# Think Tank > Political Philosophy & Government Policy >  How does the free market prevent monopolies?

## Ibn.AL.Muqafaa

I always hear the argument from left-leaning people that the free market has no restrictions thus creates monopolies or oligopolies.



> Take this scenario:
> Person X is very wealthy and can afford making better investments and provide more options in his/her company.
> Person Y and Z: Each have their small business, and cannot afford increasing their options in order to compete with X.
> Thus Company X becomes a monopoly making companies X & Y break even, and making no other business join.


I learned in Economics class that a monopoly or oligopoly does not allow new firms to enter the market.
I know that government regulations make products, job creation, investments , productivity more expensive.

But what is the Libertarian response to this argument?

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## timosman

> Person X is very wealthy has access to government subsidies


FTFY

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## Ibn.AL.Muqafaa

> FTFY


So what you're saying is that the government give a company special privileges, making companies Y & Z struggle to compete.

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## otherone

> So what you're saying is that the government give a company special privileges, making companies Y & Z struggle to compete.


The enemy of big business is small business.
The enemy of small business is government.

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## silverhandorder

I'm pretty sure op is trolling but I will answer.

Monopolies can form for different reasons. Monopolies are not bad on their own . They are only bad if they are granted by government.

In a free market the tendency is for a lot less corruption in companies because they heavily rely on pleasing costomers who tend to be least mercifully to price fluctuations and lying.

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## merkelstan

search mises.org for 'monopolies'

oh f*** now they're using google search.

oh well

https://www.google.de/?gfe_rd=cr&ei=...g+monopolies&*

short answer, monopolies do not exist in a free market.

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## MallsRGood

A monopoly (1 firm with 100% market share) is not in itself a problem.

If Firm A has a monopoly because it can produce the best widgets at the lowest costs, great, that's what we want: more/better widgets.

A problem would only arise if, after achieving 100% market share by being the most efficient producer, Firm A then raised prices. 

However, as soon as Firm A raises prices above the price at which potential competitors could sell, it will start losing market share. 

IOW, in a free market, it's entirely possible for 1 firm to have 100% market share, but impossible for it to use this position to exploit consumers.

The only monopolies that can exploit consumers are those sponsored by the state.

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## Ibn.AL.Muqafaa

> I'm pretty sure op is trolling but I will answer.


I ain't trolling I am recovering from Leftism , And I want to learn about Libertarian Philosophy.

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## Ibn.AL.Muqafaa

What about anti-trust laws?

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## MallsRGood

Anti-trust laws are unnecessary at best, counterproductive at worst.

...counterproductive insofar they're used by politically-connected companies to smash their less-politically-connected competitors.

A good example being the Rockefeller-Morgan wars of the late 19th/early 20th century.

Every time the political balance flipped, the government went "trust-busting" against the faction out of power.

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## silverhandorder

A good comparison for anti trust is patriot act. Both are misnomers. It's different factions settling disputes using the state as the club.

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## fisharmor

> What about anti-trust laws?


They are a distraction, in at least two ways.

First, they distract from the issue that led to the monopoly or cartel forming in the first place.  As already stated, monopolies and cartels are not formed for universally negative reasons.  But the "bad" cartels and monopolies, the ones the laws are intended to affect, generally got in place because the state put barriers to entry in that industry.

For example: telecommunications.  The federal regulators in the US are always keeping a sharp eye on AT&T, Verizon, and Sprint, to be sure that they don't get into a position above the others.
But is it possible for me to form a new corporation, and go door-to-door and make agreements with people to run new lines under their property to transmit data for my new network?
Technically if I have a couple million to spend on court fees and bribing officials to let me get those agreements in place, I could do it... but the local governments have already strong-armed all the consumers into accepting easements on their property, at reduced cost to the big players.
So any small business is already at a competitive disadvantage when it comes to telecom.  The big players already got state and local governments to push homeowners around and accept utility lines on their property - and they're not going to do that again for a new player.

Like otherone said: the enemy of small business is government.  Most of the time it takes the form of being better friends with the big businesses, but the concept is the same.

The second distraction is that in pretty much every country, there are cartels, and there is at least one monopoly, both are direct actions of the state, and they will NEVER be opened to competition.

Most countries have a medical cartel.  There is one governing board for determining what medicine is and how it will be practiced.  That entity either grants licenses to practice medicine, or works directly with the government to provide licensing.

