 We've already been discussing in the last couple of days many ways in which market participants compete against each other, right? Entrepreneurs are competing for factors of production and competing to produce outputs that consumers will want to buy. What is the best way to think about competition? And how do we understand restrictions on or limits to competition? Does it mean for a market to be fully monopolized or partially monopolized or not competitive? How do we interpret the extent to which a market is competitive? What do we do about it? If a market is not competitive, what causes that? What harm does it or does it cause any harms at all? There's been a lot of discussion not only in the academic literature but also in the popular press about competition, particularly in the U.S. but also in Europe and other places in the world. There are some arguments that the U.S. economy has become less competitive within the last decade or so. More concentration in markets, particularly in the technology sector. I'll be talking about that tomorrow in my lecture on wokeness and big tech. But as I think was mentioned in a couple of lectures already, there have even been some claims that price inflation, the inflation that we've experienced over the last 18 to 24 months, cannot be fully explained by the massive fiscal and monetary stimuluses that we've seen in Western countries really since the financial crisis in 2008, 2009, but also during the COVID era, that massively increasing the money supply and increasing government spending isn't causing prices to go up. What's causing prices to rise is greed. And when markets are more concentrated and big powerful companies have monopoly power, they can raise prices more than they otherwise would. So what's really going on is not just inflation but greedflation. Greedflation is kind of the word of the day. This is just a sampling of articles, most of which were published in the last few weeks, late spring, early summer, mid-summer, about how greedflation, well, some people think it's causing problems. Some commentators seem to think it's stimulating somehow. It's good for the economy. Here's a young college student here protesting against greed, wearing her designer Adidas t-shirt, and no doubt snapping photos with her iPhone, whatever. So the Guardian, ever reliable UK Guardian, tells us that raising interest rates or allowing interest rates to rise to their natural, something closer to their natural levels will not stop inflation. It will not address greedflation because companies will still be greedy. And now we're starting to see wageflation as a result of greedflation. I don't know what other kind of flation we'll be seeing soon. But I mean, look, of course, greed seems like an odd explanation for something like a change in prices, because that would assume that companies were not greedy before, and all of a sudden they got greedy. Or something happened that allowed their greed to be manifest. My friend of mine used to say, blaming inflation on greed is like blaming a plane crash on gravity. I mean, people are always greedy in the sense that they want more than they have, or they're striving to get ahead, and entrepreneurs want to earn profits, and consumers want to get a better deal, and so forth. It's hard to understand why a change in greed could lead. We can't explain a change in outcomes unless there was a sudden change in greed, which seems unlikely. In Europe and in the US, the sort of government agencies and authorities that have some responsibility for so-called competition policy have really changed their tune in the last few years, especially in the US, also in Europe. The US Federal Trade Commission is probably, the current version of it under the Biden administration, has become much more activist, much more sort of ideological, the current head of the FTC, Zelina Khan, I think is probably the most ideological and perhaps the least qualified person to hold that position in many, many years. Just this week, the FTC issued a new set of guidelines regulating mergers or rather explaining what mergers they would attempt to challenge in court. And taking a very, very hard line that almost all mergers between companies should be prohibited because they are harmful to competition. The previous view, the view that's lasted for about three decades among most competition policy authorities was much more balanced and nuanced, holding that there might be some cases where mergers are harmful but not all mergers reduce competition and cause harm to consumers. There should be some kind of balancing or rule of reason. But the authorities now are taking a much harsher stand. The same is true of the European commissions and our trust authorities as well. So these officials say, we want to stop monopoly. We want to be monopoly busters or trust busters, as they used to say, in the early 20th century. Okay, so what is this thing that they're allegedly concerned about? What is monopoly? What do they think monopoly means? Why is it harmful? Why do they think something should be done about it? Well, monopoly in sort of the conventional understanding in your microeconomics textbooks, right? Typically refers to a situation where one firm or several firms have a market share beyond a certain level. I say here a firm with a market share above x% is a monopolist. Now, what's x? Okay, well, a firm that has 100% of the market by this definition would probably be considered a monopolist. A firm that has 75% of the market for tomatoes or shoes or diamonds would probably be considered a monopolist. 