A company cannot endlessly buy out competitors and remain profitable. When a competitor sees a great potential for profits, they would be unlikely to sell for cheap. And even if they do, soon after another competitor will pop up. It is impossible for a business to keep all competition out of the market in absence of government regulation, apart from them being more efficient than any potential competitor, which is a good thing for consumers.

1/15/2010 10:31:43 AM

The "monopoly" is assumed to have infinite money, allowing it to keep prices dirt cheap for extended periods of time, taking a loss but driving out competitors, and then still have money left over to buy out every competitor in the entire world that pops up.

[Edited on January 15, 2010 at 10:34 AM. Reason : ]

1/15/2010 10:34:25 AM

Standard Oil strong-armed suppliers/freight-forwarders into either ceasing business with competition or solvency. They controlled 80+% of the national market, and 100% of the market in many regions. That's the very definition of a monopoly. There were NO avenues for competition that were outside Standard Oil's control.

1/15/2010 10:36:02 AM

^^^ The monopoly doesn't have to buy anything. It simply needs to invite the new competition into the racket, which is inherently more profitable.

[Edited on January 15, 2010 at 10:38 AM. Reason : i'm bad at carrots]

1/15/2010 10:38:01 AM

Did you read the article I posted? Here, I'll help you out:

Quote :

"First, Standard never even monopolized petroleum refining, let alone the entire oil industry (production, transportation, refining, distribution) which would have been an impossibility. Even in domestic refining, Standard's share of the market declined for decades prior to the antitrust case (64% in 1907) and there were at least 137 competitors (firms like Shell, Gulf, Texaco) in oil refining in 1911. Second, although predatory practices were alleged by the government at trial, Standard offered rebuttal on all counts. Neither the trial court nor the Supreme Court ever made any specific finding of guilt on the conflicting charges of predatory practices. Third, petroleum market outputs increased and prices declined for decades during the alleged period of "monopolization" by Standard Oil. For example, prices for kerosene (the industry's major product) were 30 cents a gallon in 1869 and fell to about 6 cents a gallon at the time of the antitrust trial. Finally, the Supreme Court broke up the Standard Oil holding company not because of any demonstrable harm to consumers (there was none) but because it discerned some vague "intent" to monopolize through Standard's many mergers, an "intent" that just as clearly never succeeded in producing any monopoly. Yet generations of economic and legal commentators have been misled about monopoly and the alleged efficacy of antitrust policy because of the "facts everybody knows" concerning the Standard Oil antitrust case."

1/15/2010 10:38:31 AM

Obviously not. Another section:

Quote :

"Free-market cartels are possible theoretically but they would be inherently unstable. Cartels, unlike a one-firm supplier, would require inter-firm cooperation and coordination in order to achieve any market-output restraint. But how is market output for each cartel member to be reduced? How are the reductions to be monitored? Won't the firms attempt to cheat and won't the cheating lead to larger outputs and lower prices? Indeed, won't the higher cartel prices encourage new supply from outside the cartel, and won't that lead to lower prices? In reality, free-market cartels (absent governmental support) have proved notoriously short lived and unsuccessful, especially when courts refuse to enforce cartel price-coordination agreements."

1/15/2010 10:40:14 AM

Quote :

"A company cannot endlessly buy out competitors and remain profitable. When a competitor sees a great potential for profits, they would be unlikely to sell for cheap. And even if they do, soon after another competitor will pop up. It is impossible for a business to keep all competition out of the market in absence of government regulation, apart from them being more efficient than any potential competitor, which is a good thing for consumers."

The failure in your thinking is that it is entirely idealistic and systematic, but is lacking practicality and shows a true to life lack of real world experience.

The explanation provided seems to assume that competitors will continually arise to partake in the one industry, but realistically this is not the case. some people have no desire or propensity to start their own business. some lack the capital. some lack the general savvy. in any industry the number of true competitors would be reasonably small and their formation spaced out so that purchasing rising competition would not be a purse draining event.

to further counter, surviving is not only a function of being bought out or not. there are significant supply chain issues. the most detrimental being that the major customer (the monopoly) can persuade suppliers not to supply to their competition. this is a course of action that happens all the time. the large company uses its sheer volume to persuade vendors not to supply to others with threat of losing their business should they not comply.

