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Economics Primer 6: Monopolies

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“Mono” means “one”, and “poly” means “many”. And therefore, “monopoly” means “one over many”. Or, in a technical sense, monopoly describes a situation where there is a single seller in a market. Perhaps your cable company is a monopoly. Do you live in a small town? Then your local Wal-Mart has a retail monopoly. To be sure, Halliburton has a defense-contractor monopoly. And in the area of manufactured consumer goods, China has a monopoly.

What is wrong with a monopoly? Mostly, since they have no competition, they can behave any way they please – from charging high prices to selling inferior products to abusing their workforces. Basically, monopolies have neither incentive to be efficient nor any incentive to care about anything other than grabbing undeserved money.

The solution to the monopoly problem, obviously, is a single strong central government. Only a powerful public body can have the ability to identify monopoly and enforce remedies.

But let's go back and think about how monopolies get their power. Let's use Wal-Mart as an example. Prior to the entry of Wal-Mart in any small market, there are many competing businesses: A family-operated general store and a family-operated gas station would be a typical picture of competition. And then a huge Wal-Mart opens nearby, and crushes the competition. How? Well, certainly the townsfolk do not support the cold and anonymous Wal-Mart over the family-run stores!

Instead, Wal-Mart collaborates with the monopolistic Chinese to offer items at deceptively low prices. Why “deceptive”? Because the so-called “always low prices” do not include the costs to society. For instance, it's a fact that 15% of Wal-Mart employees do not have health insurance. As a result, they need public assistance and become a burden on taxpayers.

Of course, one of the main goals of any society should be to provide everyone with public health insurance. Except for Wal-Mart employees. Wal-Mart should pay for them. Is this a contradiction? No it isn't. And why not? Because Wal-Mart is a large monopoly! Are you confused? I'm not.

Anyway, when people see these deceptively low prices, they shift their expenditures to Wal-Mart. But how can this be, if they (rightfully) despise Wal-Mart? It's because Wal-Mart has the power to destroy people's will power. As much as shoppers want to shop at the family-run general store, they are physically unable to do so. They try to drive to the general store, but their hands turn the steering wheel to Wal-Mart. They try to drive straight, but they no longer have control over their muscles; the car turns. And they are forced to walk into Wal-Mart.

Without any customers, the general store and gas station close, the owning families have their live's savings wiped out, and they end up cleaning urinals at Wal-Mart for sub-minimum wages. And just for kicks, monopoly Wal-Mart will lock them in the store overnight and then burn the store to the ground before building an even larger Wal-Mart down the road.

Can anyone open a store to compete with Wal-Mart? No they can't. Why not? Because, by definition, Wal-Mart is a monopoly. If there was competition, the monopoly premise would be wrong. Is Target a competitor? Is Family Dollar a competitor? No they aren't. Why not? Because Wal-Mart is a monopoly.

Monopolies can be tamed by labor unions. Unions can assemble many workers and speak as one voice. This enables many workers to become, in effect, a single mega-worker with the power to shut down any monopoly that abuses its powers. In “closed shop” states, all it takes is a simple majority vote to require the monopoly (or any other company) to only hire union people. And all employees, by law, are then compelled to join the union. The resulting labor unity is therefore the opposite of a monopoly. Is it a contradiction that a single employer is called a monopoly, while a compelled single worker voice is not a monopoly? No it isn't. And why not? Because monopolies are destructive and unions are progressive. Are you confused? I'm not.