Monopolies: Definition Discourse

Because a great portion of my posts focus on the idea of monopolies in a free-market environment, perhaps it is time that we embark on a brief discourse of the issue. This will be the first of the many posts that will follow, providing a critical analysis of the idea of corporate efficiency and coerciveness.

First, as always, let us be clear on what a "monopoly" is. From my personal experience, it has been everything from "a business that can do anything it wants to" to "business that's the best in whatever business they do." For the purposes of objectivity, let us define monopoly as a single seller in a given field. Keep in mind that this definition does not take into account (1) how the monopoly came to be about, (2) the extent of powers and advantages that it has over its competitors, and (3) the venue for obtaining the advantages gained in point #2.

Rockefeller's Standard Oil refined 90% of America's oil in 1899--it was a monopoly. Though not adhering to the aforementioned definition, it can be persuasively argued that 90% did, indeed, constitute a monopolization of the market. Microsoft Corporation's operating system is said to run on 95% of the modern computer systems--as with Rockefeller, Microsoft is considered a monopoly in the modern business context. The United States Postal System, however, has exclusive rights to sell first and third class mail without any threat of private competition--it too is a monopoly, though many, especially the advocates of monopolies constituting the demons of modern society, certainly don't see it as so. Finally, Amtrak, the federally-owned railroad company that has never made a profit in its 32 year old history is certainly a monopoly.

Because of the diversity of businesses and corporations constituting as monopolies, we must assume an objective evaluation to determine whether the "monopoly" is "evil," or, as Nathaniel Branden, author of Question of Monopolies, published in the Intellectual Ammunition Department of The Objectivist Newsletter in June of 1062, put it, whether it has "exclusive control of a given field of production which is closed to and exempt from competition, so that those controlling the field are able to set arbitrary production policies and charge arbitrary pries, independent of the market, immune from the law of supply and demand." Theodore Roosevelt took a similar approach when he distinguished between "good trusts", or, the ones that helped the people, and "bad" trusts, the one that exploited the public (The Northern Securities Company was one of such trusts. It controlled Northern Pacific Railway, Great Northern Railway, Chicago, Burlington and Quincy Railroad and was subsequently dissolved).

Thus, let us look to Mr. Lawrence W. Reed, a scholar at the Mackinac Center for Public Policy. According to Reed, "When governments, by one method and to one degree or another, limit competition by means described above, the result is a coercive monopoly for producers who benefit from the limitation of competition." In contrast, the "efficiency" monopoly is one that gets its "high market share not because of any government grant of exclusive privilege, subsidy, special tax treatment, or the like, but because it simply does the best job."

Thus, we can conclude that a monopoly can be either (a) a coercive monopoly or (b) an efficiency monopoly. The USPS is a coercive monopoly--it has exclusive rights to sell and deliver 1st and 3rd class mail not because of its ability to do so at the lowest price, but because the United States government has granted exclusive privileges to the corporation, hampering private corporations from competing and ultimately lowering prices. As my analysis of the USPS found earlier on this blog indicates, because of the government benefits, USPS lacks accountability, is victim to arbitrary price shifts, and is a burden on the U.S. revenue. An efficient monopoly, in contrast, is one that has reached its dominant position on the market through its efficiency and ability to lower the means of production. Walmart is one such monopoly, it has achieved its market position because of its ability to provide the lowest prices, driving the competitors out of business.

Before moving onto our next article, covering (1) the kinds of benefits coercive monopolies are granted and (2) a general outline of the checks provided by free-market economy in impeding the growth of an abusive monopoly, it is crucial that we have a succinct understanding of what a "monopoly" truly means.

Until then, let me know if you have any questions!