Antitrust and Monopolies

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The Objectives of Antitrust Intervention

Public opinion believes that the societal apparatus of compulsion and coercion, the government, should protect society from monopolies: Monopolies restrict the supply of products and harm the welfare of the common man. The government has to step in and put and end to this injustice. It's intervention is supposed to foster free enterprise and fair competition and protect the poor and hapless from powerful corporations.

The term monopoly needs to be defined more precisely here. There are two types of monopolies which, from a praxeological perspective, have completely different implications.

The supporter of antitrust enforcement by the government does not make a distinction between the two and hence arrives at completely flawed conclusions.

There are the 'Coercive Monopoly' and the 'Market Monopoly'.

The Coercive Monopoly is simply a monopoly based upon aggression or the threat thereof. It is not the monopoly that we need to discuss here.

The type of monopoly in question is the 'Market Monopoly': Antitrust proponents claim that an unhampered free market produces market monopolies and that it is the government's job to prevent this from happening.

The Market Monopoly

The market monopoly is a company that operates on the free market, meaning a market unhampered by aggression. A company in that environment is a group of people that jointly works towards withdrawing factors of production (raw materials, labor, etc.) from the market in voluntary contracts, and combines them in lines of production where they create products/services that are, from the consumer's point of view, worth more than where the factors were employed prior to withdrawal (which is implicitly expressed in a price premium).

This in itself is nothing but the schoolbook definition of a company on the free market, seeking to make a profit. The particular thing about a company that holds a market monopoly is that there is no other company that sells the same product. (The fact that every company in that sense has a monopoly over its own products, shall be passed in silence, and is a fact that antitrust proponents would not even bother looking into. For our purposes it shall suffice to consider similar products.)

But this does not change the fact that, based upon the law of marginal utility, the market monopoly company has to lower the price for every additional unit it sells to the consumers, in order to increase its profit. It also does not change the fact that it has to produce a useful product that satisfies a consumer demand. It also does not change the fact that this whole process is completely voluntary and peaceful on the part of the seller, as well as on the part of the buyer. It also does not change the fact that venture capital always stands ready to provide capital to entrepreneurs who are completely free at any time to identify cheaper processes and sell at cheaper prices and/or better quality, outstripping the previous monopoly, and ultimately reaping a profit to satisfy the profit-seeking venture capitalists, while at the same time improving the consumer's situation.

Yet, for the sake of the antitrust proponents' argument, we shall pass in silence all these facts and inquire as to what effects the government's antitrust intervention will have regardless.

The Antitrust Intervention

What antitrust proponents now ultimately suggest is that the social apparatus of compulsion and coercion, the government, impose a maximum number of products to be sold by this monopoly company, and step in with police force if the company dares to satisfy more consumers than allowed by its decree. The fact that the company, as well as the consumers, are merely acting voluntarily towards what they consider to be their best choice, does not interest the antitrust proponents: In their minds, the fact that the people, in their role as consumers with every penny and every dollar, are casting a conscious vote, by choosing to purchase the product they seek, is a mere expression of the ignorance and the gullibility on the part of the public. The government is omniscient, its will supreme. Its decree has to be followed and enforced when violated. How dare the consumers make the decision who to buy from!

Usually the government employs market share statistics, based on the revenue generated from the products in question. It decrees, for example, that company XYZ, is not allowed to sell more than the equivalent of 40% market share worth of its, say, operating system software ABC. Why exactly 40%? Why not 39.95% Why not 40.1%? There is no logic whatsoever behind this approach. It is so blatantly arbitrary that the antitrust doesn't even bother to justify it on scientific, or at least somewhat logical, grounds.

The Consequences of Antitrust Intervention

After the government steps in and limits the supply of the product in question, who ultimately suffers? The marginal consumers, who would have purchased the additional unit of the product whose supply has been cut off. How this attains the objective of fostering free enterprise and fair competition and protecting the poor and hapless (those who cannot afford it at higher prices until their margin is met) from powerful corporations, is yet to be answered by antitrust proponents. (Term explained: Marginal Utility) In fact, the policy attains the exact opposite.

True, after the government has intervened, sooner or later a new entrepreneur will step in and fill the gap with a similar product. (The fact that this can occur just as likely without any restriction of the market monopoly company shall be passed in silence.) However, he will not be under any pressure from from the previous market monopoly company. He merely stepped in to fill the gap, because the police intervened and outlawed by force any more sales from the market monopoly company. At this point, his position is not threatened at all. Due to his inexperience and lack of competitive pressure, his product will most likely be inferior to the previous market monopoly's product. It will take him much longer to get to a point where his product can measure up to the previous market monopoly company's product. Economies of scale will set in at a much later stage for this entrepreneur, so as he increases production, his prices will not drop as fast as previously. Marginal consumers will have to do with his inferior product for the time being.

The fact that a new entrepreneur steps in to fill the gap will not in the slightest make the market more competitive or fair. Quite the opposite: The coercive intervention creates a less competitive environment with less competitive pressure and the consumers ultimately suffer.

The policy of antitrust intervention is bound to fail.