how does the free marketeers deal with monopolies?

I would call myself a free marketeer but I'm wondering how would the free market deal with monopolies that will inevitably arise in some markets were you have to have a huge start capital. and in other scenarios were one could simply buy off the competition. In essense, how would the free market function without anti-trust laws?

 

The free market isn't anarchy, just minimal laws to put everyone on a level playing field. Well written anti-trust laws don't kill the free market any more than good property rights laws do.

Today, it is more difficult to create a monopoly - there are too many alternatives, suppliers from other countries (black market if required), or other ways of achieving the same results (video conferencing instead of business travel). And, healthy competition pits the greedy against the greedy, with the consumer being the winner.

Even when there isn't a significant competitor (Microsoft for example), products keep getting better, and prices stay the same, or drop - a defacto monopoly, without monopolistic behavior - why? profit maximization. Who has better toys - the government or South Korea, or the "government" of North Korea?

Today, there are many opportunities where the capital requirements aren't that high.

The exception is monopoly by government regulation, and that we have today. How are we dealing with that? We want smaller government (Tea Party). In fact the most monopolistic behavior today comes from government.

One way government gets too much power is by abusing anti-trust laws. Both IBM and Microsoft did little to influence government (buy favor), until they were run through the US anti-trust machine. Neither company was punished for violation, and both companies now pay lobbyists to buy favor - government 2, free market (and consumers) 0.

 

How do anti-trust laws make market entry easier in this case? Would the government give grants or loans to help with the initial investment? I think the number of industries with a high initial startup cost are fewer than ever. Record labels and movie studios can start in someone's basement, projects can be funded via PayPal or KickStarter, data service providers allow their bandwidth to be sublet. As long as it's easy to find investors I don't think a monopoly can exist for long. Having a monopoly in one industry doesn't exactly mean that industry needs newcomers anyway. If natural gas can fuel our cars why would we need another oil refiner or driller? If people start replacing tv with Internet why would we need more cable companies (although cable companies typically do both, cellular Internet is becoming a fair alternative)?

 

So basically monopolies won't even occur and if they do it's profitable for the monopolists to continue to lower their prices and raise the quality? wouldn't raising the prices and lower the costs, lowering quality, make even more profit?

Edit: response to first reply.

 

This would be naive to the extreme. Theory of the firm informs us that its quite natural to see market concentration in capitalism. There is no 'natural' boundaries of the firm stopping market power. The hierarchies used in capitalist firms then encourages market concentration, ensuring market failure and 'free market economists' being tacit supporters of coercion

 

This country was founded on free market ideology but even then, they recognized that monopoly, fraud, and illegal force did not belong in the market and limit free market ability. That is why we are a country of laws.

 

Not true. Your country used interventionism from day 1. Indeed, it was arguably a crucial aspect for ensuring economic development

 

but a monopoly is simply using one's position as the sole provider to charge a high price, there's no fraud or force involved. And if it's come to by only voluntary interactions stopping it would actually be a violation of the free market.

 

Nonsense. A monopoly can only maintain its inefficiency, understood by a welfare loss characterised by a deadweight loss, by aggressive action against potential rivals. Its conflict, rather than exchange, by definition.

Of course you do have more positive analysis into monopoly, such as creative destruction. Its rarely used though as the ultimate outcome is argued to be a non-Marxist form of socialism

 

And if nobody purchases the product because the price is prohibitively high, even the monopoly will have to lower prices. Natural monopolies in the long run simply do not exist without some type of government privilege or bailout sustaining them. Free market monopolies are simply unsustainable.

The reason a monopoly is unsustainable is that it has only two ways of keeping out competition without using force (or government): 1. Keep prices so low that no competitor wants to join the market. 2. Out innovate your competitors in providing new products and services to existing markets.

The moment the monopoly begins to raise prices, competitors are free to offer lower priced goods. Most people assume monopolies will just keep prices high...but selling a good at a high prices is not competitive. And there is nothing wrong with selling a product at an incredibly low price, for that benefits everyone.

