How Does a Free Market Prevent a Monopoly?

[Mattara]

Coercion doesn't imply violence. It's often more efficient to control things via positive, rather than negative, reinforcement. The carrot vs. the stick.

Coercion means causing things to happen. Just because we don't identify the causes doesn't mean there aren't any.

http://www.thefreedictionary.com/coerce

co·erce (k-ûrs)
tr.v. co·erced, co·erc·ing, co·erc·es
1. To force to act or think in a certain way by use of pressure, threats, or intimidation; compel.
2. To dominate, restrain, or control forcibly: coerced the strikers into compliance. See Synonyms at force.
3. To bring about by force or threat: efforts to coerce agreement.

 

[jgens]

Mattara, notice that your first definition does not necessarily imply that coercion must initiate violence. Large corporations can pressure smaller businesses to withdraw from a specific market by undercutting their prices as many members have noted. Thus, free market corporations are often coercive.

 

[f95toli]

Politics aside, shouldn't this -at least in principle- be a scientific question?

Does anyone know what the "typical" results are when markets are simulated in mathematical models?

Also, are these results modified when elements of real human -as opposed to idealized (by idealized I mean the idea of the "rational agent" that used to be very popular in economics)- human behaviour is introduced?

I know there is some very active research going which combines results from economics, psychology and neurology and as far as I understand some of the results they are not in agreement with classical economical models in situations relating to how/why we collaborate (a problem directly related to the rise of monopolies).
One interesting example (among many)is that if we are asked to value an object the value we give it depends on whether we own it or not, meaning we attribute a higher monetary value to things we own. A very basic results which obviously gives rise to a bias that as far as I know (I might be wrong) wasn't until quite recently no included in models of the economy.

It is perhaps worth nothing that one of the favourites for winning this years Nobel prize in economics is Ernst Fehr who is working in "behavioural economics", he used fMRI and other techniques; i.e. is is quite far from the traditional view of economics sd just being about liberal political ideas.

I think it is a bit odd that there is whole discipline (economics) which is supposedly trying to give us real (apolitical) answers to question such as the one asked by the OP which does not seem to have any impact whatsoever on the debate.

 

[Jasongreat]

My argument is that (lacking laws and regulation) large corporations can control the resources, distribution, market place, and to some degree even the consumer.

I understand that but IMO you can not deny that we have laws and regulations already in place and large corporations still control the resources, distribution, market place and I would go as far to say they control the consumer to a large degree, since large corporations basically control politics in the US today, and at no other time in history has the national government devled so deeply into our individual lives. The only way to control them is not to give them the power in the first place which our government was doing very well until the mid 1800's. It kind of goes along the same line as how our founders felt about the federal government, they only gave them the power they needed inorder to survive not to thrive. In a decade following the civil war the national government gave the railroads 100 million in taxpayer dollars and 200 million acres of land, how can a new startup compete when they have to buy their land and come up with their own capital and on top of that they have to overcome the regulation that the federal government put in place to control a corporation they had given a huge amount of leverage to. I do see your the point that I think you are making that we can't go from the system we have now to a completely free market until we first take away the power of corporations, in that regard I agree, but IMO we can't control the system we have now by adding more regulations. Like I have said before let's try to cure the problem instead of just bandaging it, if you have a nail sticking up from the floor and you step on it although a bandage will help it heal it won't stop it from happening again and you will not be safe until you remove or at least bend over the nail. I found an interesting article while looking at the history of corporations, it is not peer reviewed and as such can't be considered as fact in this forum but I am including it since it is pretty much my opinion on corporations, its not 100% but I didnt see any points that I completely disagree with until the third paragraph of the third page and on where it starts to make the argument for regulating the already powerful corporation like during the 1930's and on. http://citizenworks.org/corp/dg/s2r1.pdf"

Early federal regulation of commerce was directed at the purpose of protecting and expanding american enterprise, not limiting it, primarily through regulation of imports, infrastructure, and shipping lanes.

According to my reading most of the regulation was in each state, and I would say pretty powerful regulation but it was equal regulation because it was decided on before the people formed corporations, the only time the federal government regulated commerce was in interstate cases, and foreign trade. That was until the mid 1800's when the federal government became a national government and started to regulate everything, well at least they said they were regulating. Was it a coincidence that before national regulation the managers of a company were responsible for the actions of the company and after regulation they hold no moral responsibility whatsoever?

This is my very point though I would contend that there are intraindustry practices outside the common knowledge and view of the average consumer that can be used to control the industry and market. The help of consumer support only makes these things more possible.

I can't argue with the above statement at all, I just read the last lone inventor which was about the individual inventor, Philo Farnsworth, against the all powerful government backed monopoly which was RCA(completely made by the gov.) and how they used the exact things you are talking about to destroy Philo. In todays market I think that corporations don't even need to rely on consumers since they can make money on just their stocks, or from government sources, or imo the worst species is to destroy a corporation while pulling money out(liquidating) and are no longer completely dependent on the consumer.

The cost of doing business is the cost of doing business. I pointed out in the other thread that laws against theft, fraud, and threats curtail the capacity of others to compete in the market as well but we certainly consider these good laws to have.

We have these laws to preserve the liberty of individuals from infringement by others. I see no reason to think that there should be no laws governing the sort of infringements of liberty unique to the position of companies and corporations. If a company or corporation can not get started without infringing upon the freedoms of others then it should not be.

I am arguing versus complete deregulation so please do not cite overregulation in modern markets on which score I would likely mostly agree with you.

