In Dr. Per Bylund's lecture over monopoly power he argues that such a title is something of a misnomer - or, at least - that it is a power that can only be granted by the state. He believes monopolies in and of themselves are incapable of exercising "power" over consumers, as ultimately the choice in whether or not to purchase a monopolized good or service lies with them, not the monopolist. He debunks a few common myths surrounding the concept of "natural monopoly," (a monopoly that forms without state intervention) as well as gives a few examples of state-granted monopolies that harm (or have historically harmed) consumers not only financially, but in regards to their general wellbeing, health, and freedom. Dr. Bylund proves through sound economic reasoning that monopolies are not the economic boogeyman many individuals believe they are, rather they are a byproduct of state intervention in the economy that can only serve to stifle competition and positive market outcomes.

There are three variations of monopoly that Dr. Bylund describes, which require some explanation in order to understand how each affects both the economy as a whole and individual market participants.

Harmful Natural Monopoly

Some proponents of natural monopoly theory assert that a firm could attain a monopoly without government intervention and then keep the entirety of the market share, charging consumers as much as they choose. This is nothing more than a myth. As explained by Dr. Bylund, it is impossible for a monopolist to harm or "exercise power" over consumers so long as there is no intervention by the government. Natural monopoly theorists propose that this could occur, however.

Natural monopoly theorists claim firms could partake in "predatory pricing:" a strategy in which the monopolistic firm cuts their prices to the point of taking a loss and drives all other competing firms out of business, since consumers will no longer be willing to buy their goods/services because a cheaper but equally serviceable alternative exists. The monopolistic firm will, they argue, attain a monopoly over the good or service and then up their prices to an exorbitant rate, enjoying limitless profits thereafter without fear of competition. This, when analyzed under basic economic principles, is clearly nonsense. For one, what guarantee does the monopolistic firm have that they will not bankrupt themselves in the process of undercutting their competitors? If this occurs, consumers benefit by low prices and the market benefits by ridding itself of a firm with bad intentions. The primary reason this would fail, however, is because the moment the monopolistic firm begins to exorbitantly increase prices, the door is once again opened for competing firms to step in and undercut the monopolist, taking back shares of the market in the process. If the monopolist attempts to buy up the competing firms as they enter the market, this only serves to further incentivize firms to enter the market in hopes of receiving a payout simply for existing as a threat. This ultimately could result only in the monopolistic firm either losing significant market shares or going bankrupt, all the while consumers benefit from lower priced goods and services. It is worth noting that this has never occurred historically, and could not due to the economic law of competition.

Innovation Monopoly

Dr. Bylund uses Apple as an example of an "innovation monopoly." This would occur when a new technology is invented that the rest of the market is incapable of adequately competing with. Dr. Bylund references the disruptive entrepreneurship of Apple when they first released the iPhone. For a while, this product had no meaningful competitors. It therefore held a monopoly on the production of smartphones. some could argue, then, that this monopoly was clearly harmful to consumers, since the iPhone was very expensive due to a lack of competitors to drive down prices. They neglect, however, that the iPhone was a vast improvement from the mobile phones that preceded it. Clearly such a device was not a detriment to consumers, as the value it provided vastly exceeds that of the flip phones that came before it. Additionally, such a monopoly cannot be sustained indefinitely. Today, Apple has many competitors such as Samsung and Google. This, then, is not a type of monopoly that consumers should fear, rather they should welcome it.

State Sponsored Monopoly

A state sponsored monopoly is the only form of monopoly that stands to harm consumers. Dr. Bylund highlights two examples of such monopolies that I would like to discuss. The first is certificate of need (CON) laws. These are particularly harmful and indirectly lead to the monopolization of the provision of medical services on a regional basis. Although they have the intention of increasing access to medical services to the poor, they almost always serve to worsen this issue and many others. By limiting the development of hospitals and the purchase of hospital equipment to a "proof of necessity" system, the state has set into motion a process that undoubtedly causes shortages to healthcare access. This is particularly evident through the Covid-19 pandemic. Shortages of ventilators and hospital beds were common throughout the nation, and lives were lost because of it. Had the government allowed hospitals to form freely and compete amongst themselves, there undoubtedly would've been adequate equipment to handle such a pandemic, as nothing would have existed to stop hospitals from equipping themselves in what seemed to be in excess prior to the pandemic occurring.

Another example similar to CON laws, although much more direct, is drug patent laws. Such laws allow a single producer to have the exclusive right to produce medicines that millions of people rely on every day. This often leads to exorbitant drug prices that can even lead to death for individuals unable to afford them (for example, insulin.) These are lives that could be saved if competing producers were allowed to enter the market to drive down prices to a level more people could afford.

Dr. Bylund also mentions New York's yellow cabs, which have notoriously poor service and high prices due to the government disallowing competing taxi services to exist. This example serves to show the innovation the market is capable of, as services like Uber and Lyft were able to work around the regulations to provide riders with higher quality and lower prices.

On the General Effect of Market Intervention

To conclude, nearly all government action in the economy that affects individual exchanges between producers and sellers trends toward monopolization to some degree. A notable example of this would be minimum wage laws. These disproportionately harm smaller firms less capable of paying a wage at such a high rate as a bigger firm, who can easily take the loss of a few extra dollars per employee when it is made up for by a significant lack of competition. This is why nearly every large corporation lobbies for higher minimum wage laws. They do not care about their employees so much as they care about stifling competition to maximize their own profits. Numerous other examples of government interventions tend to have a similar effect. Ultimately, it is only through government intervention that monopolies can exercise "power" over market participants. Naturally forming monopolies can only exist through vigorous effort to lower prices, increase quality and thereby maximize customer satisfaction more than their potential competitors are capable of.

Class Discussion

1. In class I will discuss the tendency of governments to create monopolies and the negative effects these can have.
2. In class I will discuss the impossibility of naturally arising monopolies to harm consumers.