50%, 40%, 30%, I don't know, right? It's sort of an arbitrary number, right? It doesn't seem like a very scientific way to distinguish one sort of market structure from another, okay? Sometimes this view is expressed in a slightly different way that if some firms in the market have the ability to raise their prices above the marginal cost of production, that is an indicator that these firms have some kind of monopoly power or so-called market power. The idea is, we talked in my lecture yesterday about Mises and Rothbard's concept of the evenly rotating economy. A kind of hypothetical equilibrium state where everyone knows what's going to happen in the future and entrepreneurs are bidding against each other for factors and competing in the product market. And no one can earn an economic profit because there's no uncertainty. You know exactly what consumers will buy tomorrow. You know exactly what market conditions will be tomorrow. Everything's sort of priced out. There's no profit or loss. So what mainstream economists do is they have in mind a model that's somewhat similar to that, not exactly the same as the ERE. But they have in mind some kind of equilibrium state in which there are no profits and losses because everything is perfectly priced out in the market. And they say, well that is not just a hypothetical imaginary construct that can be an aid to our reasoning. They say, no, that is actually a state of the world that could obtain, if we tried really hard, if the government did its job and should obtain. That's like the ideal situation where no firms are able to earn an economic profit because competition is so robust, there's no uncertainty, etc. And therefore any situation in which firms can earn an economic profit by charging prices that allow them to earn revenues in excess of their total economic costs is a deviation from that. It's a problem. It's an anomaly. It's a danger that we have to stamp out. So if any firms are earning positive economic profits, we must not have a purely competitive situation. We must have some kind of monopoly that needs to be dealt with. Now, I want you to notice at the beginning, and this is emphasized in particular by Rothbard, that this is a very different notion of monopoly than the sort of classical or common law definition of monopoly. The classical notion of monopoly or a firm having monopoly power is a firm that has an exclusive legal privilege to enter some kind of market or be engaged in some kind of activity. The Dutch East India Company, illustrated here, had a monopoly on trade between the Netherlands, Northern Europe, and what we're called the Indies, which I guess Indonesia, the Spice Islands, where they got cinnamon and nutmeg and pepper. What that meant is no other merchants were legally permitted to engage in that trade. I mean, the Dutch Navy could blow your ship out of the water with a cannonball if you were attempting to bring back spices from the Far East and you were not a member of the Dutch East India Company. So having a monopoly meant the government said no one could compete with you. That's the way monopoly was understood until really the 20th century when neoclassical or early sort of classical and neoclassical economists, starting with Alfred Marshall and others, said no, no, we need to redefine monopoly as the sort of extent of competition independent of government restrictions on entry. That made things quite confusing. I'm going to talk a little bit about Austrian notions of monopoly and competition. I know it's hard to see the bottom of the screen from the back of the room. So just adding that we'll look at some Austrian views as well. I tried to edit my slides a little bit to emphasize that put all the good stuff on the top half of the screen, but otherwise that provides more of an incentive for you back row types to try to move to the front for future lectures. So there are some differences of opinion among Austrian school economists on what monopoly is and how to interpret it. But by and large, they embrace the same general notion of competition and what role, if any, there might be from sort of public policy to deal with it. So competition is sort of a word in ordinary language that we often use. And what we typically mean by competition in ordinary language is either some kind of a situation where individuals or groups are competing against each other trying to beat the rival person or team like the chess tournament we had last night was a competition, right? Everybody playing in the chess tournament was trying to beat the person they were playing against. You know, here at Mises U, we have a competition at the end of the week in academic competition. We have a written exam and then people who have a certain score can compete in an oral exam and the winner will get some prize money. This is the winner from last year or a couple years ago. We sometimes use this language also to describe sort of the