I disagree, I think that laws are in place to punish after the fact, since laws will never stop an action from happening, but if I remember right we argued that point in a different thread. I am not arguing against having laws, I am arguing about laws that are put into place after an action has already happened inorder to control that action in the future, since IMO all that will do is give an advantage to the company you are trying to punish. As far as the last sentence I quoted of yours, I completely agree. The problem I see is inorder for my plan to go forward all corporate charters would be declared null and void, where they would then have to petition the state government where they are going to reside to be re-instated, but before we start to re-instate the states would set the laws all corporations are going to have to follow, which I would be satisfied if they were just the same laws we had pre 1830. A free market does not mean free(unregulated) it means that the government doesn't get to pick winners and losers through regulation, and therefore everyone is equally free to succeed or to fail.

 

[jambaugh]

Mattara, notice that your first definition does not necessarily imply that coercion must initiate violence. Large corporations can pressure smaller businesses to withdraw from a specific market by undercutting their prices as many members have noted. Thus, free market corporations are often coercive.

That is not coercion. Coercion is the threat of the use of force. If you stretch the definition that far you can stretch it to mean any influence of a type you disagree with. Stick to specific meanings. If you want to label it call it "unfair trade practices" or "illicit practice" or something but coercion is when I threaten to punch you if you don't stop misusing the word "coercion".

I pointed out that speculators undermine the ability of a corporation to undercut.

 

[jgens]

That is not coercion. Coercion is the threat of the use of force. If you stretch the definition that far you can stretch it to mean any influence of a type you disagree with. Stick to specific meanings. If you want to label it call it "unfair trade practices" or "illicit practice" or something but coercion is when I threaten to punch you if you don't stop misusing the word "coercion".

I pointed out that speculators undermine the ability of a corporation to undercut.

Based on the definition of coercion that Mattara provided, that certainly is coercion - note that his first definition specifies pressure, threats, or intimidation. You can use your own personal definition if you like, disregarding pressure, but then any discussion would cease to be useless if we all modify definitions as we please.

Edit: Sorry if this last post seems disrespectful, that's not my intent.

 

[ThomasT]

Maybe I should have phrased it in terms of a greater ability (wrt dominant players) to control or unduly influence important variables, rather than "coercive power". It wasn't my intention to start a nitpicking contest wrt the meaning of coercion.

Anyway, my view is that markets free of government regulation of any sort will manifest all sorts of abuses of the labor pool -- as well as, eventually, coercive monopolies.

 

[WhoWee]

Perhaps it would be better to discuss a "monopoly" type example? MicroSoft was tested, and Google is aware of perceptions. Otherwise, why not take a look at the the phone companies.

 

[ThomasT]

At this point, can someone specify the mechanism(s) by which a free market might prevent the formation of monopolies (without assuming that monopolies are necessarily either a good or bad thing).

From Wikipedia:

In economics, a monopoly exists when a specific individual or an enterprise has sufficient control over a particular product or service to determine significantly the terms on which other individuals shall have access to it. [1] Monopolies are thus characterized by a lack of economic competition for the good or service that they provide and a lack of viable substitute goods. [2] The verb "monopolize" refers to the process by which a firm gains persistently greater market share than what is expected under perfect competition.

Assuming a free market, the conjecture is that the playing field inevitably becomes uneven. Dominant companies, and eventually monopolies, will emerge.

 

[f95toli]

At this point, can someone specify the mechanism(s) by which a free market might prevent the formation of monopolies (without assuming that monopolies are necessarily either a good or bad thing).

I think the "classical" game theory answer to that is that the equilibrium situation on a free market is for everyone to "defect" (to use the terminology of the Prisoner's dilemma) from a monopoly/trust. However -as I pointed out above- as far as I understand this might not be true in the real word because this assumes that everyone involved are "rational agents".

In the iterated Prisoner's dilemma (when the game is played many times) more complex models can give rise to a equilibrium that involves everyone cooperating, which in the real world means that a free market sometimes can give rise to a trust (which is also often seen in experiments with real people). This means that even in models of an "idealized" free market there is no guarantee of "free and fair competition".
Note that in "classical" economic theory there is no way for this to happen, companies would always defect even in the iterated scheme. But as far as I understand, this is now considered to be incorrect.

 

[Al68]

At this point, can someone specify the mechanism(s) by which a free market might prevent the formation of monopolies (without assuming that monopolies are necessarily either a good or bad thing).

The mechanism is profit motive.

In the absence of artificial barriers to entry or restrictions to competition, profit motive will lure competition into the market.

 

[f95toli]

The mechanism is profit motive.

In the absence of artificial barriers to entry or restrictions to competition, profit motive will lure competition into the market.

This is classical economic theory that -once again- might not turn out to be correct (and by that I mean that the mathematical models used to reach that conclusion might be too simplistic).
I might be wrong, but I don't think there is much scientific (as opposed to political) support for the idea that this will always happen. Remember that there are also incentives NOT to compete with a larger company and instead e.g. be bought up by them. This is a very complex question and is -as far as I understand- very much an area of active research.

 

[Al68]

This is classical economic theory that -once again- might not turn out to be correct (and by that I mean that the mathematical models used to reach that conclusion might be too simplistic).
I might be wrong, but I don't think there is much scientific (as opposed to political) support for the idea that this will always happen. Remember that there are also incentives NOT to compete with a larger company and instead e.g. be bought up by them. This is a very complex question and is -as far as I understand- very much an area of active research.

The question was, what is the mechanism? It's not a matter of theory that profit motive exists as such a mechanism.

The actual effectiveness of that mechanism is an area of research, but since no monopoly has ever existed without the help of government provided barriers to entry for competition, I'd say it's pretty effective.

It's impossible to prove that it would never happen, since like anything else, the fact that something has never happened isn't proof that it can't happen.

