The Monopolisation Myths

It is a commonly-accepted statist bromide that free market will produce monopolies. In fact, it is such a commonly-accepted bromide that even libertarians assume its truth and argue from such a position.

Is it actually the case that free markets produce monopolies ? In some cases, yes. In markets where there is very low offer, demand, or very low supply of raw materials (whether in terms of metal, information, expertise, whatever), market concentration will result. Despite the tendancy of monopolies to higher prices, this is not necessarily a bad thing : it is desirable for high prices to temper people's desires to use a rare material.

Statism fares very badly in comparison, given government's tendancy to monopolize. The government itself is defined as nothing more than a monopoly of force. Government institutions routinely prohibit competition by law. Some state companies do compete with the market, but in general, government intervention either completely outlaws the existence of a market, or monopolizes it, or places barriers to entry to give priviledges to some companies as opposed to others. While government maintains the institutions that are necessary to the maintenance of a large-scale economy and our standard of life, it can also hurt them.

Of course, the issue is more complex than simply monopoly or no monopoly. Rather we have to talk about market concentration. A high market concentration indicates that a small group of companies detains most of the market.

The first important question is : has market concentration grown considerably in recent years ? Because there is a tendancy in the media to report important mergers in highly visible markets, people have grown to believe that growing market concentration is inevitable, that globalization inevitably entails market concentration, and that the biggest always keep getting bigger.

Studies, however, disprove this claim. Economists contend that, while market concentration was on the rise since industrialization, it has leveled off for decades now. A study from the Harvard Business Review called "The Dubious Logic of Global Megamergers" (Ghemawat and Ghadar, July 2000) concludes that the common belief in increased concentration is a "myth" and that "the perceived links between the globalization of an industry and the concentration of that industry are weak". Empirical data indicates, rather, that markets where globalization is important have been marked by decreases in market concentration since WW2.

Market concentration is more important in consumer goods and capita-intensive industries. In general, the bigger the market, the higher the concentration.

Go To Page: 1 2

Articles in this Topic    Discussions in this Topic