extent of, you know, how intense is it? Like, that was a really competitive match. It was really close as opposed to, you know, a blowout, which we say was less competitive. So we're all familiar with this language. It's something we use every day. In mainstream economics, competition means something else, right? And so this notion starts from a particular understanding or theoretical model of what a market might look like and indeed what a market should look like in this approach. And I want to just take a moment to sort of refresh for some of you or explain what neoclassical economists mean when they talk about perfect competition or imperfect competition as a benchmark against which actual markets can be compared. So some of you may have seen a diagram like this in your classes or in your textbooks before, right? This is a theoretical model of a firm in what Alfred Marshall and his followers described as a perfectly competitive state. This is a perfectly competitive firm. So, you know, we have price on the vertical axis, quantity on the horizontal axis. This firm has a upward sloping marginal cost curve and a U-shaped average cost curve. And then there's a demand curve for the firm's products. But one of the assumptions here is that this market consists of a whole bunch of different firms all competing against each other to sell the same product. And consumers cannot distinguish one producer's product from another producer's product. OK, so it's like, you know, bushels of wheat or something. And the consumer, the buyer of wheat doesn't care if it came from Farmer Smith's farm or Farmer Jones's farm. It's all just wheat. And so each farmer is contributing a small quantity of wheat to the wheat market. But the buyers of wheat just consider all wheat to be identical. They're just buying wheat. So the point is each producer is very small relative to the total market so no producer can have an influence on the price that is obtaining in that market. In other words, you know, if one farmer decides to, you know, double his production of wheat, I mean, he's so tiny relative to the whole market that that's just a little blip. There's like a teeny increase in total market supply, but it's so small it doesn't have any impact on the market price. Likewise, if another farmer decides, you know, to withhold all of his wheat from the market, that, you know, it moves the supply curve a teeny, teeny bit to the left, but it's so small, so imperceptible, that it also has no impact, no noticeable impact on the market price. So they say all of these, all of the firms are price takers in the output market. So the market for wheat sets the price of wheat and then each farmer just takes that price as exogenous and you can sell as much wheat or as little wheat as you want at that price without making the price go up or down. So that's why we depict the demand curve for an individual producer's product in this model to be horizontal or what they call perfectly elastic, right? So no matter how much wheat this particular farmer supplies to the market, the market price of wheat will always be that P, PC, the perfectly competitive price. No farmer can influence the market because they're all so small. And so the profit-maximizing firm produces wheat up to the point where the cost of producing that wheat is exactly equal to the price that's obtained. So in the short run, farmers produce wheat up to the point where the price is equal to the marginal cost of production and they don't produce any more after that and that's how they maximize their profit. In the long run, right, if a particular firm has a marginal cost of production that's lower than other firms, it'll produce more. But that will, so then that firm might be earning positive economic profits, but that will induce other farmers to enter the industry which will eventually drive the market price down by increasing supply and it'll squeeze those profits out. Likewise, if some firms or all firms are earning economic losses, right, say there's a decrease in the demand for wheat because everybody goes paleo or high protein or whatever, then the market price of wheat will fall because the demand curve falls. Producers will be earning economic losses. What can they do? Well, there's nothing they can do to influence the price because they're so-called price takers, but some of them will just quit, right? They'll exit the market and go become economics professors or something else. And so as producers exit the market, the supply curve starts to move to the left. That drives the price, sorry, that drives the price up as supply is reduced. And eventually we get back to a situation where all firms are earning zero economic profits and zero economic losses. So how many of you have seen a diagram like this in an economics class before? Yeah, a lot of you have, right? I mean, you might think, gosh, this is an interesting theoretical construct to think about, you can sort of puzzle through it. You could depict it in different ways. But it's only that, it's just sort of mental gymnastics. But the way this model is used in conventional analysis is to say, yeah, but we want real markets to be as much like this as possible. So the government should do whatever it can to try to make the