But, by definition, a free market is one in which competitors are free to compete, so the only way a monopoly could exist in a free market is if there were nobody that had the means and interest to compete, which is not a reasonable thing to expect in reality.

 

[f95toli]

But, by definition, a free market is one in which competitors are free to compete, so the only way a monopoly could exist in a free market is if there were nobody that had the means and interest to compete, which is not a reasonable thing to expect in reality.

I am not talking about proving anything since as you say this would be impossible. It is -however- possible to ask questions like: Assuming the agents act according to a certain set of rules, what is the Nash equilibrium (if there is one) etc?
Another thing one can do is to perform experiments on groups of people and see how they react when asked to collaborate or compete given a certain set of rules. This will -hopefully- give us some idea of how people/companies actually behave (as opposed to how we wish that they would behave) and this can then be feed into the models. Whether or not situations can arise where no one think it is worth the "effort" (or has the ability because the competitor can "block" all trade because of its size) to to compete with a large company is definitely an open question, it has to do with factors like how we e.g. react to the prospects of short -term vs. long term rewards ("sell to the competitor now or let the company grow and reap the benefits later") etc.

One thing we can be sure of is that we can never judge the merits of theory by how "reasonable" it is, the real world is full of examples of complicated systems that behave in an "unreasonable" manner (before computers came along many of the results of chaos theory would have been considered unreasonable) and that is before we even consider the fact that it is ultimately people making the decisions even in a company, and people do unreasonable things all the time

 

[Al68]

I am not talking about proving anything since as you say this would be impossible. It is -however- possible to ask questions like: Assuming the agents act according to a certain set of rules, what is the Nash equilibrium (if there is one) etc?
Another thing one can do is to perform experiments on groups of people and see how they react when asked to collaborate or compete given a certain set of rules. This will -hopefully- give us some idea of how people/companies actually behave (as opposed to how we wish that they would behave) and this can then be feed into the models. Whether or not situations can arise where no one think it is worth the "effort" (or has the ability because the competitor can "block" all trade because of its size) to to compete with a large company is definitely an open question, it has to do with factors like how we e.g. react to the prospects of short -term vs. long term rewards ("sell to the competitor now or let the company grow and reap the benefits later") etc

Well, we do have large scale "experimental" results in the U.S. alone. Relatively unregulated industries have plenty of competition, good value to consumers, and prices that would not have even been believed in the past (adjusted by inflation). Highly regulated industries, well just think of health care.

A big problem with the study of economics today is politics. Everyone has their own political beliefs, including economists. The reason there is disagreement about economic matters between economists is more a reflection of their political beliefs than anything else.

It's easy to say that a monopoly is theoretically possible in a free market, just like it's theoretically possible for randomly tossed scrabble pieces to spell out the U.S. constitution. And it's impossible for anyone to "prove" that it wouldn't happen. But there is certainly no shortage of data to show that in a free market, a monopoly is extremely unlikely, while becoming more and more likely with government regulatory barriers to competition.

 

[TheStatutoryApe]

Sorry I let this go for a few days and now it is much longer and has much more to respond to. I'll try to respond to as much as possible.

How about this analogy: You can't argue that drunk driving laws treat drunk people and sober people equally, just because everyone is free to drink. There is no reason for those of us that support those laws to claim that drunk people and sober people are treated equally by it, because clearly they're not. But we can argue that treating drunk people and sober people differently is justified.

It seems like your real position is not that people who operate a business shouldn't be treated differently than those that don't, but that treating them differently is similarly justified. Do I have that right?

Your drunk/sober argument muddies the waters as you treat the issue as if there are "drunk people" and "sober people" as opposed to there simply being people who may be either drunk or sober at any given time. Similarly, laws regarding business owners treat all people who may own a business. There are not "business owners" and "not business owners". There are only people, all of whom have the ability to potentially own a business but only some of which currently own businesses.
So yes, there is a similar justification; but no, no one is being treated differently.

No, my imagining that I'm in that position doesn't hinder a free market.

Seriously, it depends on whether "actively preempting others" involves fraud or force. The "free" in free market means free from fraud and force, not free from other people owning "means of production and distribution."

If owning or controlling property (means of production) is being restricted by force, then it's not a free market. Whether the force is applied by government or a private entity is irrelevant.

Fraud or force are not necessary to hinder a free market. So you run a business. You make a lot of money so you purchase the source of resources for your business. This is profitable for you so you purchase more of them. Eventually you own all or most of the resources necessary for your type of business so that anyone else who wishes to compete must purchase those resources from you. You don't need to buy resources from your self so you have a higher profit margin naturally and so are capable of selling at lower prices than your competition. You also find that it is profitable to buy up the means of distribution. Now you own your resources, produce your own product, and distribute it yourself greatly increasing your profit margin while any competition must pay you in order to get resources and distribute their product. You will be able to price your product well below theirs and still make a profit and they will not be able to compete.
You have now hindered the free market by making it impossible for anyone to compete with you and without the possibility of competition there is no free market. And you have not necessarily even done anything wrong.

What sort of infringements of liberty are unique to the position of companies and corporations? I can't think of any.

A basic and common one is that if you are a seller of products it is your responsibility to make sure that those products are safe for your consumers. Legally speaking a consumer has the right to a reasonable expectation that your products are safe. If there is some wholly unknown issue with the product you may not necessarily be held accountable legally but if there is a known issue with the type of product you sell and you have not gone through reasonable measures to assure its safety then you are liable. More than that since there has been quite a problem in the past with businesses not making sure to sell only safe products which have hurt several people our government has set up safety standards (regulations) in these industries to minimize the ability of businesses and corporations to hurt their consumers in this fashion. Theoretically any person who is hurt by a business may take legal action against them so why the regulation? Well getting injured, realizing that it is due to a certain product, getting a lawyer, taking a civil suit out against them, and eventually winning is a very long process and not one that all people are capable of. In the mean time the company can still operate and sell more product and injure more people. Eventually even if you win your suit and are paid damages the sum total of damages to you and any other of their consumers may be so much that the business may not be able to afford it. Then the business will go bankrupt and any number of people will be left harmed by poor business practices without any means of restitution. So to minimize this (it even happens often still) there a regulations put in place as a preventative measure.

