or quality is too low, competition may arise from another firm that can better serve the market. If the non-coercive monopoly is successful, it is called an efficiency monopoly, because it has been able to keep production and supply costs lower than any other competitor so that it can charge a lower price than others and still be profitable. Since potential competitors are not able to be so efficient, they are not able to charge a lower or comparable price and still be profitable. Hence, competing against a non-coercive monopoly is possible but not profitable, whereas competing against a coercive monopoly is potentially profitable but not possible.
Establishing a coercive monopoly
According to business ethicist John Hasnas, "most [contemporary business ethicists] take for granted that a free market produces coercive monopolies."[3] However, some people, including Alan Greenspan and Nathaniel Branden, argue that such independence from competitive forces "can be accomplished only by an act of government intervention, in the form of special regulations, subsidies, or franchises."[1][7] Some point out that a coercive monopolist may "employ violence" to create or maintain a coercive monopoly.[8]
Some[
Private coercion
A
Antitrust
The ability of firms in a coercive monopoly to increase their profits through setting prices above competitive levels brings about the need for antitrust law. There are examples in history wherein a firm that is not a
Another disputed example is the case of U.S. v. Aluminum Co. of America (Alcoa) in 1945. The court concluded that Alcoa "excluded competitors."[1] The ruling is heavily criticized for punishing efficiency and is quoted below:
It was not inevitable that it should always anticipate increases in the demand for ingot and be prepared to supply them. Nothing compelled it to keep doubling and redoubling its capacity before others entered the field. It insists that it never excluded competitors; but we can think of no more effective exclusion than progressively to embrace each new opportunity as it opened, and to face every newcomer with new capacity already geared into a great organization, having the advantage of experience, trade connections and the elite of personnel.[12]
However, antitrust law varies across the United States and the European Union. Specifically, in the U.S. monopoly pricing is not regulated. Whereas the European Community (EC) considers excessive pricing as an abuse of dominance and those involved can be fined or subject to prohibitory orders.[13] This difference in regulation highlights the need to level out antitrust laws across the world in order to control this exclusionary and exploitive conduct in coercive monopolies.
Government monopolies
Undisputed examples of coercive monopolies are those that are enforced by law. In a
The United States Postal Service is an example of a coercive monopoly created through laws that ban potential competitors such as UPS or FedEx from offering competing services (in this case, first-class and standard (formerly called "third-class") mail delivery).[14] Government monopolies also mandate taxpayers to subsidize these firms. Thus, if the government protection the United States Postal Service was lifted and mail delivery could be included in free competition, the number of entrants into the industry would likely increase.[15]
Economist Lawrence W. Reed says that a government can cause a coercive monopoly without explicitly banning competition by "simply [bestowing] privileges, immunities, or subsidies on one firm while imposing costly requirements on all others."[17] For example, Alan Greenspan, in his essay Antitrust argues that land subsidies to railroad companies in the western portion of the U.S. in 19th century created a coercive monopoly position. He says that "with the aid of the federal government, a segment of the railroad industry was able to "break free' from the competitive bounds which had prevailed in the East."[citation needed] In addition, regulations may be established that place financial burdens on smaller firms that attempt to compete with larger, more established firms that are better able to absorb the regulatory costs.
The state as a coercive monopoly
Economist Murray Rothbard, noted for his espousal of anarcho-capitalism, argues that the state itself is a coercive monopoly as it uses force to establish "a compulsory monopoly over police and military services, the provision of law, judicial decision-making, the mint and the power to create money, unused land ('the public domain'), streets and highways, rivers and coastal waters, and the means of delivering mail."[citation needed] He says that "a coercive monopolist tends to perform his service badly and inefficiently".[citation needed]
These state-owned companies create an issue of setting unrealistic prices for unreliable services. An example of this was seen in Europe during the late 1980s when bank mergers decreased competition in the banking market. As a result, this coercive behaviour allowed them to sustain high interest rates until the early 90s, severely impacting their customers.