And when someone is found to be practicing what they call medicine without their license... who steps in and enforces these rules?

And every state has at least one monopoly - the monopoly on law.
There is one entity that makes law, and one entity that enforces law.  Making law outside that entity is a completely foreign concept to all but the most die hard libertarians.  And enforcing law outside that entity is against the law.  People who aren't with the government enforcing law... that is just about the worst crime one can commit in any country.  Very few countries will treat anything more seriously.

So that's what I have to say about antitrust law.  It's a crock of $#@!.  There are some easily discernible cartels and monopolies in our lives, that the governments aren't just ignoring - they are enforcing them.

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## LibForestPaul

> A monopoly (1 firm with 100% market share) is not in itself a problem.
> 
> If Firm A has a monopoly because it can produce the best widgets at the lowest costs, great, that's what we want: more/better widgets.
> 
> A problem would only arise if, after achieving 100% market share by being the most efficient producer, Firm A then raised prices. 
> 
> However, as soon as Firm A raises prices above the price at which potential competitors could sell, it will start losing market share. 
> 
> IOW, in a free market, it's entirely possible for 1 firm to have 100% market share, but impossible for it to use this position to exploit consumers.
> ...


This answer is incomplete because it does not take into account barriers to entry. A foundry for AMD has an initial cost in multi-billions of dollars. This does not include the patents and intellectual capital required.

So, yes, if a monopoly is achieved, it will be vey hard to break. The monopolist will have great leverage over their consumers. However, if they continuously abuse their power,  multiple consumers may band together to form competition.

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## timosman

> This answer is incomplete because it does not take into account barriers to entry. A foundry for AMD has an initial cost in multi-billions of dollars. This does not include the patents and intellectual capital required.
> 
> So, yes, if a monopoly is achieved, it will be vey hard to break. The monopolist will have great leverage over their consumers. However, if they continuously abuse their power,  multiple consumers may band together to form competition.


Like Coke and Pepsi?

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## Dr.No.

In true capitalism, profits are fleeting. That's why Peter Thiel says he isn't a capitalist, he is a monopolist. Playing the market in a fair way means small and fleeting profits as competition will quickly reduce the price you can charge. Somewhere along the line, capitalists will realize it makes more sense to bribe, rig, and trick the system than to play it fairly. That is just human nature.

You can actually look at the profits of various industries over time. For example, the food industry (wholesalers, agriculture, processing) basically makes something like .1% over the cost of money (a short-term treasury bond). Construction is just under 1%. Computer/chips are just under 5%. Banks? 17%. Tech companies? Around 8%. Retail is even at a negative percent. Health technology is at 3%. Health insurance is at 18%. Energy is at 13%, but the data was collected before the downturn in oil prices.

The highest margins I have seen are in cable TV, at over 23%.

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## Krugminator2

> In true capitalism, profits are fleeting. *That's why Peter Thiel says he isn't a capitalist, he is a monopolist.* *Playing the market in a fair way means small and fleeting profits as competition will quickly reduce the price you can charge*. Somewhere along the line, capitalists will realize it makes more sense to bribe, rig, and trick the system than to play it fairly. That is just human nature.


I actually have Peter Thiel's book.  He didn't really say what you just attributed to him at least not in the sense that that most people think of being a monopolist. 

For some reason that is how he was interpreted. But he was saying you shouldn't get involved in a commoditized business. He never said you should do anything unfair or rig the game. He said you should look to build a business where you provide a niche that can't be easily replicated.

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## ThePaleoLibertarian

Being anti-monopoly as such is a leftist fetish that should be discarded. There's nothing wrong with them in themselves. When libertarians talk about how impossible it is for a free market to have monopolies, it is almost always a desire to either placate or refute leftists who know nothing abut history or economics.

Peter Thiel was mentioned above and I think his conception of "creative monopolies" is quite interesting and something we should think more about as the multinational inevitably supersedes the nation-state.

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## Dr.No.

> I actually have Peter Thiel's book.  He didn't really say what you just attributed to him at least not in the sense that that most people think of being a monopolist. 
> 
> For some reason that is how he was interpreted. But he was saying you shouldn't get involved in a commoditized business. He never said you should do anything unfair or rig the game. He said you should look to build a business where you provide a niche that can't be easily replicated.


He was basically saying that monopolies are basically the ideal. I'm adding on to that that a great way to do that is to use government force, other force, fraud/lying/cheating to do that. Just pointing out that there is a great incentive to do this as pure capitalism will eat away at profits.