Regardless, I don't think anyone has argued against such laws.

You seemed to have indicated that you are against any laws/regulations which pertain specifically to businesses or corporations as likely hindrances to a free and fair market.

A regulated private company can not compete evenly with a Government sponsored monopoly - I too apologize for being blunt.

Again, please read what I responded before. I am not interested in discussing how a regulated market can stand up to a state sponsored monopoly. I am interested in discussing the often cited mechanisms that supposedly exist naturally in a wholly unregulated market which will prevent a monopoly.

 

[Al68]

Your drunk/sober argument muddies the waters as you treat the issue as if there are "drunk people" and "sober people" as opposed to there simply being people who may be either drunk or sober at any given time. Similarly, laws regarding business owners treat all people who may own a business. There are not "business owners" and "not business owners". There are only people, all of whom have the ability to potentially own a business but only some of which currently own businesses.
So yes, there is a similar justification; but no, no one is being treated differently.

You just explained how my analogy was perfect, since like sober/drunk everyone potentially could own a business while only some do at a given time. Treating someone differently is still treating them differently even if they chose to enter the category that is treated differently. But unless it is unclear what I meant by "business specific" regulations, there is no reason to argue semantics.

Fraud or force are not necessary to hinder a free market.the means of distribution. Now you own your resources, produce your own product, and distribute it yourself greatly increasing your profit margin while any competition must pay you in order to get resources and distribute their product. You will be able to price your product well below theirs and still make a profit and they will not be able to compete.
You have now hindered the free market by making it impossible for anyone to compete with you and without the possibility of competition there is no free market. And you have not necessarily even done anything wrong.

You are describing a monopoly rising in an unhindered free market as an example of a free market being hindered? Regardless, no monopoly has ever existed without force or fraud (by the monopoly or government), so it's a moot point.

What sort of infringements of liberty are unique to the position of companies and corporations? I can't think of any.

A basic and common one is that if you are a seller of products it is your responsibility to make sure that those products are safe for your consumers. Legally speaking a consumer has the right to a reasonable expectation that your products are safe. If there is some wholly unknown issue with the product you may not necessarily be held accountable legally but if there is a known issue with the type of product you sell and you have not gone through reasonable measures to assure its safety then you are liable.

Hurting people that way is "unique" to companies?

You seemed to have indicated that you are against any laws/regulations which pertain specifically to businesses or corporations as likely hindrances to a free and fair market.

Yes, but I'm not against generally applicable laws against infringements of liberty.

 

[TheStatutoryApe]

You just explained how my analogy was perfect, since like sober/drunk everyone potentially could own a business while only some do at a given time. Treating someone differently is still treating them differently even if they chose to enter the category that is treated differently. But unless it is unclear what I meant by "business specific" regulations, there is no reason to argue semantics.

Legally speaking to be "treated differently" means that the law was made to apply to only certain people and not others. So while you may be arrested for some offense another person will not be arrested for committing that same offense. This is illegal in a modern common law legal system. It is an important and imminently logical distinction. Otherwise you are placing laws that "only effect drunk people" into the same category as laws that "only effect black people".

You are describing a monopoly rising in an unhindered free market as an example of a free market being hindered? Regardless, no monopoly has ever existed without force or fraud (by the monopoly or government), so it's a moot point.

I meant to reply to this assertion again earlier. Monopolies have been very common in history and still occur today even. It all depends on the scale that you are considering. It was quite common in many small towns that there was only one grocer or newspaper or radio station. The industrial revolution changed the size of the playing field. Now we normally would not think of a monopoly on such a scale as a single town, we only think of monopolies on a nation wide scale. Monopolies on the nation wide scale were never even possible until the industrial revolution.

During the industrial revolution we saw massive business growth and the emergence of large scale monopolies. http://eh.net/bookreviews/library/0280

Of course you will only criticize this as being due to government regulation but as far as I am aware most if not all of regulations directed towards business in this era were for the purpose of encouraging business and growth, not hindering it. Laws designed to act against businesses were later made for the purpose of controlling the monopolies that were getting out of hand.

Hurting people that way is "unique" to companies?

Yes. Business people are the ones who sell merchandise. You're average person does not and is not legally held to the same standard. If I had a cow and I gave some meat from it to a person and believed in good faith that it was good meat I will not be held liable if it turns out to have had something wrong with it even if I sold it or traded it to them. On the other hand a business is assumed to be responsible for making sure that their products are safe for their consumers. There's that nagging little distinction again. Any person can theoretically sell stuff. If they do this for a living or as a source of income though they are held to a different standard because they are considered to be running a business.

 

[WhoWee]

This is a timely topic, given that insurance companies now face anti-trust legislation - after being exempt since 1945.
http://online.wsj.com/article/BT-CO-20091014-711740.html

 

[Al68]

Legally speaking to be "treated differently" means that the law was made to apply to only certain people and not others. So while you may be arrested for some offense another person will not be arrested for committing that same offense. This is illegal in a modern common law legal system. It is an important and imminently logical distinction. Otherwise you are placing laws that "only effect drunk people" into the same category as laws that "only effect black people".