actual market be a little bit more like this. Of course, no market in reality can have exactly these properties. I mean, if you think about it, if your professor was careful in working through, I mean, how many firms exist in a perfectly competitive general equilibrium? It's not just like 20 or 200 or 2000. I mean, technically it's an infinite number of firms. And each firm's contribution to total output is infinitely small, like zero. This is really a mathematical limit problem. So the argument says, in the limit as the number of firms approaches infinity, the price equals marginal cost, and the quantity of each firm approaches zero. So it only works like in the limit where you have an infinite number of firms of zero size. Yeah, I'm not seeing that around the corner anytime likely, likely anytime soon. But the argument is, well, can we make the actual market a little bit more like this? Well, the concern that mainstream economists have is they say, well, in actual markets, you have something different. You have so-called monopoly power or market power. The way firms look in the real world, according to this analysis, is something more like this, right? In fact, firms produce slightly differentiated products, right? Not every firm's product is exactly like every other firm's product. I mean, even in the wheat market, this is true in 2023, right? Because I don't know if any of you, where's my North Dakota people? I mean, there's a lot of wheat up there, right? But I mean, there's actually lots of different kinds of wheat. There's red winter wheat, number five, and there's all these different grades of wheat. And now we have, there's like GMO free wheat, and GMO wheat, and organic wheat, and carbon neutral wheat, I don't know, there's all kinds of different wheats, right? So imagine that all wheat is not identical, and there are some firms that produce a product that's somewhat distinct, right? Well then, that firm does not face a horizontal, perfectly elastic demand curve, like the perfect competitor, but it faces a downward sloping demand curve, right? In order to induce, to sell more units of the good, the firm has the ability to lower the price, or the ability to raise the price. Okay, so market power, so a firm with a downward sloping demand curve is said to hold market power, so there's a downward sloping demand curve, and you can work out the math, there's a downward sloping marginal revenue curve that is more steeply sloped than and somewhat to the left of the demand curve. So this firm also chooses to maximize profits by setting marginal revenue equal to marginal cost. But unlike the perfectly competitive case, where marginal revenue is equal to demand, here marginal revenue is less than the amount demanded at that price. So when the firm maximizes profit by setting marginal revenue equal to marginal cost, it's where that upward sloping blue line, if you can see it, intersects the downward sloping green line at a quantity that is labeled QM, the monopoly quantity, okay? Then the firm charges the highest price the market will bear at that quantity. That's what I've labeled PM, the monopoly price. And what's the problem? Well, you get, at that equilibrium, you get a price that is higher than the price that would have obtained under competition, and a quantity produced that's lower than the quantity that would have obtained if that market were perfectly competitive. Okay, so here, imagine there's only one firm selling this particular product, you get price and quantity PM QM. If there was an infinite number of firms of zero size producing that market, you would have a quantity, a higher quantity of QC at a lower price PC. So this is bad for consumers. Consumers are getting the shaft, right? They're paying higher prices and less is being made available to them and that's bad and if you want to get technical about it, there's also this inefficiency caused by the so-called dead weight loss triangle, which we can talk about later if you want. So the idea is this is bad, right? We want to make this more like the other diagram. Okay, well, how do we do that? Well, if there's one firm, we can't quite make it an infinite number of firms, but we could use antitrust to break up the one firm into two firms or three firms. And that'd be like a little tiny step in the right direction. And then maybe we can break those firms up too and make them even smaller. Or if two existing firms want to merge to create a new larger firm in the same industry, we can say no because that's moving us farther away from the perfectly competitive ideal, more towards this really bad monopoly outcome, so we say no, we don't allow that. Okay, that's sort of, that's a conventional, that's conventional competition theory and policy in a nutshell. What's wrong with it? A bunch, okay, a bunch is wrong with it. So, first of all, Rothbard points out that, I mean, and I've already hinted at this, even conceptually, it doesn't really make sense to think of firms contributing an infinitely small amount to market demand. I mean, even if you have a really big market, I don't know, you go on eBay and you want to buy, I don't know, you want to buy some kind of gadget for your computer. You want to buy a new mouse for your computer. It's