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## MallsRGood

> This answer is incomplete because it does not take into account barriers to entry. A foundry for AMD has an initial cost in multi-billions of dollars. This does not include the patents and intellectual capital required.
> 
> So, yes, if a monopoly is achieved, it will be vey hard to break. The monopolist will have great leverage over their consumers. However, if they continuously abuse their power,  multiple consumers may band together to form competition.


IP aside, which is itself a state-sponsored monopoly, the only barrier to entry is inefficiency. A firm with a more efficient production process will be able to attract the capital required to achieve the economies of scale necessary to compete with an existing, dominant firm. That a firm doesn't attract that capital implies that it wouldn't be able to compete even if it did, because it's less efficient than the dominant firm. IOW, it''s _good_ that that firm doesn't attract capital, as it would be used sub-optimally.

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## PierzStyx

> So what you're saying is that the government give a company special privileges, making companies Y & Z struggle to compete.


And that is the only way monopolies form, is as a special privilege given by the state. IN the free market huge companies are not able to ever completely dominate the market nor keep new competitors from coming in to existence. Additionally, the only way a company can get so large is if they produce and sell products that make people's lives better for cheaper. A good example of this is Standard Oil and its dominance of almost 90% of the oil market, a read up of which is here: https://www.theobjectivestandard.com...d-oil-company/

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## PierzStyx

> This answer is incomplete because it does not take into account barriers to entry. A foundry for AMD has an initial cost in multi-billions of dollars. This does not include the patents and intellectual capital required.
> 
> So, yes, if a monopoly is achieved, it will be vey hard to break. The monopolist will have great leverage over their consumers. However, if they continuously abuse their power,  multiple consumers may band together to form competition.


And you're not taking into account that there are people with the capital who would be willing and bale to compete in almost every field you can think of.

Also, patents are theft and is itself a form of state sponsored monopoly. https://fee.org/articles/intellectua...erty-is-theft/

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## osan

> I always hear the argument from left-leaning people that the free market has no restrictions thus creates monopolies or oligopolies.


Left-leaning humans comprise a vast raft of psychotics and economic ignorants.  The most casual examination of the history of our positive past readily reveals that monopolies arise through government dispensation and not through free market conditions.

Oligopolies are likewise given rise through government interference, whether positive or negative.  Oligopolies and the ills they bring almost universally come about through some criminality.  Were "government" competent and/or honest in the discharge of its duties to those they ostensibly serve, we would find at hand every instrument of Law needed to deal with such circumstances.  

The erection of artificial barriers to entry, for instance, violates the rights of others to enter the marketplace.  This is clearly criminal and could be readily disposed through felony charges.  How often do we see it?  How often does "government" itself erect thosen very barriers at the lobbied behest of oligopolists, thereby freezing out competition?  How often are the justifications by "government" for the regulations they pass, ostensibly for YOUR protection, reek with the stench of corruption?

In reality, it is government that gives risento monopoly and oligopoly and decicedly not free markets.  I would also point out that our markets have not been anything even remotely free for well over a century, so blaming them is the product of rank ignorance and the intentional peddling of outright lies.




> I learned in Economics class that a monopoly or oligopoly does not allow new firms to enter the market.
> I know that government regulations make products, job creation, investments , productivity more expensive.
> 
> But what is the Libertarian response to this argument?


Freedom is always the one and singular correct answer.  Government is always the non-solution, the results and circumstances it universally precipitates and in which we all marinate so smilingly, serving as my evidence and proof.

The arguments of the "left" are the very definitions of blind dishonesty and shameful, inexcusable ineptitude.

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## LibForestPaul

[QUOTE=MallsRGood;6437164]A firm with a more efficient production process will be able to attract the *capital* required/QUOTE]
Define capital...currency, money, legal tender, gold, fiat? What was considered capital in the 1700's is not what is considered capital currently. LLC, etc.

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## jmdrake

> I always hear the argument from left-leaning people that the free market has no restrictions thus creates monopolies or oligopolies.
> 
> 
> I learned in Economics class that a monopoly or oligopoly does not allow new firms to enter the market.
> I know that government regulations make products, job creation, investments , productivity more expensive.
> 
> But what is the Libertarian response to this argument?