Unions
Labor unions have been called coercive monopolies which keep wage rates higher than they would otherwise be if individuals competed with each other for wages. Economists who believe this to be the case refer to this as a monopoly wage.[19] This has raised some conversing opinions about the power of unions to contradict antitrust laws. Specifically, collusive methods to increases prices is illegal on public policy standards, but raising labour prices is encouraged.[20] In addition, the unions participating in collective bargaining is applauded for its peaceful dispute settlement tactics, but this can also be seen as prohibited coercive behaviour. Nonetheless, as the intention behind these coercive actions in unions are for the benefit of workers rather than company profits, antitrust laws have not been held against these unions.
See also
- Non-contestable market
- Free market
- Government-granted monopoly
- Government monopoly
- Natural monopoly
- Regulatory capture
- Rent seeking
Notes and references
- ^ a b c Greenspan, Alan, Antitrust Archived 2005-12-17 at the Wayback Machine, in Capitalism:The Unknown Ideal by Ayn Rand. Also The Question of Monopolies Archived 2005-10-24 at the Wayback Machine by Nathaniel Branden defines and discusses coercive monopoly.
- Kudlow, Lawrence, The Judicial Hacker, in Jewish World Review (June 14, 2000)
- ^ S2CID 44030310.
- ^ Bejesky, Robert; Valle, Orlando (2002). "Consumer Welfare and the Sherman Antitrust Act: Reflecting on the Microsoft-Netscape Browser Competition". Thomas M. Cooley Law Review. 19: 37.
- ISBN 978-1-4673-2326-0. Retrieved 2023-12-28.
- ^ Richman, Sheldon (2012-06-27). "Can Mutually Beneficial Exchanges Be Exploitative? | Sheldon Richman". fee.org. Retrieved 2022-03-09.
- ^ Branden, Nathaniel, ''The Question of Monopolies Archived 2005-10-24 at the Wayback Machine, from The Objectivist Newsletter (June 1962)
- ^ Rothbard, Murray, The State Versus Liberty in The Ethics of Liberty by Rothbard (1982)
- ISBN 1-882577-81-7).
- ISBN 9781559703567.
- ^ Silicon Valley, AOL TW React With Caution Archived 2007-05-14 at the Wayback Machine in The Industry Standard, (June 28, 2001)
- ^ United States v. Alcoa, 148 F.2d 416 (2d Cir. 1945)
- ProQuest 201064375.
- ^ Lysander Spooner started the commercially successful American Letter Mail Company in order to compete with the United States Post Office by providing lower rates. He was successfully challenged by the U.S. government and exhausted his resources trying to defend his right to compete.
- ProQuest 815978228.
- Folsom, Burton W.The Myth of the Robber Barons. Young America, 2003.
- ^ Reed, Lawrence W. (1 March 1980). "Witch-hunting For Robber Barons: The Standard Oil Story". FEE.
- ^ Union of International Associations. (2019). State monopoly. State monopoly | The Encyclopedia of World Problems. Retrieved April 24, 2022, from http://encyclopedia.uia.org/en/problem/state-monopoly
- ^ Heery, Edmund; Noon, Mike (2002). A Dictionary of Human Resources Management. Oxford University Press. p. 225.
- JSTOR 40717821.
External links
- The Question of Monopolies Nathaniel Branden defines and discusses coercive monopoly
- Antitrust Policy As Corporate Welfare by Clyde Wayne Crews Jr "Coercive monopoly power does not emerge from the transitory outcomes of the voluntary exchanges that comprise the marketplace. It is hoped that policymakers will come to recognize that government cannot protect the public from monopoly power, because it is the source of such power."
- Antitrust Laws Harm Consumers and Stifle Competition by Edward W. Younkins "a coercive monopoly is closed entry that can only be achieved by an act of government intervention in the form of special regulations, subsidies, or franchises"
- Antitrust by Alan Greenspan examines "whether active competition does inevitably lead to the establishment of coercive monopolies"
- The judicial hacker by Lawrence Kudlow"Microsoft fails to meet the traditional standards of a coercive monopoly"
- Regulation and monopoly by Lawrence Reed - contrasts coercive and efficiency monopoly
- Witch-hunting for Robber Barons: The Standard Oil Story says that government causes coercive monopoly by granting privileges to firms