like a thousand people selling the exact same mouse. And they don't have a whole lot of influence on the price, but there's not an infinite number, it's a thousand. And each one does have a teeny, teeny impact on market demand. In other words, every firm, every seller faces a downward sloping demand curve, at least to some extent, may not be super, super steeply sloped. But each firm does contribute some finite quantity to total market demand because in the world of purposeful human action, there only exist discrete marginal units. Infinity is not a concept that applies in the real world of human action. Okay, there's always, there are no infinitesimally, infinitesimally. That's easy for you to say. No teeny, tiny units in the world of human action or to put it in mathematical terms, we can't apply these sort of conditions in the limit. Principles of calculus, well, optimizing means finding the flat part of the curve. You can't apply calculus to action in the real world because calculus involves these infinitely small steps and human action only takes place with discrete steps that we as human beings can perceive and can deal with. Another issue is that rarely gets discussed is, yeah, okay, let's suppose there is a firm that is behaving just like the monopolist of sort of mainstream theory, and it is producing less than it could produce. Okay, so I'm a wheat farmer and I could max out my capacity and produce a whole bunch of wheat, but it's like, what were you guys saying on Slack? It's like, I mean on Signal, it's like Super Peter, Peter Super Power Wheat or whatever. Peter Power Wheat, thank you. Yeah. I have total control over Peter Power Wheat and I selfishly think, you know what? I'm going to restrict output, I'm going to sell a little bit less than I could sell so we can move up that demand curve and I can charge a higher price and make more money, evil Peter, okay. Well, why shouldn't I be able to do that? Right, so if the law says or the regulator says, no, Peter, we compel you to increase your output of wheat to the perfectly competitive level and lower your price. Well, that's a violation of my individual sovereignty, that's a violation of my property rights. And that is in a meaningful sense, welfare decreasing, right? Why should it be the obligation of producers to produce the maximum amount? I mean, famous sort of counter example is like the movie star, is the movie star example, right? So I mean, even if you're Tom Cruise, the Peter Pan of cinema, never aging guy who does all his own stunts or whatever. I mean, the Mission Impossible movie that just came out, was that like the sixth or seventh Mission Impossible movie? Okay, so they make one Mission Impossible movie on average every three years maybe? Three, four years? I mean, it's hard work and again, if you like behind the scenes making of videos like I do, it's kind of cool to see how much effort goes into making a blockbuster movie like that. But they could make more, right? I mean, I think Tom Cruise is a pretty hardworking actor, but he doesn't act 24 hours a day, 365 days a year. He takes some time off to enjoy his life as a mega celebrity or a bazillionaire or whatever. Okay, so you could argue, but wait a minute, if Tom Cruise would make a few more movies per year, people would go to see them. And even if they weren't blockbusters, they would earn enough in ticket sales and merchandising and so forth to cover the cost to production. So by Tom Cruise not making every movie he possibly could make, he's lowering societal well-being. And therefore, he should be compelled at gunpoint to produce any film that would have revenues in excess of marginal costs. Maybe we don't usually require that, that seems like that, it's hard to square that with, hard to make an efficiency argument out of that. But that's what the monopoly argument logically implies. Anything that consumers want a producer to do that consumers would be willing to pay for, if the producer is not doing that thing, then social, societal well-being is reduced. And government policy should be used to increase societal well-being by compelling the producer to produce more. That's the argument. Okay, another aspect of this that was emphasized by the South African economist, W.H. Hutt, who was a great contributor to macroeconomics and sort of an Austrian fellow traveler, he pointed out, and Rothbard makes his argument too, the sort of standard theory which has sort of a Keynesian flavor is that during these periods where the market isn't fully adjusted or whatever, resources that are not currently in production are just being wasted. Either there's unemployment or there's some land that's not currently in use or there's some machines that are not running. Keynes believed that the economy could get stuck in this sort of under-production equilibrium and you needed government policy, fiscal and monetary stimulus to sort of spark it out of this rut. Or you could say, look, the problem, mainstream economists will say, well, under-monopoly, the firm has deliberately restricted production so that it can increase the price and earn these monopoly profits, monopoly rents. But some resources are sort of idle. They're not being used. They could be used, but they're just sitting there