All Commentary
Wednesday, June 30, 2010

Is Monopoly Good or Bad?

The Free Market Protects Against Monopolistic Abuses

Monopoly is nearly always seen as something undesirable. Courts have wrestled with monopoly for ages, sometimes defining it as “the power to control prices and exclude competition,” “restraining trade,” or “unfair and anticompetitive behavior.” Should monopolistic practices be condemned and outlawed? Let’s look at anticompetitive behavior and practices, but let’s not confine ourselves to what’s traditionally seen as monopoly.

The marriage contract is essentially a monopoly document. It represents a legally sanctioned collusive agreement between two parties to exclude competitors and restrain trade. It closes the market to competition, or at least it is supposed to. This collusion has benefits as well as costs. Because I have exclusive rights to her affections and property rights to a stream of highly valued domestic services, I place a higher value on my spouse, making me willing to share with her a greater percentage of my wealth. My spouse receives a comparable set of benefits from this collusive arrangement.

This monopolistic arrangement has a cost side and perhaps some inefficiencies as well. Neither one of us is as attentive as we were before we made our contractual arrangement. For my part, I don’t open the car door for her as often, don’t use breath fresheners and colognes as frequently, am not nearly as considerate and gentlemanly as before our marriage some 42 years earlier. The reason is simply that before marriage I was competing against other men and therefore could ill afford to act as a monopolist.

Read the Old Testament’s Book of Deuteronomy, Chapter 5, where God gave Moses the Ten Commandments. The first commandment, and presumably the most important is, “Thou shalt have none other gods before me.” The second is, “Thou shalt not make thee any graven image, or any likeness of any thing that is in heaven above.” Then there’s, “Thou shalt not bow down thyself unto them, nor serve them: for I the Lord thy God am a jealous God.” If a corporation made a similar decree regarding its services, it would find itself in the sights of the U.S. Department of Justice for gross violations of the antitrust provisions of the Sherman and Clayton Acts. The Ten Commandments decree exclusive dealing and mandate neither substitutes for nor competition with God.

For one to condemn all monopolistic practices as evil, at least for consistency, he would have also to condemn marriage and the basic tenets of Christianity. I condemn neither marriage and the monopolistic tenets of Christianity nor business and labor union monopolies. The only moral argument that can be used to condemn and outlaw monopoly is when it is created through fraud, threats, intimidation, and coercion.

Our nation has a number of government sponsored, -created, or -protected monopolies and collusions in restraint of trade. One of the more egregious examples is the U.S. Postal Service. The federal Private Express Statutes, Sec. 310.2 “Unlawful carriage of letters,” says, “(a) It is generally unlawful under the Private Express Statutes for any person other than the Postal Service in any manner to send or carry a letter on a post route or in any manner to cause or assist such activity. Violation may result in injunction, fine or imprisonment or both and payment of postage lost as a result of the illegal activity.” The Private Express Statutes have the full effect of saying, “Thou shalt have none other deliverers of first-class mail before the USPS and we shall visit great pain on he who disobeys this commandment.”

The U.S. Postal Service is a government-owned monopoly; however, there are numerous privately owned monopolies and collusions in restraint of trade. In fact, nearly every federal agency is an enforcer of monopolistic collusive agreements. Until the 1980s the Interstate Commerce Commission and the late Civil Aeronautics Board enforced price-fixing agreements in the trucking and airline industries. Deregulation brought an end to those collusive agreements.

Thriving monopolistic agreements, at the federal level, are enforced by agencies such as the U.S. Department of Labor, National Labor Relations Board, Department of Agriculture, Federal Communications Commission, Department of Education, and Department of Commerce. The rule of thumb to determine whether effective collusion exists is to see whether there are mandated minimum prices, license-to-practice provisions and other restrictions on entry, and, finally, techniques to enforce compliance among the colluding members, such as revocation of license or permit to practice, fines and imprisonment, and other sanctions.

The free market, including free international trade, is the most effective protection against monopolistic abuses. In fact, in a free and open market, monopolistic companies can retain their monopoly power only if they do not fully exploit it; otherwise other companies will enter.

  • Walter Williams served on the faculty of George Mason University in Fairfax, Virginia as John M. Olin Distinguished Professor of Economics since 1980. He was the author of more than 150 publications that have appeared in scholarly journals. Learn more about him here.