Chapter 12 Monopoly

Chapter 12 Monopoly - CHAPTER 12 Monopoly Power and Firm...

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CHAPTER 12 Monopoly Power and Firm Pricing Decisions That competition is a virtue, at least as far as enterprises are concerned has been a basic article of faith in the American Tradition, and a vigorous antitrust policy has long been regarded as both beneficial and necessary, not only to extend competitive forces into new regions but also to preserve them where they may be flourishing at the moment. G. Warren Nutter Henry Alder Einhorn t the bottom of almost all arguments against the free market is a deep-seated concern about the distorting (some would say corrupting) influence of monopolies. People who are suspicious of the free market fear that too many producers are not controlled by the forces of competition, but instead hold considerable monopoly power. Unless government intervenes, these firms are likely to exploit their power for their own selfish benefit. This theme has been fundamental to the writings of John Kenneth Galbraith. The initiative in deciding what is produced comes not from the sovereign consumer who, through the market, issues instructions that bend the productive mechanism to his ultimate will. Rather it comes from the great producing organization which reaches forward to control the markets that it is presumed to serve and, beyond, to bend the customers to its needs. 1 Currently, the Department of Justice and nineteen state attorneys general are suing Microsoft because of the concern that one firm has too much “market power.” Furthermore, the company, as a consequence, is harming consumers as well as its potential market rivals and may be doing other damage to the economy, for example, impairing competition. This chapter is really a continuation of our earlier discussion of “market failures,” for monopoly is often seen as one of the gravest of all forms of failure in markets. Accordingly, we will examine the dynamics of monopoly power and attempt to place their consequences in proper perspective. We will also consider the usefulness of antitrust laws in controlling monopoly and promoting competition. This chapter will elucidate the government’s concerns with Microsoft’s market position. It will also help us understand Microsoft’s court defense. In the next chapter, we will apply the model of monopoly developed here to two forms of partial monopoly, monopolistic competition and oligopoly. 1 John Kenneth Galbraith, The New Industrial State (Boston: Houghton Mifflin, 1967), p. 6. A
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Chapter 12 Monopoly Power and Firm Pricing Decisions The Origins of Monopoly We have defined the competitive market as the process by which market rivals, each pursuing its own private interests, strive to outdo one another. This competitive market process has many benefits. It enables producers to obtain information about what consumers and other producers are willing to do. It promotes higher production levels, lower prices, and a greater variety of goods and services than would be achieved otherwise. Monopoly power is the conceptual opposite of competition. Monopoly power is
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Chapter 12 Monopoly - CHAPTER 12 Monopoly Power and Firm...

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