I never suggested those were in the same category. And I'm well aware of the difference between "treated differently" and "treated differently because of race".

Of course you will only criticize this as being due to government regulation but as far as I am aware most if not all of regulations directed towards business in this era were for the purpose of encouraging business and growth, not hindering it.

Yes, that's why government gave Standard Oil land and loans, etc.

Laws designed to act against businesses were later made for the purpose of controlling the monopolies that were getting out of hand.

Yes, the same monopolies that government was previously partnered with, "encouraging business and growth".

Hurting people that way is "unique" to companies?

Business people are the ones who sell merchandise. You're average person does not and is not legally held to the same standard. If I had a cow and I gave some meat from it to a person and believed in good faith that it was good meat I will not be held liable if it turns out to have had something wrong with it even if I sold it or traded it to them.

This is how hurting people is "unique" to businesses? The fact that you might hurt someone the same way? One of us obviously misunderstood what the other said.

On the other hand a business is assumed to be responsible for making sure that their products are safe for their consumers. There's that nagging little distinction again. Any person can theoretically sell stuff. If they do this for a living or as a source of income though they are held to a different standard because they are considered to be running a business.

That's exactly what I mean. But yes, if you sold someone meat that made them sick, they can sue you (common law). The fact that a business is more likely to be sued is because of their deeper pockets, and a greater number of people getting sick, not because they are subject to some law that you are not.

You are responsible in common law for your actions, too. The difference isn't artificially created by government or enacted into law. Their greater "meat safety responsibility" is a result of more meat being sold to more people, not some law that says they can be sued while you are exempt.

But to use your example, my position is that any law against selling unsafe meat should apply to everyone. Obviously it will affect a meat business more, but that's because they sell more meat, not because the law only applies to them.

 

[mheslep]

...Regardless, no monopoly has ever existed without force or fraud (by the monopoly or government), so it's a moot point...

Where are you going with this? Granted force and fraud can play a role in monopoly creation, but are you saying that a primary path to monopoly - http://en.wikipedia.org/wiki/Predatory_pricing" - does not exist, or that somehow predatory pricing requires fraud?

 

[TheStatutoryApe]

I never suggested those were in the same category. And I'm well aware of the difference between "treated differently" and "treated differently because of race".

"Treated differently" is "Treated differently". The reasons can be many and varied from race to religion to gender to sexuality. There is a reason why there is a distinction, as I have pointed out. You can not simply leave it up to judges, juries, and law enforcement to realize that there was some underlying assumption which makes the distinction. The distinction must be part and parcel to your system of law. If we are going to discuss laws then we need to keep this in mind. If a law regards businesses and all people are capable of running businesses then the law is equitable.

Yes, that's why government gave Standard Oil land and loans, etc.

Yes, the same monopolies that government was previously partnered with, "encouraging business and growth".

The government is a legitimate consumer. If it needs something done it may pay someone to get it done. As for giving land, yes I'm sure that many oil companies were given land. Only one company can drill in the same place so only one company can be given rights to drill on any given piece of land. Whom ever out bids the others gets the prize. As a capitalist I am sure that you would see this as proper yes?

This is how hurting people is "unique" to businesses? The fact that you might hurt someone the same way? One of us obviously misunderstood what the other said.

That's exactly what I mean. But yes, if you sold someone meat that made them sick, they can sue you (common law). The fact that a business is more likely to be sued is because of their deeper pockets, and a greater number of people getting sick, not because they are subject to some law that you are not.

You are responsible in common law for your actions, too. The difference isn't artificially created by government or enacted into law. Their greater "meat safety responsibility" is a result of more meat being sold to more people, not some law that says they can be sued while you are exempt.

But to use your example, my position is that any law against selling unsafe meat should apply to everyone. Obviously it will affect a meat business more, but that's because they sell more meat, not because the law only applies to them.

Anyone can sue anyone for anything, that does not mean that they will win. If I, in good faith, give meat to a neighbour I am not liable. They may sue me and they may try to prove in a court of law that it was not in good faith but rather that I was negligent, but if I was not negligent and they are unable to convince a judge or jury then I will not be held liable.

On the other hand a business is held to a different standard and will be found negligent if they did not take reasonable precautions to assure the safety of the meat. This is, as you say, because they are in the business of distributing meat to several persons. So those people have the reasonable expectation that the business will take such precautions. There is no such expectation for a private individual, only if that individual could have reasonably deduced there was something wrong with the meat would they be considered negligent. The law makes this distinction, through laws and regulations, otherwise a business distributing meat will be held to no other standard of safety than a judge or jury decides is reasonable which can be either good or bad for that business depending on the temperament of the judge and jury.

 

[Al68]

If a law regards businesses and all people are capable of running businesses then the law is equitable.

When I used the words "treated differently", I didn't mean it as a reference to illegal discrimination, or any comparison to it. I only meant that if engaging in free enterprise results in such a change in legal status, then it's not really "free". The reason it's called free enterprise is because people are free to do it. If we were talking about engaging in some other activity that we agreed people have a right to do, such as free speech, abortion, owning guns, etc, and engaging in that activity resulted in a drastic change in the person's legal status, it would be considered a restriction of those rights. The "different treatment" of people engaged in business serves as restrictions of the right to engage in free enterprise, whether you think those restrictions are justified or not.

As for giving land, yes I'm sure that many oil companies were given land. Only one company can drill in the same place so only one company can be given rights to drill on any given piece of land. Whom ever out bids the others gets the prize. As a capitalist I am sure that you would see this as proper yes?

My point here was that, as you said, government used its power to "encourage growth" of businesses, then when one grew too much, government used its power to "prevent monopolies". You just can't then say "look what happens when government does nothing".