In these situations vendors often comply because to them volume means market share. As a result these vendors often cut ties with all other customers and provide solely to the larger of the set. Sadly the end result is the large company uses their position as sole purchaser to drive down the cost of the goods they receive. This is why wal-mart provides goods for so cheap. In fact, this happens in telecom all the time as well.

Such a situation would be another barrier to the establishment of any competition to challenge a monopoly.

1/15/2010 10:48:32 AM

I don't read articles unless I want to find the context for a quote. I don't make people's arguments for them.

OK, if we're going to argue about historicity, I'm going to just say I trust the citations on wikipedia slightly more than your article. According to the aforementioned, Standard oil controlled 91% of the market shortly before the anti-trust suit. During the anti-trust suit, market share fell dramatically as Standard shed it's holdings.

Now, I will grant that this monopoly never reached the kind of control I am proposing, and no totally private entity has. However, your position is equally speculative because a modern example of a wholly free market doesn't exist (to my knowledge).

[Edited on January 15, 2010 at 11:00 AM. Reason : dur]

1/15/2010 10:59:14 AM

Quote :

"The explanation provided seems to assume that competitors will continually arise to partake in the one industry, but realistically this is not the case. some people have no desire or propensity to start their own business. some lack the capital. some lack the general savvy. in any industry the number of true competitors would be reasonably small and their formation spaced out so that purchasing rising competition would not be a purse draining event. "

Realistically, it absolutely is the case. The vast majority of people don't have the desire, means, or anything else it takes to run a successful business. It only takes a few entrepreneurs to get the ball rolling, though. Entrepreneurship is the backbone of the economy.

Quote :

"to further counter, surviving is not only a function of being bought out or not. there are significant supply chain issues. the most detrimental being that the major customer (the monopoly) can persuade suppliers not to supply to their competition. this is a course of action that happens all the time. the large company uses its sheer volume to persuade vendors not to supply to others with threat of losing their business should they not comply. "

If it's true that a monopoly would say "supply to only us or you lose our business," this assumes that there is another supplier out there, which means there is competition on the supply side. A lone supplier doesn't stand to benefit from only supplying to one company. They want the competing companies to bid up prices. If there is increased demand caused by other companies entering the industry, the price of the thing being supplied is going to go up, and the supplier won't be satisfied with selling to the "monopoly" for a set price that is below equilibrium price.

Quote :

"In these situations vendors often comply because to them volume means market share. As a result these vendors often cut ties with all other customers and provide solely to the larger of the set. Sadly the end result is the large company uses their position as sole purchaser to drive down the cost of the goods they receive. This is why wal-mart provides goods for so cheap. In fact, this happens in telecom all the time as well."

Alright. What's the problem? Is Wal-Mart going to jack up their prices when they finally destroy all the competition? Or is the consumer going to continue to benefit from this streamlined process that results in low prices? At what point do we see the dreaded effects of this alleged monopoly?

Quote :

"Now, I will grant that this monopoly never reached the kind of control I am proposing, and no totally private entity has. However, your position is equally speculative because a modern example of a wholly free market doesn't exist (to my knowledge)."

A wholly free market doesn't exist. In a free market, people would be able to trade whatever they have for whatever the want, with no restrictions. It has existed before, though, thousands of years ago. Powerful men eventually understood that they could control the economy through government, which would result in personal gain for those individuals. Our entire global economic system is now characterized by that. It's a constant struggle to return the power from the elite to the people.

Somehow, I don't buy the line that if we had a truly free market, there'd be chaos and giant monopolies would take over our lives. As long as all trade is voluntary, and anyone can exchange whatever they have for whatever they want, a spontaneous order will arise, as it always does in nature.

1/15/2010 11:48:20 AM

d357r0y3r you have a very good textbook understanding of economics and can apply the academic fundamentals, but unfortunately lack the true market experience to understand the innate failures in your arguments when they are confronted with reality.

Quote :

"Entrepreneurship is the backbone of the economy."

