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Monopoly

2015, SMC University

Although monopoly problems occupy great portion of economic writing, there is not exact definition of it. In fact, the nature of monopoly is vague and confusing and very few economists have formulated a coherent, meaningful definition of monopoly (Rothbard & Murray, 1963). For example, it is stated “Monopoly exists when a firm has control over its price” (Rothbard & Murray, 1963, P.662). However, this definition is very misleading. As how could a firm controls the price when the price of the sale is voluntarily agreed upon by both parties of the exchange. For, the seller has the right to set any price for the good he sells, on the other hand, the consumer is free to set the price at which he will purchase the good (Rothbard & Murray, 1963).

MONOPOLY Yasser Abdel Aziz Mostafa Hassan Doctor of Political Economy, SMC University. Switzerland March 2015 Although monopoly problems occupy great portion of economic writing, there is not exact definition of it. In fact, the nature of monopoly is vague and confusing and very few economists have formulated a coherent, meaningful definition of monopoly (Rothbard & Murray, 1963). For example, it is stated “Monopoly exists when a firm has control over its price” (Rothbard & Murray, 1963, P.662). However, this definition is very misleading. As how could a firm controls the price when the price of the sale is voluntarily agreed upon by both parties of the exchange. For, the seller has the right to set any price for the good he sells, on the other hand, the consumer is free to set the price at which he will purchase the good (Rothbard & Murray, 1963). If the seller sets a price that does not suit the buyer, no one will buy from him. There are many other definitions such as “the only seller of any given good” (Rothbard & Murray, 1963, P.665). This definition is too broad because it labels all consumer distinctions between individual products as establishing “monopolies.” Francis Wayland stated, “A monopoly is an exclusive right granted to a man, or to a monopoly of men, to employ their labor or capital in some particular manner” (Rothbard & Murray, 1963, P.670). this is the most acceptable definition and it makes clear that monopoly cannot happen in a free market (Rothbard & Murray, 1963).so, what is free market? The free market exists when the goods most demanded by the consumer are those preferred to be produced by the producers. Some economists call this system “consumer sovereignty” (Rothbard & Murray, 1963). However, the producer is not obliged to choose most demanded goods. He is free to produce any goods. Yet he chooses to produce these goods specifically for utility maximization. Thus, some argue that it is not consumer sovereignty, instead it is the sovereignty of the individual or the individual self- sovereignty: both the consumer and the producer (Rothbard & Murray, 1963). In other words, each individual is sovereign over his own person and property. On the other hand, the producer may abuse this sovereignty by withholding his property in order to attain more monetary income or restricting the production thus takes advantage of the inelastic demand curve for his product (Rothbard & Murray, 1963). This process is called monopoly price and it is the instrument by which producers deviate from their rightful function. Nevertheless, it is argued that the inelastic nature of the product enables the producer to act as such to increase the producer’s income by decreasing the production of the good and increasing the price (Rothbard & Murray, 1963). “This inelasticity is the resultant of the purely voluntary choices of consumers in their maximization of satisfaction” (Rothbard & Murry ,1963, P.635) and if the consumer wants to object this monopolistic action he may boycott the firm or the cartel and changes the demand curve to elastic (Rothbard & Murray, 1963). In other words, what make the good inelastic are the voluntary demands of the consumer, so in a way or another the consumer is responsible for this monopolistic action (Rothbard & Murray, 1963). However, some believe that the cartel actions involve collusion and conspiracy by nature. Cartel is the condition where “Individual producers agree to pool their assets into a common lot, this single central organization to make the decisions on production and price policies for all the owners and then to allocate the monetary gain among them” (Rothbard & Murray, 1963, P.643). Accordingly, it is argued that cartel is just like an ordinary corporation or partnership. Thus, it does not include any form of conspiracy. Furthermore, cartel is argued to be an unstable form of operation as if it is proved profitable, the individual members of the cartel will act formally to merge into one large firm thus the cartel disappears. On the other hand, if the cartel is unsuccessful it will be dismantled. Moreover, opponents of cartel believe that there is a vicious reason that make formerly competing firms unit. This reason may be “restricting competition” or “restraining trade”. The first is intended to cripple the consumer’s freedom of choice this claim is supported by Hutt who stated that “Consumers are free . . . and consumers’ sovereignty is realizable, only to the extent to which the power of substitution exists” (Rothbard & Murray, 1963, P.653). However, this claim can be proved wrong by taking into consideration the fact that in a state of raw nature, there is no abundance, yet everyone is absolutely free (Rothbard & Murray, 1963). Free must reflect only the interpersonal sense of being unmolested by other persons, thus it is very different from the availability of choices (Rothbard & Murray, 1963). In conclusion, the free market means free competition which means “the application of liberty to the sphere of production: the freedom to buy, sell, and transform one’s property without violent interference by an external power” ” (Rothbard & Murray, 1963, P.654). Moreover, the free market does not mean that everyone is able to enter any field; in fact, men are naturally not equal in their abilities. In addition, resources do not equally exist over the earth. Thus, it can be concluded that the cartel does not oppose free market. As Benjamin R Tucker puts it “That the right to cooperate is as unquestionable as the right to compete; the right to compete involves the right to refrain from competition; cooperation is often a method of competition, and competition is always, in the larger view, a method of cooperation . . . each is a legitimate, orderly, non-invasive exercise of the individual will under the social law of equal liberty . . .” (Rothbard & Murray, 1963, P.657). Reference: Murray N. Rothbard (1963). Man, Economy, And State.A Treatise On Economic Principles With Power And Market Government And The Economy MONOPOLY &COMPETITION 4