The law makes this distinction, through laws and regulations, otherwise a business distributing meat will be held to no other standard of safety than a judge or jury decides is reasonable which can be either good or bad for that business depending on the temperament of the judge and jury.

I never said the law didn't make the distinction, clearly it does, otherwise I wouldn't have mentioned it. We were talking about the context of suits in common law, not statutes enacted by government.

In suits in common law, people, whether in business or not, in fact are "held to no other standard than a judge or jury decides is reasonable".

As far as government enacted statutes, I didn't say that current "meat safety laws" applied equally to everyone who sold meat, I just said that they should. As a specific example, if we hypothetically decide to pass a law that makes it illegal to sell unfrozen/uncanned meat over 3 days old, then nobody should be permitted to do so. If it's unsafe for a business to do it, it's unsafe for anyone to do it.

As far as regulations that enable government to exercise ownership rights of a business by actually partially managing the internal operations of a business, clearly the practical result is that the business is no longer a private business. That's a pretty obvious case of being "treated differently". (no comparison to racial or gender discrimination intended)

 

[TheStatutoryApe]

When I used the words "treated differently", I didn't mean it as a reference to illegal discrimination, or any comparison to it. I only meant that if engaging in free enterprise results in such a change in legal status, then it's not really "free". The reason it's called free enterprise is because people are free to do it. If we were talking about engaging in some other activity that we agreed people have a right to do, such as free speech, abortion, owning guns, etc, and engaging in that activity resulted in a drastic change in the person's legal status, it would be considered a restriction of those rights. The "different treatment" of people engaged in business serves as restrictions of the right to engage in free enterprise, whether you think those restrictions are justified or not.

As I already stated previously, any law what so ever can be labeled as a restriction on free enterprise. Whether or not it focuses particularly on businesses is irrelevant. If a law does not effect persons who are not running businesses and effects all persons who are running businesses how in the world does this make the market no longer free? The playing field is still level. Any person who decides to run a business can do so and will be effected by the law. There is no greater hindrance to the market by these laws than by any law which effects all persons regardless of whether or not they own a business. This is why I keep harping on the legal distinction. There is no inequity.

My point here was that, as you said, government used its power to "encourage growth" of businesses, then when one grew too much, government used its power to "prevent monopolies". You just can't then say "look what happens when government does nothing".

The idea that the government could be completely and utterly separate from the economy is ridiculous. If they decide that the country needs more infrastructure and so takes actions to get that done how do you expect them to go about it other than to hire someone or have people bid for the job? Should the government allow anyone who wants to to lay down rails for a railroad? What limit would you put on the number of parallel railroads laid down by competing companies? Or would that be government interference? What happens to the rails laid by companies that it turned out could not compete? Do they just stay there unless someone else wants to buy them? So we could theoretically have five parallel rails with only one or two operating because they are the only ones that can afford to do business there at the moment?

I never said the law didn't make the distinction, clearly it does, otherwise I wouldn't have mentioned it. We were talking about the context of suits in common law, not statutes enacted by government.

Common law is made up in part by the statutes enacted by the government.

In suits in common law, people, whether in business or not, in fact are "held to no other standard than a judge or jury decides is reasonable".

Guided by the law. A judge has no authority to make any decision he wishes without respect for the law. Juries are a slightly different matter but they are still guided by the law which theoretically gives them an idea of what is considered reasonable for certain circumstances.

As far as government enacted statutes, I didn't say that current "meat safety laws" applied equally to everyone who sold meat, I just said that they should. As a specific example, if we hypothetically decide to pass a law that makes it illegal to sell unfrozen/uncanned meat over 3 days old, then nobody should be permitted to do so. If it's unsafe for a business to do it, it's unsafe for anyone to do it.

So you believe a man who owns a farm with a cow on it should be held to the same standard as any business? He should make sure that if he slaughters the cow it should be tested by a lab or something to be sure that it is safe? Otherwise if he gives some to his neighbour and the neighbour's family gets sick and one of them dies he should be held liable? How about if he and his own family eat the meat as well and his whole family die except for him? He should be held liable by the court for the deaths of his neighbours family member and his own family? Go to jail, lose his farm, lose any money he has, probably rot and die in prison all because he couldn't afford to send samples from his cow off to get tested in a lab somewhere? What better way to promote monopolies than by making it impossible for anyone to afford the liability of producing their own food.

Or do you think it should be ok for a large company to mass produce and distribute meat and give no more attention to the safety of it than a simple visual inspection of the animal before slaughter?

As far as regulations that enable government to exercise ownership rights of a business by actually partially managing the internal operations of a business, clearly the practical result is that the business is no longer a private business. That's a pretty obvious case of being "treated differently". (no comparison to racial or gender discrimination intended)

Well when I have a dispute with my neighbour and those nosey buggers come in and haul me away for resolving our own private dispute with my gun I am obviously no longer a private citizen. The government is managing my life for me and treating me differently than those persons that call the police or go to court to resolve their disputes.

 

[Quincy]

But, by definition, a free market is one in which competitors are free to compete, so the only way a monopoly could exist in a free market is if there were nobody that had the means and interest to compete, which is not a reasonable thing to expect in reality.

Competition doesn't prevent the existence of monopolies...

 

[WhoWee]

Competition doesn't prevent the existence of monopolies...

There's an old saying, "he who has the Gold - makes the Rules", and it's true - Capital is the key to growth.

Normally income (after taxes) is the slow but steady route to growth, the ability to borrow large sums is a faster track, and funds obtained through an IPO (often based upon future growth projections) can lead to exponential growth.

Typically, a company will move through all 3 phases - unless they have a unique concept that is successful overnight.

