 OK, good afternoon, everyone. Let's go ahead and take our seats. We've got a lot to get through this afternoon, and I only have three hours for this talk, so let's get started. I want to talk about competition and what competition means in a market economy, how should we understand why is it important to have competition? What does it mean for an economy to be competitive? What you typically get in a standard economics course or in most discussions of markets among mainstream economists is the idea that, well, competition is a good thing. We want our system to be competitive, but somehow that isn't going to happen on its own. There's some kind of a tendency for industries and economies to become monopolized or dominated by large monopolists unless we, where we typically means state regulators and judges and so forth, play some sort of active role in making it competitive and preventing the economy from being monopolized. I mean, you see this all the time, going back at least 150 years or more to the progressive movement of the late 19th century. You can read about that in Murray Rothbard's book on the Progressive Era that was just published within the last couple of years here by the Institute. De Lorenzo's written about the origins of antitrust in the 19th century. And we know that in fact, it was not, these were not movements led by the people, like most so-called populist or progressive movements. They were led by large, powerful special interests who were trying to develop, for example, antitrust laws that would be beneficial to themselves rather than to the market. In the 20th century, as the neoclassical paradigm became dominant in Western economics, you had within industrial organization and antitrust theory, the dominance of the so-called structure conduct performance paradigm, basically the econ 101 monopoly diagram arguing that, well, there's a natural tendency for industries to become monopolized and you need vigorous antitrust enforcement to make sure that we preserve some balance between competition and maybe some benefits that might accrue from monopoly. You know, actually for a while in the, I don't know, 1980s and 1990s, the structure conduct performance paradigm was kind of in retreat. There were, like the Chicago School, for example, launched some very powerful critiques of the structure conduct performance paradigm in the 1960s and 70s and those seemed to have taken hold in the 80s and 90s in terms of public policy. Now there's been a switch backwards and now we're seeing sort of a move towards a more aggressive antitrust stance again, at least a lot of calls for that, especially in regard to everybody's favorite whipping horse, right, the tech industry, big tech. So big tech, you know, social media giants, Microsoft, Apple, Google, Amazon, so forth or under fire, maybe not Apple so much, but under fire both from, you know, progressives like Elizabeth Warren and on the right you have social conservatives like Josh Hawley, the junior senator for Missouri who sort of, both of whom are sort of at the forefront of anti-big tech crusades. I'll talk a little bit more about that also on Friday during a lecture that I'm giving on data management and privacy regulation and so forth. So first of all, I mean, let's just remind ourselves what we mean by competition in ordinary language. Right, a competition is, you know, an event, a contest, several people competing against each other for some kind of a prize, like at school or sports. For example, I have a picture here of an epic chess competition between Tom Woods and Walter Block from a few years ago here at Mises U and it's interesting seeing, you know, two old bald guys going at it over the chess board with a crowd admiring them. I don't remember the outcome. Tom Woods assures me that he wiped the board with Walter Block, but Walter Block said it went the other way, but we also use the word, a word like competitive as an adjective to describe like a particularly intense competition. So I mean, I'm not that skilled a chess player so both Tom and Walter would easily crush me but the battle between the two of them was pretty evenly matched. And so we might say, boy, that was a really competitive match between Walter and Tom. In the common law or, you know, sort of in the natural law to build upon the judges talk from last night, you know, competition and monopoly had a very different meaning from the one they have in mainstream economics today. Right, monopoly was understood as a restriction on competition awarded by the state. Right, so think of, you know, some of the first large multinational companies, you know, the Dutch East India Company, for example, that had ships going to Indonesia and bringing back spices and so forth to Europe in the late medieval period. I mean, when we say the Dutch East India Company was a monopoly, we don't mean, you know, they had a very large market share. We're not talking about the Herfendahl Index being above some certain number. What we mean is they had a legal grant from the Dutch royal family to trade with the East Indies and no one else could legally do this. It was against the laws, against the royal charter for any other merchant to engage in trade with those islands. Only the Dutch East India Company was allowed to do so. So a monopoly was understood as a government grant of special privilege that outlaws competition by other firms, okay? In conventional economics, monopoly