Monopolies Are Not Bad For Society

on Sunday, January 30, 2011

Imagine we we have 66 people on an island and 22 guys making salt. One of them gets really good at it over the years and begins lowering his price gradually because he has more to sell each day. Gradually the 22 other guys drop out of the business and get into other things because their profit becomes too low and they are not as good at pulling salt as the leader. The leader gradually drops the price until all 21 others are out, and he keeps the price level there. If he raises his price even slightly, the last guy to drop out of the biz will come back and begin selling salt again, and if he goes back to the original price when there were 22 guys making salt, most of the 22 will come back to the business again.

The leader has what most consider a monopoly, but it's not harmful. It only means that he was so good at harvesting that he was able to provide it more and more cheaply to other islanders and the only reason the 21 others are gone is because they didn't want to work that hard for so little money. The monopolist leader-harvester still doesn't have the ability to raise prices, and has no "control" of the market in salt -- if he fucks up, the other guys jump right back into salt-making.

Dangerous monopolies use force (government) to raise prices; in a free system monopolies are no more dangerous than a guy on an island who is better at making salt than everyone else.  We live in a complicated and convoluted system today, but in a free marketplace, "monopoly" should not be a dirty word.