Once a company is publicly owned, it may use it's stock as "acquisition capital" to gobble competitors. Sometimes this is the only way to sustain growth (and support market share price - to acquire more competitors).

The Government controls interest rates and bank lending policies through regulation (and now participation?). The banks decide winners and losers (as well as the Government in some cases through SBA and tax incentives) with loan selection. The Government also regulates international trade and imposes taxes - both very important to the way business is conducted. Investment banks pick winners and losers and the Market verifies suitability.

Normally, the ultimate goal is to win, to be the best. To oversimplify (as this post is already too long), in business the ultimate winner is labeled a "Monopoly" and "busted up" - by the Government that enabled it in the first place.

 

[Al68]

If a law does not effect persons who are not running businesses and effects all persons who are running businesses how in the world does this make the market no longer free?

I was referring to the "free" in "free enterprise", not "free market". The freedom to engage in business is what is limited by "legal distinctions" made as a result.

This is why I keep harping on the legal distinction.

What is the difference between making a "legal distinction" between people and "treating them differently"? The fact that others and current law makes such a distinction doesn't obligate me to make it.

So you believe a man who owns a farm with a cow on it should be held to the same standard as any business?...
Or do you think it should be ok for a large company to mass produce and distribute meat and give no more attention to the safety of it than a simple visual inspection of the animal before slaughter?

I think that they should not be treated differently by government (no arbitrary legal distinction) in statutes. And the distinction is arbitrary, since presumably there is an arbitrary number of cows owned above which one would be treated differently by the law (legal distinction, if you prefer). And whatever number is chosen, for example 10 cows, it's not like there is something inherently special about that number. The distinction is completely arbitrary and not based on the actual action performed, since it is identical in either case. Either way, someone sold bad meat.

Of course if a law requires only every tenth cow to be sampled, then both the small and big business may sell their first 9 unsampled, so there would be no "legal distinction", and no objection on my part. But if a law required every cow to be sampled, then no cow should be sold (as meat) that wasn't sampled, and the number of cows owned should be irrelevant.

A better example might be the laws that apply only to businesses with 50 or more employees. There is nothing inherently special about the number 50, it was arbitrarily chosen. Hiring that 50th employee has a regulatory cost to a business that is many times the employee's salary, to say the least. I'm sure you aware of the disproportionate number of businesses that have 48 or 49 employees.

This is a big reason many small businesses have a hard time competing with larger ones, government is artificially limiting the number of people they can hire.

Well when I have a dispute with my neighbour and those nosey buggers come in and haul me away for resolving our own private dispute with my gun I am obviously no longer a private citizen. The government is managing my life for me and treating me differently than those persons that call the police or go to court to resolve their disputes.

Comparing shooting someone with "managing the internal operations of their business"? The force used by government to imprison murderers is defensive force to protect the public, not management of someone's private business.

Yes, government is justified in treating a criminal differently from the person that called the police.

 

[Al68]

Where are you going with this? Granted force and fraud can play a role in monopoly creation, but are you saying that a primary path to monopoly - http://en.wikipedia.org/wiki/Predatory_pricing" - does not exist, or that somehow predatory pricing requires fraud?

Despite the fact that your link points out that there isn't a single example of this ever happening, such a situation sounds like Walmart to me. Walmart's prices have caused many competitors to go out of business, and they are the leading retailer by far. But the term "predatory pricing" doesn't refer to a company trying to sell at lower prices to increase profits, it refers to a company selling at low prices, even at a loss, to put competitors out of business in order to make huge profits then with high prices. This just won't work in a free market, because, like Walmart, they know that if they try to raise their prices enough to make up for previous losses and come out ahead, potential competitors will pounce like a lion on a wounded lamb.

So, yes, I would say that path does not exist in a free market.

 

[mheslep]

Despite the fact that your link points out that there isn't a single example of this ever happening,

Huh?
http://en.wikipedia.org/wiki/Predatory_pricing#Examples_of_alleged_predatory_pricing

such a situation sounds like Walmart to me. Walmart's prices have caused many competitors to go out of business, and they are the leading retailer by far. But the term "predatory pricing" doesn't refer to a company trying to sell at lower prices to increase profits,

Right

it refers to a company selling at low prices, even at a loss, to put competitors out of business in order to make huge profits then with high prices.

Right

This just won't work in a free market, because, like Walmart, they know that if they try to raise their prices enough to make up for previous losses and come out ahead, potential competitors will pounce like a lion on a wounded lamb.

So, yes, I would say that path does not exist in a free market.

I would say you are ignoring some barriers to entry, perfectly efficient markets, etc.

Now it happens that I generally agree that predatory pricing claims are way overblown. There's a respected academic study that looked at all of the pred. pricing claims about Standard Oil and found them essentially non-existent. Furthermore, I agree that governments enable monopolistic pricing as you have outlined above.

That said, monopolies are acknowledged to exist in free market systems all by themselves. Waving them away misses the larger point: What can or should be done about them? I like Milton Friedman's point on the subject. The only alternatives to monopoly are either 1) public monopolies such as the post office, or 2) high restrictive regulation. Friedman's point is that both of those alternatives have very high carrying costs, and that if we compare those government imposed costs to the higher prices imposed by monopolies, we find that we're better off with monopolies, esp. given the monopolies tend to eventually fall apart because of the reasons you outlined above, and the public monopolies live forever.

 

[Al68]

That said, monopolies are acknowledged to exist in free market systems all by themselves.

There are no such examples, simply because there are no completely free markets. Monopolies have existed in relatively free mixed economies like the U.S., but only with the aid of government.

The only alternatives to monopoly are either 1) public monopolies such as the post office, or 2) high restrictive regulation.

