Okay, we’ve had an ongoing discussion here at the Liberty Papers about monopolies, markets and Microsoft. The position presented on one side, a position taken by many libertarians and libertarian-conservatives, is that monopolies that are not directly created by government fiat are okay and we shouldn’t see them as bad. They are, in this line of thinking, natural and arise out of very good business practices and market forces. I’m going to argue that this is not the case and that all monopolies, of whatever origin, should be viewed with suspicion and distrust by those who describe themselves as libertarians, classic liberals, anarcho-capitalists, etc. There are, essentially, five types of monopolies.
- The government created, or legal monopoly. AT&T was a legal monopoly, as are the police and fire departments in most cities. When the government directly intervenes and legally creates a market where only one competitor is allowed, that is a legal monopoly.
- Natural monopolies are ones that arise because economies of scale, economic efficiencies and capital costs for competitors are such that one one competitor is able to satisfy the demands of the market. In a perfect free market this is impossible.
- Monopolistic competition occurs when a single competitor in the market is powerful enough to act as a de facto monopoly. For example, at its height, Standard Oil controlled 64% of the oil market although there were more than 100 competitors in the market. Microsoft, today, is a monopolistic competition with control of 90% of the PC operating system market and more than 90% of the desktop office suite market. Companies in this position are able to take actions to maintain their position that a non-monopolistic competitor could not.
- Coercive monopolies occur when competitors use activities that violate the principles of free market. Coercion is aimed at hiding information from the market or influencing consumers and competitors in order to maintain a dominant position in the market. It is often difficult to distinguish between good business practices and coercive practices.
- Local monopolies exist when only one resource for a specific product exists in a given area, but not within the market as a whole. For example (and I’ll discuss it further down), Starbucks is a local monopoly at the Sacramento International Airport.