Re:Monopoly, is it a problem?
by wisty on Sunday April 25, 2010 @08:44AM
(#1292637)
Steve Keen (one of the less wacky economists to predict the GFC) claimed that monopolies often aren't so bad. Note, Steve claims to be part Keynesian, part math modeler, and part empiricist; and is extremely critical of free-market economists; but he'll flame any school of thought that he disagrees with.
>"The historical record gives many reasons to be critical of monopolies. Some of today’s most respectable names accumulated fortunes in the 19th century by grossly unethical means, and held on to their economic wealth by the abuse of the many forms of power that wealth can confer. This record of 19th century corporate lawlessness is the major explanation for America’s distinctive anti-trust laws, which enable the judiciary in this bastion of capitalism to dismantle corporations that have acquired the position of ultimate market power.
>Economists have reduced this plethora of reasons to be critical of monopolies to just one: the size of a monopolist relative to the size of the market. According to economists, monopolies are worse than the alternative of competitive markets simply because the absence of competitors allows a monopoly to set price above marginal cost. Perfectly competitive industries, on the other hand, set price equal to marginal cost. Economists argue that monopolies are therefore necessarily bad, and that small, competitive firms are necessarily good, because monopolies produce a lower output for a higher price, thus restricting the supply of their products and exploiting consumers by over-pricing. However, the ‘proof’ of this argument makes the fundamental mathematical mistake of equating a very small quantity to zero. When this mistake is corrected, the economic argument against monopolies collapses, as does the economic theory of competition..."
http://www.debunkingeconomics.com/extracts.htm#4
>"The historical record gives many reasons to be critical of monopolies. Some of today’s most respectable names accumulated fortunes in the 19th century by grossly unethical means, and held on to their economic wealth by the abuse of the many forms of power that wealth can confer. This record of 19th century corporate lawlessness is the major explanation for America’s distinctive anti-trust laws, which enable the judiciary in this bastion of capitalism to dismantle corporations that have acquired the position of ultimate market power.
>Economists have reduced this plethora of reasons to be critical of monopolies to just one: the size of a monopolist relative to the size of the market. According to economists, monopolies are worse than the alternative of competitive markets simply because the absence of competitors allows a monopoly to set price above marginal cost. Perfectly competitive industries, on the other hand, set price equal to marginal cost. Economists argue that monopolies are therefore necessarily bad, and that small, competitive firms are necessarily good, because monopolies produce a lower output for a higher price, thus restricting the supply of their products and exploiting consumers by over-pricing. However, the ‘proof’ of this argument makes the fundamental mathematical mistake of equating a very small quantity to zero. When this mistake is corrected, the economic argument against monopolies collapses, as does the economic theory of competition..."