What is a monopoly?

A monopoly is defined as a single seller in a given industry (appropriately defined).

Being a single seller, by itself, is not good, nor evil — it depends on how one obtained that single-seller status. Did one obtain a monopoly by economic competition in the marketplace, or did one obtain it by political pull, i.e., lobbying?

If such status is gained by competition in the free-market then the monopoly is good. If such status is gained by using the government, to force one’s competition out of business, then the monopoly is evil. The first is called a productive or economic monopoly, the second is a political or coercive monopoly.

As all political intervention (initiation of force) in the marketplace is outlawed under capitalism, a harmful monopoly under capitalism is impossible.

If one considers a monopoly as by definition evil, then only “businesses” that obtain their market share by having their competition outlawed (as the U.S. Post Office does) can be called a monopoly.

The key to a proper discussion of monopoly is to discontinue the equivocation of the term monopoly–that is to discontinue to use the term “monopoly” to refer to two mutually exclusive concepts – a company formed by economic power vs. a company formed by political power – if a monopoly is going to be regarded as evil.

Observe what is evil here: the act of using government force to intervene into the economy. It does not matter whether the government uses its power to outlaw competition to “protect” a single business, or to benefit a group of one hundred companies from a single superior competitor. The criterion of judgment is: is competition (the freedom to produce and trade) outlawed or regulated in some respect or not?

There are two different concepts denoted by the term monopoly: (1) a company that has earned 100% share of a given market  (i.e., Microsoft) or (2) a company that has not earned its 100% market-share, but instead had the government outlaw its competition (i.e., US Post Office).

The first (a non-coercive, economic monopoly) is to be praised, and the second (a coercive, political monopoly) is to be condemned. By equivocating on the term monopoly and keeping it ambiguous, it becomes an anti-concept so that: a company that has earned 100% share of a given market is morally condemned because of its size and success. Such are the dangers of confusing economic power (Microsoft’s power of production) with political power (the Post Office’s power derived from coercion).

Monopolies are not intrinsically evil (big is not inherently evil), nor are monopolies subjectively evil (good or evil judged by public vote, or polls); monopolies are good or evil depending on how they are formed. If formed according to the laws of the free market — capitalism — they are good. If formed through irrational political policies, they are evil.

How are harmful monopolies created?

The sole source of harmful monopolies is the government, which is the only agency that has the power to force competitors out of business, i.e., it is the only agency that has the power to outlaw (i.e., regulate) competition.

As evidence, witness the United States Post Office, which makes it illegal for anyone to charge less than 34¢ for first class mail (one entrepreneur attempted to compete by charging 5¢ — he did not get far). Other examples include the East India Company of the 17th and 18th centuries, the American Pacific Railroads of the 19th century, and the AMA’s monopoly over the prescription of medicine in the 20th century.

Only the government can physically force competitors out of markets, or establish harmful monopolies through the granting of state franchises. Both actions are a violation of individual rights since such state franchises prevent those who do not have “political pull” to enter the state-regulated industry. State franchises are an insurmountable barrier to entry–a barrier created by the government.

The only “force” a capitalist can use to put his competitors out of business, is the “force” of providing a better product at a lower price as judged by those who purchase his products — such is the “power” of businessmen. If this is how he achieves his monopoly, then it is in no way harmful. Just because something is a “monopoly” — a single agent in a specified area — does not make it evil.