Should Government Regulate Monopolies?

Before considering government regulation of monopolies, Prof. Lynne Kiesling encourages us to think about the regulation that markets naturally provide. In any market, in the absence of government interference, each business is constrained by the following:

  1. Consumer demand
  2. The availability of substitutes
  3. The entry, or threat of entry, of new firms
Historically, despite these competitive pressures, people have identified what they feel are monopolies in markets. In order to fix the problem, they often advocate government regulation in the form of breaking up large firms or regulating profits. Although these regulations may have merits, they reduce the profit motive that lures the innovators to come in and compete against the monopoly. Additionally, government regulations often create legal barriers to entry, which crushes smaller competitors.
The good news is that markets, on top of naturally regulating monopolies, generate wealth and technologies that systemically reduce the cost of starting new ventures over time. This, in turn, increases the competitive pressures on larger firms and reduces the likelihood of monopoly.

12 Comments

  1. Greg Gauthier

    LOL. It’s "government intervention" that creates the conditions possible for stable monopoly in the FIRST place. The whole notion that the violent monopoly that makes monopoly possible in the first place, is going to be the one tasked with eliminating it, is flatly ridiculous.

  2. Ryan Boyd

    I honestly believe government intervention here should only occur when a monopoly has made it unreasonably difficult for any competitor to enter the market. Free markets are great, they work well, but the Gilded Age wasn’t the best time for the majority of Americans.

  3. libertyiowa

    I think this is one of the most important topics in the liberty movement. We don’t want unintended consequences such that we rid ourselves of one master (that state) in order to receive another (a corporate interest). Some of our largest corporations today are more powerful than most countries. The one advantage of a corporation vs. government view is that it is generally easier to change brand loyalty than it is to immigrate. 

  4. asexymind

    capital flows towards profit – or profit attracts competition. The more profit, the more powerful the competition will come – unless we can fence out competition. Government is the only modern force that can create those fences. Of course, they justify the fence “in the name of the consumer,” but 5 minutes research will see through that mask – for those who are willing to look.

  5. taschrant

    Professional licensure just makes monopolies.  It does not protect the consumer.

    Look at the field of medicine.  It’s a strange idea at first, but what if physicians were not legally obligated to have licenses to practice?  Having a license does not mean good quality.  All it means is that licensed individuals jumped through some hoops a while ago.

    If you successfully make the case that physicians should not have licenses, then every other job that has a license requirement will fall because the strongest case for licensure is with physicians.
  6. Joshua Chandler

    This video didn’t address the possibility of large monopolistic companies to destroy competition by buying it out — which makes both businesses better off, but the consumer worse off.

  7. Anonymous

    I feel like I have been transported to another planet, one where monopoly deniers run rife. What a complete and uneducated, theoretical, pie in the sky, untested, idealistic load of crap. I don’t know what kind of cutesy theoretical monopoly you are imagining, but a true monopoly BY DEFINITION can’t be competed against, it’s an 800 pound gorilla which sucks all of the oxygen out of the room, so nobody can survive, it smashes smaller companies heads while they are still foetuses. It also BY DEFINITION doesn’t have to innovate and offer the best value because it’s at a point where customers have no choice, and competing would be unviable, and lead to ruin.

     Australia has one of the highest priced, slowest broadband speeds of the developed world, and it’s because of an ex-government company which was privatised had been allowed to operate at a monopoly with a toothless regulator. Monopolies don’t drive innovation if they actually reach true monopoly status, they don’t have worries, they just need to spend their energy cutting the throats of their competition, and rest on their laurels, and don’t innovate because it costs money. Read the book “Wired Brown Land” http://www.zdnet.com/paul-fletchers-wired-brown-land-review-1339296171/ for an actual account of trying to compete with one of these beasts.

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