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

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Chapter 10: Monopoly and Competition 125 D. The Instability of the Cartel Voluntary cartels (i.e., those not supported by government restriction) formed for the purpose of restricting output and raising prices are inherently unstable. First, there will always be an incentive to cheat on the cartel agreement and produce more than the assigned quota. Second, the more efficient members will demand larger and larger quotas over time; why should they restrict their own output in order to benefit inefficient competitors? Third, even if the members of the cartel can reach an agreement and obey it, if they are truly earning “above normal” returns, outsiders will enter the industry. E. Free Competition and Cartels Some critics allege that cartels restrict the “freedom” of the consumer by eliminating choices. But this argument confuses freedom with power (of choice). Another argument is that certain industries have such high startup costs that this “entry barrier” allows for long-run profits. But no individual needs to come up with $20 million to enter the automobile industry; a large number of individuals can pool their assets by forming a corporation. F. The Problem of One Big Cartel The fear of a giant cartel overlooks the calculation problem. Moreover, why hasn’t a giant cartel emerged on the (relatively) free market already?
126 Study Guide to Man, Economy, and State with Power and Market 3. The Illusion of Monopoly Price A. Definitions of Monopoly 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.” B. The Neoclassical Theory of Monopoly Price The neoclassical theory of monopoly assumes that there is some identifiable “competitive” price and level of output with which to contrast the “monopolistic” price and output. C. Consequences of Monopoly-Price Theory Even if neoclassical monopoly theory were valid, the standard, sinister conclusions would not necessarily follow. Such monopolists would still be subject to the consumers’ voluntary spending decisions, and there would be no lasting monopoly “profits,” but rather monopoly gains imputed to certain factors of production. D. The Illusion of Monopoly Price on the Unhampered Market 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
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STUDY GUIDE TO MAN, ECONOMY, AND ST
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CONTENTS INTRODUCTION . . . . . . .
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In June of 2004, I became convinced
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Introduction ix appropriate, I have
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Chapter Summary In a money economy,
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Chapter 4: Prices and Consumption 4
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Chapter Summary In the evenly rotat
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Chapter 6: Production: The Rate of
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Chapter 6: Production: The Rate of
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Chapter Summary Economists often ta
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Chapter 1: Defense Services on the
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Chapter 1: Defense Services on the
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Chapter Outline 1. Types of Interve
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Chapter 2: Fundamentals of Interven
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Chapter Summary Society is composed
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Chapter 4: Binary Intervention: Tax
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Chapter Summary There has been litt
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Apriorism, 1, 9 Ability-to-pay prin
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Index 251 Equilibrium, 47, 104 macr
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Index 253 Medium of exchange, 27, 3
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Index 255 See also Economy, Evenly
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