IMG SRC [https://penpoin.com/monopoly-power/] (I didn't read this article so it may be utterly disappointing)
Today we are diving into Dr. Per Bylund's "Monopoly Power: What Should We Fear?" As its only an hour long seminar, there isn't a ton to dive into, but since the class I'm writing this for is all about discussion, I'll take a stand (in good faith or not) for the sake of fruitful discourse.
Brief Overview
Firstly, I must admit my bias. Dr. Per Bylund earned his Phd in Economics at Mizzou, a school I know all too well. I will also say that I agreed and tracked with the majority of what he had to say. If I had to boil down his chat to one argument, its that monopolies themselves are not to be feared. Instead, it is the regulations that grant them oppressive power. It should come as no surprise that I agree with this.
Just Real Quick Before We Get Too Crazy
I'd like to note that many economists, me included, discuss economic issues in somewhat of a vacuum. This can make their words confusing and easy to poke holes in. I've been making a big effort to try and address economic issues in the framework of the United States – as it can be hard to imagine a place where the standards of our economy do not exist. So, lets continue.
Innovation or Industry Creation or Both?
The claim that innovation strives in monopolies has some grain of truth in it, but I'd argue that that's largely not the case in a country where regulation strives (like the United States). Now, the idea that – even in such an environment – profits outshine cost the of entry is interesting. Lets consider an economy where there is a monopoly over tires. Lets say the firm that is selling tires pumps prices up to an unorthodox amount, and the majority of people quit buying tires. Because the majority of the US relies so heavily on transportation, millions of people would need alternative modes of travel, be it public or private. On the public front, theres public transport, like busses – but busses need tires too, so that cost is just transferred to local governments, and ultimately borne by citizens. On the private front, well, what is there that doesn't use tires? Trains maybe? Skateboards? I don't know. But the point is that something... a flying car even ...would enter the space so that individuals could have some individual mobility that is so crucial to personal liberty.
Now, this may be incorrect, but in my mind, a startup couldn't jump right into the tire industry without being bought up by the monopoly, thus the problem prevails. Similarly, by the time an industry-adjacent company could get into the tire market, sales would already have plummeted, and society may be relying on alternative modes of travel, disincentivizing development of said tire. In my mind, there is only one solution, and it's innovation, but at what speed? A competitive market lends itself to innovation in a much more digestible way – the smartphone industry for example. Going from flip phones to smart phones isn't that crazy of a jump, but going from rubber tires to alternative modes of travel, that takes some time (does the uproar over electric cars fit here?). Listen, I get it, maybe rubber tires would be a thing of the past put something like plastic tires would. Yet, we've already seen tons of cost-effective prototypes of such things, and they just can't compete – but, maybe if a set of tires was $10k, they would? No way to tell I guess.
The Cannibalistic Nature of Monopoly Markets
Something I just briefly wanted to touch on was the common misconceptions of monopoly markets. Many people see them as oppressive and a classic case of "the rich getting richer by preying on the poor" and, in some cases this appears to be the truth. One of the famed arguments is insulin and diabetic products. Things move REALLY slow in the medical industry, and that certainly lends itself to the 'monopoly feel' that many people perceive, but just recently, Lily, started selling insulin for HALF the price of its competitors. (https://investor.lilly.com/news-releases/news-release-details/lilly-cuts-insulin-prices-70-and-caps-patient-insulin-out-pocket) Others will say that the necessary equipment for diabetics is opressively expensive, yet, they are usually referring to the brand new tech on the market. Plenty of tech from 5-10 years ago is readily available for a fraction of the cost of an insulin pump and monitor that has bluetooth functionality and a 28-way radio.
All of this to say is that predatory monopolies (the ones that everyone is scared of) are by nature, cannibalistic. Pricing people out of what they need most only encourages the power of substitutes – classic substitution effect. By raising prices, monopolies are effectively destroying the very industry they are trying to exploit, and it jus simply cannot last.