It's interesting to see people using the term "monopoly" without defining exactly what a monopoly is. What market share does a company need in order to be a monopoly? Is it even tied to market share at all? What makes some monopolies good, and others bad? Are they all bad, or do we need a better definition?
If you look into the history of monopolies, the answer is quite surprising: originally, monopolies were actually created by governments. Typically, the king granted someone an exclusive license to do business in a given field, usually as a reward for loyalty. So, if you fought for the king, he might give you the only license to sell swords in a given area, thus creating a 'monopoly'. If someone dared to compete with your monopoly, you would use the government to shut down his business for operating without a license. A monopoly actually has nothing to do with market share - a monopoly is just any situation where violence is used to forcefully prevent or limit new competition. Where do we see this today? Well, some examples include the post office, power companies, water companies, road companies, military contractors, medical associations, and lawyers associations. Basically, any industry that is closely involved with the government.
In modern times, this infection has spread into other areas of the economy through the process of licensing
. Typically, the established businesses in any industry will get together and pressure the government to pass new 'regulations
' and 'licensing requirements
', which make it more difficult for new competitors to enter the market. Often, the excuse is safety, the environment, 'protecting local jobs', or some other superficially plausible reason. A great example is when all of the established restaurants get together and demand a new regulation "Requiring All restaurants to purchase a $50,000 stove hood", in the name of safety. Well, now they have just increased the cost of entering the market by $50,000, thus cutting out a whole lot of new competitors, and preserving the profits of the big players. You can see this same process in the licensing of doctors, labourers, lawyers and many other restricted fields, where wages or profits are artificially kept high by limiting the new competition. Compared to all of this sleaziness, can we really say that big market shares are something to be worried about? Remember, its not market share that makes true monopolies dangerous and unfair (many of them are quite small). The real danger and unfairness is the violence
that backs up true monopolies if you try and compete with them.
If you find all of this as interesting as I do, there's 2 websites you may be interested in:
- economics and history audio lectures, books and publications. I recommend the lectures, some are very entertaining.
- very entertaining, well spoken podcasts on a range of topics from politics to economics, religion, psychology, relationships, and philosophy. Very highly recommended.