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From: josh@topaz.ARPA (J Storrs Hall)
Newsgroups: net.politics
Subject: Re: monopolies unstable?
Message-ID: <886@topaz.ARPA>
Date: Wed, 6-Mar-85 05:18:11 EST
Article-I.D.: topaz.886
Posted: Wed Mar  6 05:18:11 1985
Date-Received: Thu, 7-Mar-85 04:41:27 EST
References: <2015@inmet.UUCP> <4823@mit-vax.UUCP>
Organization: Rutgers Univ., New Brunswick, N.J.
Lines: 54

> Context:  nrh@inmet attributing to dmck
>     >As it happens, I do believe that monopolies are not stable unless
>     >given special, generally government-based protection.  ...

> Forgive my naivete, but it strikes me that monopolies can get nice and
> greedy and not be destabilized.  I recall stories of Standard Oil driving
> out competition by giving it away free until the competitor dropped dead,
> then raising prices.  Also of Bell Telephone doing the same.
> 
S.O. went from about 90% of the market in 1899 to 30% in 1911-- THEN
the Feds stepped in and cracked it up.  Several people got rich by
building one competing refinery after another and forcing Rockefeller
to buy them out to keep his "monopoly"--which steadily leaked away
anyhow.  Bell, as I'm sure you all know, was government supported
from the start (first Bell's telephone patent gave them a monopoly,
then when it ran out they got special legislation passed). (--Indeed,
in the decade between the two events, 20000 phone companies were
formed (yes, twenty thousand separate companies) and independents
descended from them under grandfather clauses continue to serve about
a third of the nation's telephones.)

> Whether the stories are true is immaterial. 

However, whether the stories are *possible* isn't--and they aren't.

> The point is that when
> analyzing at anything but the surface level, monopolists/oligopolists
> can easily distort a "free market" to their liking.  They have economies
> of scale, they can survive a drought (like giving it away for free), 
> they can integrate vertically and horizontally, hence squeezing others
> out of starting up, etc.
>
> What am I missing, gentle readers?  The flamacious economic discussions
> here seem based on sand, living as they do on assumptions of hypothetical
> societies and systems.  Is this really where it's at?
> 
> Oded Feingold		

I won't go into the rebuttals here, since they consist of examining a 
long list of "what if the monopoly did this" and "what if the competitors
did that".  I'll point you instead at two books at different levels:

1) The Machinery of Freedom, by David Friedman (a libertarian)
contains a couple of chapters at a straightforward, verbal level that
you can more or less read like a novel, explaining why monopolies
collapse (*not* can never happen) in a free market;

2) Economic Analysis of Law, by Richard Posner (not a libertarian)
contains a long, intricately detailed analysis of not only monopolies
in a free market, but of the actual effect of attempted legal remedies
(which, it seems, bolster as often as hinder monopolistic tendencies--
not to mention explicitly supported ones such as utilities).

--JoSH