monopoly and free markets

This article from Alternet has a nice explanation of why “free markets” in the absence of regulation do not lead to open and fair competition:

Some monopolistic industries mess around with your daily life in an obvious way, like Big Telecom bringing you the low-grade misery of shoddy service and defective products. Others fly a bit lower under the radar, like the credit reporting monopolist Fair Isaac Corp, which can blast your financial existence in a nanosecond…

What I want to see, when I look at a marketplace is: Is that market open to a newcomer?

If I want to go into the business of farming in this community, can I become an independent farmer? If I want to go into the grocery business, can I do that, is it open? If I want to bring a new variety of paint to the market, do I have a place to sell my new variety of paint? If markets are open, that’s a good thing.

What we see is that the people who have actually preached the doctrine of free markets, this last generation, when you go back and look at it historically, is that the idea of free markets really comes out of the Chicago School, the libertarian wing of academia. They were preaching free markets, but when they would preach free markets, they also preached the elimination of all regulation. But when you eliminate all regulation you end up with no markets at all, because you end up with monopolists, and monopolists are the antithesis of an open market.

This idea of markets truly open to new competitors makes a lot of sense, and it makes sense for the government to support it. However, going back to Joseph Schumpeter and his idea of “creative destruction”, there is another kind of competition that may be more important. Competition is not just about new competitors entering the market to provide the exact same good or service in the exact same way. It is also about innovators finding completely new ways to satisfy people. For example, instead of competing with existing car companies by offering a different brand of car, I can compete by inventing Uber, or a car pooling website, or bike share, or protected bicycle lanes. These are alternative ways of meeting peoples’ need and desire to get from point A to point B. Even if the car company has a monopoly on the market for cars and it is hard to enter that market, we can compete with them. In fact, if they are slow to innovate and respond to outside threats, we may be able to crush them.

This model sounds great, but there is something insidious that often happens. The monopolist, instead of responding with innovations of its own, buys political power and uses it to try to prevent others from innovating. You can see this in the fight against Uber, and Airbnb, and selling solar power back to the grid. This is what I find really shameful and undemocratic, and we good citizens should not let it stand.

Leave a Reply

Your email address will not be published. Required fields are marked *