idle because the monopolist wants to jack up the price. Well, what does it mean to say that resources are idle or not being used? Hutt says, look, any productive asset that is privately owned is always being used in the way that the owner feels is the most valuable use of that resource, which could mean letting it sit unused for a while, just like a farmer who lets some of their field lay fallow for a year or a firm that wants to keep some product in inventory or wants to slow the machine down and let the machine be idle part of the time or keep some natural resources in reserve for later use. Keeping something temporarily out of production may be the highest valued use of that property according to the property owner. So how do we know that requiring those assets to be used to produce more consumer goods right now in one particular use chosen by the regulator is the most valuable use of those resources? It's not. As long as we have private property, a free market, then we can be assured that resource owners are using the resources in the way that they think is most valuable, even if that means not using them in current production. And finally, one complaint you hear as well, if the demand curve is perfectly elastic, then you get competitive outcomes. If the demand curve is really steep or is really inelastic, then you have all this inefficiency and consumers are taking advantage of and prices are too high, blah, blah, blah, blah, blah. But I mean, remember, the elasticity of demand is not something arbitrary that is just given by nature. The elasticity of demand reflects consumer preferences, right? People have chosen that they don't regard some other thing as a close substitute for this thing. Therefore, the demand curve is inelastic. Well, consumers could choose something else if they wanted to. But the market outcome that obtains is the result of voluntary consumer and producer preference, OK? Let's talk about how the Austrians approached this problem. Well, Mises argued that Mises did not accept the mainstream approach to monopoly, as I've just described it. Mises did think there was a meaningful sense in which monopoly could be defined or described. And Mises said, yes, sometimes monopoly prices can emerge on the market, OK? They only arise under very limited special conditions. First, that you have a single seller or a cartel of sellers over a specific good. You know, like diamonds, for example. Suppose there's no substitute for a diamond in the minds of the consumers. And there's only a certain number of diamonds and one company owns them all. You know, dubiers in South Africa or whatever. Let's say they own 100% or almost 100% of the diamond mine. So they have all of the uncut diamonds. And so they have a total monopoly on the supply of, you know, cut diamonds for jewelry or whatever. And there's a second condition that must obtain as well. Namely, inelastic demand above the price that would have obtained if there were multiple sellers, the so-called competitive price. And Mises says, yeah, in that rare special case, you know, there is a sense in which we can say that consumer sovereignty is frustrated. The consumers, they wish it were possible to get more of those diamonds on the market. They would be willing to pay enough to make it worth the producer's while. But the producer has chosen to maximize revenue by keeping some of those diamonds off the market. Now, Mises said the conditions that would give rise to this phenomenon in the unhampered market are pretty rare. And this is not a very policy-relevant issue. It just hardly comes up except for a few special cases, but it is at least a theoretical possibility. Mises just didn't think it was a big deal. So Rothbard's approach to monopoly can be understood in a sense, you know, sort of use modern terminology as being sort of in dialogue with Mises' approach. OK, so Rothbard is sort of extending and amplifying Mises' approach. He makes the point, which I alluded to earlier, first that, OK, wait a minute, all firms face a downward-sloping demand curve. And Rothbard claims even within the Misesian framework, it's really not possible to distinguish a monopoly price from a theoretical competitive price. OK, Rothbard says, look, I mean, all firms are trying to maximize their revenues. OK, and taking their costs into account, they want to maximize their net income given their beliefs about consumer demand. And I remember we saw yesterday that consumer demand is not given at the time when resource commitments have to be made. Consumer demand is anticipated or projected or estimated into the future because there's uncertainty. And he says, look, Mises says, well, if you have a single seller or a seller's cartel and demand that's inelastic above the price that otherwise would have obtained, so firms are pricing, you know, then the firm will raise the price to where it's no longer in the inelastic part of the demand curve. Rothbard says, but I mean, all firms price in the elastic range of their demand curve. Why? Because if the demand were inelastic at the price currently charged, the firm would have an incentive to increase the price, right? Because when the price goes up and demand is inelastic, right, you have an increase in the price per unit