 

I disagree. Monopoly means you have the sole distributorship of a product. If that product is necessary for commerce, then you will not go out of existence. For instance, the government broke up Standard Oil when Rockefeller cornered the market on oil products. Banks have been consolidating for a long time and 15 years ago I saw this as a problem. Government did nothing and we ended up with institutions, "too big to fail" that could take down the whole country.

 

In a completely free market, a monopoly would only be achieved by offering the best product at the lowest price, or most convenience.

 

There is some truth to that. The oil industry before Standard oil was a mess and caused much more damage than after the monopoly, but by cornering the market, no one else had a chance to compete and competition is the core of a free market.

 

But sometimes you have to give a chance for the market to catch up... Lets say someone cornered the market and tried to sell product A at a crazy price... people would be forced by their circumstance to find alternate ways to achieve or get Product A. This is how ingenuity happens and inventions take place.

 

When did I say they would go out of existence? That was never my argument. If you charge an outrageous price for a product necessary for commerce, there is a huge incentive for other businesses to start selling that product at a lower price, reducing the market share of the monopoly. The monopoly will cease to be a monopoly in the long run in a free market.

Standard Oil did not sustain its monopoly by offering high prices; it offered lower prices. But the prices were relatively low primarily because of incredibly prohibitive tariffs on foreign oil. Hence, Standard Oil was shielded from competitive forces due to government intervention, not the market. When it was broken up, its market share had already fallen quite a bit.

 

Another form of monopoly is price fixing. Same thing only multiple companies. It does not fail when you have a product that everyone either needs or wants.

 

Europe was trying to compete, but the US government put prohibitive tariffs on European oil imports. So the monopoly was, largely, sustained by government privilege--not the market.

 

Name a product that everyone needs or wants that a current monopoly exist and we will go from their. I will show you how each product you list would never be able to create a monopoly situation in a true free market society.

 

Gasoline.

I'm not talking about Valero.

I'm talking about the US government and the unique position it enjoys relative to the dollar.

 

Landownership is a government enforced monopoly over natural resources, and yes, it most certainly involves the use of force.

 

I don’t believe it. I’d be willing to bet that you are simply an apologist for privilege and injustice. Here you can read up on true free trade, then get back to us: True Free Trade, By Henry George

 

Rubbish! There is a natural tendency towards concentration in capitalism. There is no artificial barrier to the boundaries of the firm (e.g. neoclassical economics bogusly tries to suggest an optimal size through economies of scale) and this naturally leads to market power and coercion.

 

"Free market" does not mean "free for all". Free market just means prices and wages are set based upon market supply and demand. It does not mean the absence of regulation. There must be private property, contract law, and regulation to maintain a minimum level of fairness (such as you cant lie to consumers).

Monopolies are not unique to the private sector. There are govt created monopolies, such as utilities. There are also monopolies created through govt cronyism/favouritism. For example, GM was granted special favours by the govt, these favours give GM an advantage over all other competitors. The govt is attempting to create a green energy monopoly as well.

Free market proponents will claim that the market will handle monopolies. I don't believe it, once a company reaches a large enough size that it can buy off, buy out, or undersell any competitor than the market no longer works properly. Such a jugernaut might be toppled but probably after many years of domination. Microsoft is a good example of such a monopoly, MS buys out competitors that threaten its dominance, forces PC sellers and makers to pre-install Windows under threat of no Windows at all, etc. Thats where govt needs to step in.

 

Basic error! Once we have market concentration (which naturally occurs in capitalism) then market supply and demand will not determine prices and wages. Prices are determined through cost-plus pricing mechanisms. Wages will be determined by the nature of the hierarchical systems used in firm organisation, typically using these systems to accentuate underpayment.

 

How are prices set in the market concentration (monopoly) that results when government provides water, power, trash service, education, etc.?