Let me give you some examples of monopolies and ask: Which are good and which are bad?
1. Megan and Ramon begin dating and become enraptured of each other. Soon they are monopolizing each other’s time and decide to form a lifetime, exclusive relationship.
2. A town in a remote area has a few stores (a grocery, a bank, and a gas station) but no restaurant – until Anita arrives and opens one. Soon she has a lively business of regulars and occasional travelers who eat their meals there.
3. A chemist invents a new coating that provides airtight seals at a fraction of the current cost. Soon his coating is being used for virtually all products that require an airtight seal.
4. For twenty years, Carrie and Hardy have been the only two accountants at a medium-size firm. They know the firm’s books intimately, as well as all of its vendors and customers. Carrie retires, leaving Hardy as the firm’s only accountant with extensive knowledge of the firm’s processes.
5. A mid-size manufacturing company has 1,000 employees, 990 of whom vote to form a union. The company’s owner signs a five-year contract agreeing to bargain only with the new union’s representatives on matters of wages and benefits.
6. A national government grants special status to a private firm as the only one allowed to deliver mail. If any other company tries to compete, the police will shut it down.
Monopolies are a regular feature of our lives. But they come about for many different reasons and impact us differently. Humans create and exchange all sorts of values with each other in many markets, and any principled policies about monopoly must be consistent.
So let’s start with Megan and Ramon, who were in the dating market. Each had some assets to offer others, and each wanted something of value in return — love, sex, security, adventure, and more. Each faced competition, and each offered competition to the others in the dating market. After advertising their personal features, perhaps subtly and perhaps overtly, and perhaps with the help of matchmakers who brokered their first get-together, they eventually found each other. During a series of meetings, they negotiated mutually-agreeable terms and entered contractually into long-term, monopolistic relationship.
How romantically I’ve told their story. But do we have any problem with the monopoly in this case?
Or do we say: No problem. Megan and Ramon are free individuals. They can choose to date others or not. Nobody has a right to Megan’s or Ramon’s affections should either choose to withhold them. They can commit to exclusive relationships with anyone they choose, as long as the other person involved agrees.
Would anything change in any of the following cases?
a. Suppose that Megan had been casually dating Charles and Neil, and both men were desperately in love with her. But Ramon showed up, and Megan broke it off with them. Brutal competition.
b. Suppose instead that they live in a remote town with very few eligible bachelors. Ramon can pretty much have his pick of the many available women. Buyer’s market.
c. Megan is an amateur chemist. She experiments with perfumes, finding a fresh scent that men like a lot. But she does not divulge her recipe, excluding other women from using the new fragrance, giving herself an edge in the dating scene. Innovation and competitive advantage.
d. Suppose the town council passes a law prohibiting its citizens from dating people from other cities. The locals will enjoy being able to choose their partners free from interlopers. Protection against foreign competition.
e. Megan and Ramon have not yet met, and because they are so beautiful and charming they have each been enjoying playing the field with lots of casual dates with different people. The mayor decrees that Megan and Ramon shall be allowed to date only one person each henceforth, as they are undercutting the chances of so many other daters. Managed competition.
What’s true of love is true of software, mail delivery, oil, aluminum, books — and anything of value that people create and trade. People should be free agents as producers and consumers, and any size of market share and any competitive tactics are legitimate as long as everyone’s free agency is respected. To put the point negatively, monopoly is only a problem when it arises or is enforced through compulsion.
A business that introduces a new product or service has, by definition, monopoly status. But the single seller of a new product is not a threat. Rather the seller is giving consumers another option, just as the new kid in town or someone with a new pick-up strategy is introducing another option in the dating market.
A business that acquires a large market share in a free market may become a monopoly — but that status is earned. It means that consumers have voluntarily chosen that business’s services over others, just as many men or women may want to date one very attractive person.
A business that has monopoly status may charge premium prices or restrict its pool of customers. But no business should be required to sell at a lower price than it desires, just as no one should be required to date anyone who does not meet their standards.
At the same time, customers have the option of buying or not buying at the monopoly price, as well as the option of substituting similar products, just as daters have the choice of accepting or rejecting a prospective date’s requests or substituting some other form of entertainment for the evening.
Also, monopoly status in a free market is never guaranteed because other competitors are free to enter the market. A monopoly business that charges high prices is vulnerable to any competitor that can offer a similar product at lower prices, just as an attractive person who makes great demands will find it hard to get as many dates. And a sometime-innovator who becomes stagnant is vulnerable to competitors who catch up and surpass those innovations, just as a new kid in town’s novelty can become stale and others can always up their dating game.
But everything important changes when political force is introduced. When a government confers special monopoly status upon a particular firm, that firm has no worries about competitors entering its market. Its incentives to innovate and lower prices are lessened. Also important is the fact that the monopoly firm was initially selected by politicians rather than by customers. Its incentives, accordingly, are to give politicians what they want in order to maintain its monopoly status — rather than to give customers what they want. Further: government monopolies also violate the freedom of everyone else to go into that line of business. Entrepreneurs who may have chosen to go into that field are prohibited from doing so.
For exactly the same reasons that government-managed monopolies in dating and marriage would be dehumanizing and unsatisfying, government monopolies in any area will be. Whom we associate with and on what terms should always be matters of choice.
But how far can we push this analogy between free dating and other human value pursuits? At least one more step.
In the dating market, not everyone finds true love. Some find no takers, some people settle for second best, and some get their hearts broken. Perhaps the lesson is that the same risks are real in any of life’s many markets, including business markets. And just as we must in the pursuit of love, we all need to develop the resilience and toughness necessary to handle life’s competitive ups and downs.