I think we mostly agree, but notice that those "alternatives" to monopolies are just worse monopolies, especially #2.

If government is greatly controlling an industry by regulation, that's equivalent to a government monopoly, since the word "ownership" means the right to control. Whether such control results in government revenue, or who "owns" a business on paper, is not very relevant to consumers. They would have no choice but to buy that product from a government controlled enterprise.

And calling different businesses "competitors" only makes sense if they are each under at least mostly independent control.

 

[mheslep]

There are no such examples, simply because there are no completely free markets. Monopolies have existed in relatively free mixed economies like the U.S., but only with the aid of government.

That's spurious. You're asserting it as a fact which demands some backup. Where is it? Just stating that government is involved in the marketplace (yes of course, though in some markets very slightly) doesn't necessarily mean the government facilitated every monopoly in large part, or even at all. If that's your implication, then it is a http://en.wikipedia.org/wiki/Fallacy_of_the_single_cause" .

I think we mostly agree, but notice that those "alternatives" to monopolies are just worse monopolies, especially #2.

If government is greatly controlling an industry by regulation, that's equivalent to a government monopoly, since the word "ownership" means the right to control. Whether such control results in government revenue, or who "owns" a business on paper, is not very relevant to consumers. They would have no choice but to buy that product from a government controlled enterprise.

No, the USPS is not the equivalent of anti-trust regulation and, say, the break up of ATT. Though ATT is subject to some government controls, as is all business, in no way is it the same thing as the USPS. The major thing they have in common (relevant to this discussion) is that both cases (anti trust regulation and the USPS) are examples of increased costs to taxpayers.

 

[Al68]

That's spurious. You're asserting it as a fact which demands some backup. Where is it?

I was pointing out that there is no evidence that a monopoly could arise without government help, not that there is empirical proof it couldn't. It's impossible to "prove a negative", so all we have empirically is a total lack of any examples of monopolies arising without government help. With the Standard Oil example, government gave them such help, so their becoming a monopoly isn't evidence that they would or wouldn't have also become a monopoly in the absence of such help.

No, the USPS is not the equivalent of anti-trust regulation and, say, the break up of ATT. Though ATT is subject to some government controls, as is all business, in no way is it the same thing as the USPS.

I didn't say any of that.

 

[mheslep]

Im referring to this statement, which is not a negative.:

Monopolies have existed in relatively free mixed economies like the U.S., but only with the aid of government.

I don't think its supportable.

 

[russ_watters]

Nor do I.

Al68, you need to substantiate your claim that the government gave Standard Oil substantial aid to facilitate the growth and formation of the monopoly. Ie, after a quick read through the wiki on Standard Oil I see no mention of government aid at all, much less aid of a scale that could have helped facilitate the creation of the monopoly. On the contrary, I see a company that quickly developed and successfully implimented anti-competitive tactics and was fought amost every step along the way by local, state and federal governments until the Sherman Act finally stopped it.

Ie, the concept of a "trust" was developed by Rockerfeller for the purpose of circumventing legislation to limit the size of companies.

http://en.wikipedia.org/wiki/Standard_Oil

And how about the example of Microsoft? How was it government created?

In my opinion, this is an obvious argument against reality.

 

[TheStatutoryApe]

I was referring to the "free" in "free enterprise", not "free market". The freedom to engage in business is what is limited by "legal distinctions" made as a result.

My argument is still the same. What difference does it make if all people engaging in business are treated the same way? Laws that apply to all individuals whether or not they are engaged in business are just as restricting of freedom of enterprise as ones that only apply to people who are engaged in business.

What is the difference between making a "legal distinction" between people and "treating them differently"? The fact that others and current law makes such a distinction doesn't obligate me to make it.

I was referring to the distinction between treating people differently and treating situations differently. That "legal distinction" is that it is illegal to treat people differently, the law may only treat situations and circumstances differently. Owning a business is an element of circumstance, it is not fundamental to the person.

I think that they should not be treated differently by government (no arbitrary legal distinction) in statutes. And the distinction is arbitrary, since presumably there is an arbitrary number of cows owned above which one would be treated differently by the law (legal distinction, if you prefer). And whatever number is chosen, for example 10 cows, it's not like there is something inherently special about that number. The distinction is completely arbitrary and not based on the actual action performed, since it is identical in either case. Either way, someone sold bad meat.

Of course if a law requires only every tenth cow to be sampled, then both the small and big business may sell their first 9 unsampled, so there would be no "legal distinction", and no objection on my part. But if a law required every cow to be sampled, then no cow should be sold (as meat) that wasn't sampled, and the number of cows owned should be irrelevant.

So a company that raises, slaughters, and distributes meat from several cows a year should have no more expectation placed upon them to make sure the meat is safe than a man who owns a single cow and eventually slaughters it for meat once it is no longer giving milk? Even though by circumstance the company is far more likely to wind up with tainted meat? Or would you require the man who by circumstance is significantly less likely to wind up with tainted meat to go through the expense of having it tested?

Comparing shooting someone with "managing the internal operations of their business"? The force used by government to imprison murderers is defensive force to protect the public, not management of someone's private business.

Yes, government is justified in treating a criminal differently from the person that called the police.

My dispute between myself and my neighbour is private. Theoretically my actions, whether it be shooting punching or yelling at them, may have an impact on society and so it is deemed in the interest of society to have such 'private' interactions regulated by law. A business is by its very nature an amalgam of private contracts and interactions between several members of the public greatly increasing the power of the business to have broad effects on the community as a whole.
If I were to get pissed off and kill one neighbour per year every year I will still likely be connected to fewer deaths per year than most large food distributing corporations are connected to per year merely as incidental to doing said business. And that's with stringent government regulation.