About two weeks ago, we had quite a spirited debate here about the question of monopolies in a free market system, and specifically the question of whether Microsoft, or any other supposed monopoly was a problem that libertarians and classical libera…

That said, I agree with Eric that nearly all monopolies happen because of earlier govt. interference in the market.

And with that said, I happen to know that Joe pees in the pot each morning, so I’d stick with the Starbucks if I were you.

Finally, since monopolistic behavior and monopolies try to create artificial scarcity and prevent all players from having information, this is something that moves us away from a free market, not towards it. In other words, it is a market distortion. A free market, by virtue of being perfectly efficient, is the ideal good, and anything that moves away from that is bad.

This is all economics. Political ideas cannot change this, anymore than they can change the value of PI. The trick is to have your political ideas reflect the reality of this. The problem with socialism is that it assumes you can remove market forces. The problem with capitalism is that it assumes you can eliminate externalities. It turns out, in practice, that externalities are much less distorting for a market than market forces are for a managed economy.

It is a mistake, I think, to define a free market by the existence of something — perfect information — that will never exist.

The point? To understand why consumers make the choice between Joe’s and Starbuck’s.

I think, again, it is important to understand economics and markets independent of political ideology. Once I understand that, then I can start to think about how best to achieve my political goals, whatever they may be, within the context of how a market and economics really work. To argue, for example, that collusion is just a form of partnership that we don’t like politically is to ignore the economic underpinning of the difference between collusion and partnership.

I define a free market as one completely free of government intervention where buyers, sellers, and other market participants are free to engage each other on the terms that they agree to.

Because we are all human, we are never going to have a situation where everyone has perfect information. There are always going to be people who know something, or think they know something, that other’s don’t. This is why the stock market works the way it does — some people think Home Depot is a worth buying at its current market price, others think its time to sell.

And I don’t think you got the point of my Starbucks example. Joe’s Coffee Shop is never going to be selling the exact same coffee as Starbucks, most prominently because consumers have demonstrated repeatedly that they are willing to pay more for a name even it it means paying more than they “should”; the Starbucks name obviously has some value to them that they’re willing to pay for. How else can you explain the fact that people are willing to pay $ 3.00 for a bottle of Dasani water when they can get it for free out of the tap ?

I’m not saying these consumer choices are right or wrong, they just are.

Economists, even libertarian economists, don’t agree with you that collusion, dumping, tying and theft are not problems. Before we deal with our ideology, we need to deal with how the market actually works.

I agree that there is, unless you define it very narrowly, no such thing as a natural monopoly. That doesn’t mean, however, that even in a completely free market with no government intervention that dominant market players capable of created “artificial scarcity” might arise. This is especially true given the fact that its clear that its more than just price that influences supply and demand — which is the reason that Starbucks can still charge $ 3.00 for that cup of coffee when Joe’s Coffee Shop across the street only charges $ 1.50; whether its true or not, people perceive Starbucks as selling higher quality coffee and are therefore willing to pay the extra money for the better product.

If market dominance or significant control of a particular market, even if it isn’t “monopolistic” from an economic perspective, arises in the context of a free market, then I (1) what’s wrong with it ? and (2) what should be done about it ? In the end, if the dominant company doesn’t remain comeptative, they will lose their market share.

You also state:

“Microsoft is both a monopolistic competition and a coercive monopoly. They maintain, and indeed created, their monopoly through practices which violate free market principles, including collusion, theft, dumping and product tying, among other things.”

In what sense do any of these actions violate free-market principles ? They don’t violate anyone’s rights, they don’t involve the use of government force, and they are perfectly permissible activities for an entity whose prime, and only, goal is to make a profit.

Collusion is just another word for partnership. Its only a problem if the ends that the two parties are seeking to achieve are themselves illegitmiate. That’s not the case when we’re talking about making a profit.

Theft ? Well, considering that there are signficant problems with intellectual property itself, I am reserving judgment on whether that’s really a problem from a libertarian point of view. Maybe it is.

Dumping ? What’s wrong with dumping ? If someone wants to sell me something for less than its costing them, that’s of benefit to me as a consumer. If their competitors don’t like it, they need to act to respond.

And product tying ? If Microsoft wants to give away Internet Explorer with every copy of Windows, then let them — even when they were doing that as part of their strategy against Netcape, people still had the choice to completely ignore that IE icon on their desktop and use another brother. The fact of the matter is that, starting with IE 4, Microsoft was putting out a better browser than Netscape.

I guess I’m still confused. If a corporation in a truly free market with a government that adhered to libertarian principles engaged in any of the above actions, what would you propose be done ?

On the other hand, a monopoly like Microsoft cannot exist without a distorted market. The single most significant distortion of the market is the government. This is a long winded way, Kay, of saying that the solution to most of the monopolies we see around us to get rid of government intervention.

As of his 5:51 comment, Eric is absolutely right. Monopoly is the anathema of free markets, but government intervention not only shouldn’t be called for, not only shouldn’t be the means of rectification, but CAN’T be the means. MSFT is a great example of how government intervention has reinforced their monopoly.

The concept came home to me two weeks ago, when my father’s wife and I were having a conversation about Windows and IE vs. linux and Mozilla. I made the comment that Firefox was much more suited to what her clients were trying to do; she let me know that her clients were sooooo tied to doing things the same way they did every day, she’s having trouble getting some to upgrade from Win95. There is no way those clients would change browsers!

That got me thinking (and firmly believing) that the MSFT anti-trust suits reinforced the monopoly. After all, if the government goes after them, there can’t be any viable alternative, right? Competing products must be inferior, or else the government wouldn’t have wasted their time. Any competitive OS or office suite has to now overcome not just the “trial sub” to MS Office, but the government-reinforced idea that their product is inferior.