sold and a decrease in the quantity sold, but a decrease percent decrease in quantity that's smaller than the percent increase in price, right? That's the definition of an inelastic demand curve. So the firm would be increasing its total revenue if it were to raise its price when it's on the inelastic part of the demand curve. Its total cost would go down because it's producing fewer units, so its profits would unambiguously go up. Okay, so firms are always going to increase the price until they get to the elastic part of the demand curve, okay? They'll always be pricing somewhere in the elastic part of the demand curve. So even conceptually, this scenario that Mises describes really isn't relevant. It's not something that could obtain on the market. However, Rothbard says it certainly is the case that monopoly can arise on the market in the old-fashioned sense, in the common law sense of a government grant of a special privilege, okay? We don't have that many companies now like the East India Tea Company, but you do have some. You know, Lockheed Martin or Raytheon, you know, is the only supplier to the Pentagon of certain kinds of weaponry or machinery, right, is enjoying a monopoly privilege of that sort, but also any firm with a patent, right, has at least for the duration of the patent, the life of the patent, a legal monopoly on producing the good or service protected by the patent. Some firms do get exclusive grants or charters or licenses. In the U.S. it's common for some utility companies like electric generating plants to be privately owned with shareholders and so forth, but to have a legal monopoly on supplying power to a particular area. I haven't checked the city of Auburn, but I'm imagining there's one monopoly provider of electricity here in Auburn. It's probably a private company with an exclusive license from the city to provide power. And there's some other kinds of government policy that also have a monopoly function or effect, even though we don't think of them primarily in this way, like tariffs and quotas. Rothbard calls them, he calls this quasi monopoly, right? So if the government says we're going to slap a tariff on imported Chinese steel, that provides a quasi monopoly privilege to U.S. steel producers because they face less competition than they would in the absence of that tariff. Okay, so what should be the stance of the state right towards competition? Well, you know, emerging in, I don't know, starting maybe from the 1930s to the 1950s or 60s, there emerged a particular approach to antitrust policy that came to be called the Structure Conduct Performance Paradigm. And it was really based on a pretty strict interpretation of the neoclassical mainstream monopoly theory as I've presented it earlier. This theory holds that the structure of the market, meaning how competitive is that market with competition defined as the number of firms, the ability of firms to raise price over marginal cost, right? The extent to which firms have downward sloping demand curves and can earn monopoly rents, all the stuff that we just went through on those diagrams. Right, that the structure of the market at a moment in time is the most important thing and that structure determines the conduct of that market. If firms have monopoly power, then they'll behave the way that the theory says by charging high prices and producing too little and that affects the performance of the market, which means it's bad for consumers. Okay, so the task of competition policy should be to alter the structure, right? Break up the monopolist, force prices to be lower, try to prevent mergers and so forth to make the conduct more competitive and therefore the performance better for consumers. That was sort of the standard approach. That approach was pretty much abandoned starting in the 1970s and 80s, even among mainstream competition scholars. Well, there were several theoretical and empirical developments that challenged the structure conduct performance paradigm. So one line of critique that came from Oliver Williamson and his transaction cost economics approach was to point out that a lot of behaviors that according to the structure conduct performance paradigm look like they're anti-competitive or monopolizing like firms vertically integrating their supply chain, even some kinds of horizontal mergers and partnerships really have the impact of increasing efficiency by reducing what he called transaction costs or coordination costs among various parties. And some of those cost efficiencies can be passed on to consumers in the form of lower prices as well as innovations and other improvements and therefore a really strict approach to regulating market structure will tend to do more harm than good. That approach convinced a number of scholars and policymakers in this area. You also had critiques from the Chicago School of the 70s and 80s and the UCLA School, people like Armin Alchin, Harold Demsets, Robert Bork, who was a very important American legal theorist who became known in pop culture for being a nominated under President Reagan for the Supreme Court, but then being attacked in the Senate confirmation hearings for things he had allegedly said and his nomination was eventually withdrawn leading to his name