Can monopoly exist in a free market?
Theoretically, YES. Practically, NO.What if I tell you that you are free to operate in a market as a producer. But you just don't want to. Why?Because it is not profitable.Then why is the monopolist operating there? Is (s)he an idiot?No.There are certain industries that do not reap profits in the short run and have a long gestation period. It is only in the long run that the monopolistic profits start coming in. As a result of this, not many producers can afford to venture into such industries. This is the case of Natural Monopoly. So basically, nobody is restricting you to enter into the industry, other than your own monetary limitations.You see, barriers are not necessarily imposed, sometimes, they are self-induced by the nature of the industry. This is why it is said that practically, monopoly exists in a market where there is some sort of barrier, be it huge capital investment (in case of natural monopoly), legal restrictions (in case of arms and ammunition), patent/copyright restrictions etc. However, there are umpteen possibilities when we deal with humans. It would be interesting to see a monopolist operating in a market free from all such barriers.
Are monopolies more related to capitalism or communism?
What MMM does not realize is that the former communist states actually had separate monopoly state owned industries and dollar denominated production. In point of fact, the state owned industries dictated their terms to the political bodies and acted like monopolies. Sure enough, they produced way too little, demanding higher prices from the political system, and were incredibly inefficient. This type of monopoly structure evolved because it is simply impossible to actually plan an economy from a centralized government. Instead, industries developed their own plans, and the government became a market of sorts. Ironically, in capitalist countries, most countries outlawed monopolies. Where they were not outlawed, like in Germany, they formed voluntary monopoly contracts and developed into huge conglomerates that lasted until outlawed by the occupation government of WWII. Today, monopolies survive by having huge PR departments, buying public officials, and spending a great deal of humanitarian and environmental works. Instead of a single firm, there is a small number of firms that strategically price goods.
When playing monopoly, what rules do you play by?
We play all of that. We put $500 in the middle to start and any extra taxes or get out of jail money goes in the middle. Whoever lands on it wins. Then, another $500 is put in the middle, etc. We also play with the rule that if you land on go you get double the money. I think with having more money out there it makes the game more enjoyable. (and longer lol)
Can monopolies form organically in a free market, ie, without government?
Yes. What’s more, those are good monopolies.Hostile monopolies, which is what most people think of when they hear the word, are almost always backed by the government. For example, your internet service provider has been granted a monopoly by the government. Nobody likes their ISP.Naturally-occurring, free market monopolies form when companies are allowed to naturally compete and consumers freely allowed to find a price equilibrium for their product. When they occur, they are the most efficient outcome, as we can see in the chart below.As you can see from the graphic, the total cost of production for a monopoly is this red box, whereas the total cost of production for competing firms is the green box. In a natural monopoly, these savings are passed along to consumers, which is how the monopoly is maintained.It is a common misconception that natural monopolies will become hostile once their position is secured. This is provably false.As a firm increases prices to “take advantage” of their position, new competitors enter the marketplace. These new competitors drive down prices once again, and the equilibrium price is again lower. The optimal pricing strategy of a monopolistic firm, therefore, is to set the price just below the amount a potential competitor could match.This strategy maximizes profit to the firm, prevents competitors from entering the marketplace, and maximizes savings to consumers.All good for society.
How do price control methods lead to market inefficiency?
Price floors are the minimum price that will have to be paid. It is set by govt. Example: minimum wages. Note that price floor will be a binding constraint (or will lead to inefficiency) only when it is above the equilibrium. Now if price floor is above equilibrium price then quantity supplied will be more than quantity demanded as prices have increased leading to a surplus. Price ceilings are the maximum price that can be charged. Eg: the govt may set some maximum amount of rent that can be charged by a landowner. Note that price ceiling will lead to inefficiency/market disruption only when it is less than the equilibrium price. Now if price ceiling is less than the equilibrium price, then quantity supplied will be less than quantity demanded leading to shortage. Market is said to be in equilibrium/efficient only when demand equals supply. Price floors and ceilings cause inefficiency by creating surplus/shortage. NOTE: The use of diagrams will make it easier to understand and remember. PS: Taxes leads to inefficiency: A tax raises the price that a buyer pays and reduces the price that a seller receives. This leads to distortion of incentives as less buyers and sellers will now engage in transaction so there will be Dead weight loss. However at the same time the govt. earns revenue because of taxes. but this gain of govt is offset by the dead weight loss (loss of consumer and producer surplus)
Does Capitalism mean monopolies?
[TL:DR- Eventually capitalism leads to monopolies]The rise of big business in the developed capitalist economies in the early twentieth century led to a large number of attempts to explain the shift from competitive to what was variously called, trustified, concentrated, or monopoly capitalism.It is a corrupt form of Capitalism. Anything that reduces the number of sellers in the market place or limits competition is bad for consumers and bad for the free market. One monopoly inevitably leads to another and eventually “Monopolism”.[TL:DR- They result in Stagnation]In a monopolistic setting, a firm is able to charge more for a good than the cost of production.Monopolies become complacent over time, because there is no competition, there is less incentive for the firm to be efficient and lower its average costs.A monopoly results in market failure that leads to a loss to society because resources are wasted.