Study Guide to Man, Economy, and State with Power and Market

122 Study Guide to Man, Economy, and State with Power and Market
cartel can reach an agreement and obey it, if they are truly earning
“above normal” returns, outsiders will enter the industry.
A monopoly may be defined as (1) a single seller of a good
or service, (2) the recipient of a government privilege, or (3) a
business unit that can achieve monopoly prices. The first definition
is vacuous; everyone is a monopolist in this sense. The
second definition is legitimate, and focuses on government
intervention that hampers welfare. The third definition is
empty once we realize there is no such thing as “monopoly
price.” Simply put, there is no such thing as a “monopoly price”
to which we can contrast a “competitive price”; there is no way
we can even in principle define these concepts. All we can discuss
is the unhampered price that would emerge on a free market.
Although a union presents a coherent example of restriction
of output and the achievement of higher prices, this is not an
example of monopoly; the privileged workers gain at the
expense of nonunion members. A typical argument for unions is
that the marginal productivity determination of wage rates, in
practice, leads not to a unique value but rather a zone of possible
wage rates. The problem with such a justification is that
such zones of indeterminacy shrink as more and more people
enter the market. Moreover, in practice unions often rely on the
actual use (or at least threat) of violence to achieve such “bargains”
with management.
The crucial characteristic of a “perfectly competitive” industry
is that each firm perceives the demand for its product as a
horizontal line. Yet this is clearly absurd; even in theory, all
demand curves must be downward sloping. The claims of
“excess capacity” in monopolistically competitive industries
defy rationality and ultimately rely on geometrical tricks: Once
we drop the assumption of smooth cost curves, the argument
falls apart.