becoming a verb, like to bork somebody is what we would now call like cancel culture, right, like to attack somebody was called borking. But these scholars argued, for example, that the structure conduct performance paradigm, it mistakenly thinks that structure is just sort of, just sort of appears by magic. In fact, for example, they would say firms that have a large market share typically have gotten that market share by out competing other firms, right, because their products are better. Consumers prefer their products to the rival's product. It's not that they use some nefarious underhanded means to gain a big market share. No, market share usually reflects superior performance in the past and if we penalize firms for having a large market share, then firms won't want to perform better and out compete other firms because then they'll just be subject to some kind of anti-trust suit or whatever, something that's sort of happening now. So these are sort of critiques broadly within the kind of mainstream tradition. And you know, when I was getting my PhD in the 1990s, late 80s, early 90s, the conventional view was that the Chicago UCLA transaction approach had pretty much obliterated the old structure conduct performance paradigm. But oh no, it has made a roaring comeback in the last five to 10 years. And so this newer strand is by its proponents sometimes called neo-brandisian antitrust and competition policy after the U.S. Supreme Court Justice Louis Brandeis, who's an influential justice in the 1930s, its critics call it hipster antitrust. And it basically resuscitates the structure conduct performance idea that big is bad, that any firm that is too large should essentially be broken up. It doesn't matter how it got that way. It doesn't matter if there really are barriers to entry or whatever, big is bad and competition policy should be aimed at taking down big firms. That's the essence of the hipster antitrust idea. It's a little bit more sophisticated than that. It also involves more of a focus, and I'll mention this a little bit tomorrow, on a different side of the market because, you know, so people like Lena Kahn, the head of the FTC, she, her claim to fame is writing an article when she was a law student attacking Amazon for exploiting, you know, for being this horrible monopoly that exploits people. I mean, the problem is the conventional argument that monopoly is bad because it charges prices that are too high doesn't seem to work with like Amazon or Walmart or Google because they charge prices that are lower than everybody else. Right? So it doesn't seem like consumers are harmed by firms that charge excessively low prices or like in Google's case zero prices to users, okay, some debate about who is the real customer for Google, maybe it's advertisers. But the point is, so the neo-Brandeisians had to come up with another line of argument. They said, well, firms like Amazon and Walmart, they're using their power to exploit their suppliers, their workers, wholesalers who are being squeezed because they don't get very high prices for the stuff they sell to Walmart or to Amazon. So they've gone after the input side of the market rather than the output side. I'll talk about that more tomorrow. And the neo-Brandeisians have also attacked in the same line what in antitrust they call the consumer welfare standard, which is the idea in the mainstream of antitrust that antitrust policy should aim at maximizing consumer welfare. The neo-Brandeisians say, no, no, consumer well-being is not the most important thing. You also have to take into account worker well-being and the environment's well-being and endangered species well-being and the DEI well-being and sort of a more holistic notion. A guy posted a quote, this is from Thomas McGraw's book, Profits of Regulation, pointing out that Brandeis himself was completely incompetent and unutterly ignorant on any issues related to economics and business. So it's not surprising that these people proudly call themselves neo-Brandeisians. OK, so just to wrap it up, from the Austrian perspective, competition is best understood as a process of rivalry among entrepreneurs and other market participants who are free to compete as they see fit within a given legal framework, a property rights regime, for example. So whether that results in a few firms or a lot of firms, whether that results in large firms or small firms, whether firms earn big profits or firms earn big losses, whether a lot of firms enter all the time and exit or maybe only occasionally firms enter, right? Ahead of time, we can't specify exactly what the ideal market structure should be. Rather, we let market participants experiment with different strategies and practices and let the most successful entrepreneur win, but we don't try to proscribe in advance any particular behaviors or outcomes. And finally, that attempts by public policy to make the market better, to improve competition, cannot possibly succeed, unless by that we mean removing government privilege and protection that is given to special firms. The best government policy towards competition, the best government policy towards monopoly, I should say, is don't create them and otherwise let the market behave as it will. Thank you.