The government itself is a monopoly.  So in order to "prevent monopolies" the libtards give more power to a monopoly.  Business monopolies use government power to increase their monopoly stanglehold.  Consider the case of oil for instance.  Did you know that at one time oil was cheaper in America than water?  You know what happened to that?  The big oil companies used the power of the government (Texas railroad commission in this case) to destroy their competition.  That was the blueprint for OPEC.  (The oligopoly Americans hate the most.)  Where did I find out about this?  Mises.org?  Breitbart.com?  WND.com?  Nope.  I got this from liberal NPR.

http://kut.org/post/how-texas-railro...blueprint-opec

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## timosman

[QUOTE=LibForestPaul;6440448]


> A firm with a more efficient production process will be able to attract the *capital* required/QUOTE]
> Define capital...currency, money, legal tender, gold, fiat? What was considered capital in the 1700's is not what is considered capital currently. LLC, etc.


Credit.

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## merkelstan

great answers here.  kudos.

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## Matt Collins

> A monopoly (1 firm with 100% market share) is not in itself a problem.
> 
> If Firm A has a monopoly because it can produce the best widgets at the lowest costs, great, that's what we want: more/better widgets.
> 
> A problem would only arise if, after achieving 100% market share by being the most efficient producer, Firm A then raised prices. 
> 
> However, as soon as Firm A raises prices above the price at which potential competitors could sell, it will start losing market share. 
> 
> IOW, in a free market, it's entirely possible for 1 firm to have 100% market share, but impossible for it to use this position to exploit consumers.
> ...



What happens when a monopoly dumps prices as soon as competition comes on the scene in order to undercut them and put them out of business?

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## Cleaner44

Thread is full of win. Reminds me of days gone by...

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## r3volution 3.0

> What happens when a monopoly dumps prices as soon as competition comes on the scene in order to undercut them and put them out of business?


Consumers get lower prices.

And if the monopoly then tries to raise prices?

Competitors reenter the market.

...and so on ad infinitum.

"Dumping" is a not a winning strategy; AFAIK, no real company has ever even attempted it. 

The way that historical would-be monopolists went about it was by simply buying out their competitors (e.g. Rockefeller with oil refining).

...which also didn't work, for reasons explained.

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## timosman

> Consumers get lower prices.
> 
> And if the monopoly then tries to raise prices?
> 
> Competitors reenter the market.
> 
> ...and so on ad infinitum.
> 
> "Dumping" is a not a winning strategy; AFAIK, no real company has ever even attempted it. 
> ...


Which is what I explained already to Collins in my -rep

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## Matt Collins

> Consumers get lower prices.
> 
> And if the monopoly then tries to raise prices?
> 
> Competitors reenter the market.
> 
> ...and so on ad infinitum.
> 
> "Dumping" is a not a winning strategy; AFAIK, no real company has ever even attempted it. 
> ...


DeBeers did to it Russia

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## timosman

> DeBeers did to it Russia


Pressurized carbon is not exactly your average product.

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## r3volution 3.0

> DeBeers did to it Russia


Rare natural resources (including land itself in some contexts: think utilities) are an exception. It is possible for natural monopolies to form in those sectors. De Beers achieved a near monopoly at a time when diamonds were being extracted from a handful of mines (and, in the case of Russia, they didn't even have to deal with private producers, they dealt directly with the Soviet state). They've since lost that monopoly (market share down to ~40% IIRC), as new sources have been discovered. So, even with something as rare as diamonds, it's not easy to create/maintain a monopoly, but it is possible.

By way of anticipating objections/questions...

1. So does this mean the state should control rare natural resources, like diamonds or the land required for utilities? No. Though a private monopoly wouldn't face direct market competition, it would still face competition via substitution (if De Beers jacks up the price of diamonds too high, people will find alternatives) and the demand curve (at some point, revenues will decline with price increases). A state does not have these incentives. A competitive market is best, but, if that's impossible, a private monopoly is better than a public one. 

2. Why only rare resources? In theory, couldn't somebody buy up all the farmland? They could (however unlikely in practice), but in so doing they would create insuperable problems for themselves in terms of diseconomies of scale. They would end up leasing out the farmland (to farmers who would compete with one another) rather than trying to centrally plan such a large operation. If Warren Buffet had purchased the USSR wholesale, he would have leased out the state-run enterprises, rather than run it as a giant, everything-monopoly. FYI, this is essentially the argument for proprietary government ala Hoppe.

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