I in no way denied this or even suggested to the contrary. This evident truth does not support that many entrepreneurs would enter the same market of the monopoly. Many would not as they would see competition impossible despite the evident improvements in service that could take place.

Quote :

"If it's true that a monopoly would say "supply to only us or you lose our business," this assumes that there is another supplier out there, which means there is competition on the supply side. A lone supplier doesn't stand to benefit from only supplying to one company. They want the competing companies to bid up prices. If there is increased demand caused by other companies entering the industry, the price of the thing being supplied is going to go up, and the supplier won't be satisfied with selling to the "monopoly" for a set price that is below equilibrium price."

It is true that the monopoly would suggest the supplier ignore their other customers and supply to only the monopoly. It is also true that there are other suppliers. However, you fail to understand how a supply chain works within a business. The monopoly could have 2, 3, 5, 20, or 200 suppliers for the same product or types of product and although the supplier is forced to have solely the monopoly as the customer the monopoly is not in turn obligated to have that supplier as their sole supplier.

Typically in business volume is king. This is why major customers receive products with very little margin and low volume customers receive the products at a higher cost than the major customers. Many companies, the one for which I work included, would willingly ignore a low volume customer trying to pay twice or three times as much to stay with a high volume customer because the supplier doest stand to benefit, contrary to what you claimed without basis.

Another fault in your logic is where you state suppliers want more competitors because these competitors will then bid up prices. I assume you arrived at this conclusion by considering there was x demand and not there are more customers so there is x + y demand causing prices go rise. This is not how business works. Manufactured goods are never bid up. 100 little guys could join in to compete with a larger business and the larger business will still get the low margin price while the little guys will continue to pay the higher margin price that will still be whittled down each quarter to year. Once goods are introduced their prices erode, end of story.

Quote :

"Alright. What's the problem? Is Wal-Mart going to jack up their prices when they finally destroy all the competition? Or is the consumer going to continue to benefit from this streamlined process that results in low prices? At what point do we see the dreaded effects of this alleged monopoly"

The problem is that, yes, they easily could increase their prices if they chose to do so and as mentioned above it would be hard pressed for competition to enter and compete with them doing so.

Even if prices remained low the monopoly will push for larger profits- as is common- and will play the game of price erosion with their suppliers. At this point you might think well if the prices get too low the suppliers will eventually have incentive to go back to the other customers they ignored. Such a conclusion would be entirely incorrect. In most cases the suppliers will continue to engage a war of attrition with the other suppliers trying to knock one another to a point that can't be sustained so that they may remain the sole supplier. Moreover, the other customers who one time bought from these suppliers often go out of business because of lack of product and/or high prices since their increasingly low volume didn't warrant any sort of price negotiation.

As stipulated a war of attrition takes place eventually leaving a series of now defunct suppliers on top of their list of recently defunct customers. All that is left is a supplier with incredibly low margin who cannot adjust their prices.

I would not, in good mind, suggest that the overall net effect constitutes a benefit to the customer. While the consumer may not be paying for the prices in whole at the store they do pay for them in aggregate when considering the increased payout to unemployment along with the medicare costs associated with those who work at places such as Wal-Mart who do not receive medical insurance as to help keep prices low. The costs are all still there, so the net benefit is almost non-existent.

1/15/2010 1:55:55 PM

Wal-mart was just an example I used for an incredibly large company that regularly branches, successfully, into diverse markets. Retail sales, by its nature, is a very competiton-friendly market. I'm not worried about a monopoly on retail sales.

Cat, you should speculate about the effects of Wal-Mart involving itself in a market less inclined towards competition - like roads or the power grid. In a free market, infrastructre and utilities are privately-owned entities.

1/15/2010 2:25:30 PM

i think ive learned more from mises.org than any book i was forced to read. thanks.

1/15/2010 3:47:28 PM

1/26/2010 1:58:59 PM

haha, that video is amazing.

1/26/2010 2:07:52 PM

watched it twice in a row.

1/26/2010 2:45:15 PM

okay i have to admit- good video

1/26/2010 4:25:43 PM