has come to mean something else, right? You know, large market share, whatever. You might remember to your undergrad econ class, maybe you're taking one now, the notions from neoclassical economics of perfect and imperfect competition. Right, so there's this kind of what Mises would call an imaginary construct of a perfectly competitive industry or a perfectly competitive market which has certain attributes and certain desirable properties. And if we see a market in the real world having characteristics that differ from this perfectly competitive imaginary construct, then we, you know, that's some inefficiency or loss of wellbeing that has to be remedied somehow. Usually the main criterion for perfect competition is the ability of firms to charge prices that are greater than marginal cost. So if a firm can charge prices above costs, then it is said to have some monopoly power or monopoly pricing power. The Austrian school has a very different approach or actually there are several approaches to monopoly within the Austrian school which I'll talk about in just a moment. Just to remind you, you've probably, most of you have seen a diagram like this, right? This is what you get in an undergrad textbook. You've got supposedly a firm, firm producing some commodity. And, you know, this is one small firm in a sea of many, many similar firms, right? Each firm is just alike, each firm's product is identical to the other, every other firm's product. So no firm has the ability to attract customers to its product over a rival's product based on some features or something because all the products are assumed to be the same. So the model describes each individual seller as facing a perfectly elastic or horizontal demand curve, right? I'm a little wheat farmer in Iowa, whatever. I'm selling wheat. You know, the market price of wheat is so many dollars per bushel and I can sell as many bushels as I want at that price without affecting it, right? If I dump a whole bunch of extra wheat on the market, I'm so small relative to the total industry that doesn't drive the price down. And if I, you know, withhold my wheat from the market for some reason, that doesn't make the price go up because I'm a tiny, tiny player in the market. So I take my demand and marginal revenue as given and I maximize profit by choosing the quantity where marginal revenue is equal to marginal cost. And the idea is that, yeah, gosh, this is really neat. I mean, you get sort of short run allocative efficiency, prices are equal to marginal costs. In the long run, you get entry and exit of firms that drives economic profits to zero. You get this kind of inter-temporal allocative efficiency and, wow, this is so good. This is the kind of world we want to live in. But alas, right? Reality bites back and instead gives us firms that sell different products, right? And an iPhone and a Samsung Galaxy are very similar but they're not identical and a McDonald's hamburger and a Burger King burger are similar but not quite the same. So in reality, products are not perfect substitutes and therefore sellers have some degree of monopoly power according to the conventional analysis. So rather than facing a perfectly elastic demand curve for the product, a firm with monopoly power faces a downward sloping demand curve for the product. And maybe you've done the algebra the geometry on this before, you get a downward sloping marginal revenue curve that is below and more steeply sloped than the demand curve. And so when the firm maximizes profits by setting marginal revenue equal to marginal cost, the quantity produced is actually smaller than the quantity that would have obtained under conditions of perfect competition. The firm sort of withholds some output from the market in order to drive up the price and climb up that marginal revenue curve and get a higher level of profit than what otherwise have obtained. Oh, and by the way, this is not only bad for consumers. It's not just that consumers lose some of their utility that goes to the firm in the form of profits, but there's also some extra inefficiency in the form of the so-called deadweight loss triangle, which is representing a lost gains to the consumers that are not captured by the seller. The point is, this is bad right compared to the previous diagram. So if the world looks like this, we've got to do something to make it more like that other world in which firms have perfectly elastic demand curves. It's kind of an interesting mental exercise, right? It's kind of a little game that you could play. You can look at the math and you can poke around with it. What does it really tell us about competition or its absence in actual markets composed of real people engaged in purposeful human action and so forth? I mean, the short answer is not much. There are a lot of, you know, even within the neoclassical paradigm, there are a number of critiques of this model which we don't have time to get into. But I'll just share with you some of the critiques that have been levied by Austrians. Rothbard, for example, pains to point out that this notion of the perfectly elastic demand curve cannot obtain in a world of actual, you know, purposeful human actors, right? Every seller in fact contributes some discrete quantity, not an infinitesimally small quantity to the output of the industry. And so every seller's actions will have some impact on price. Remember those diagrams I showed you before? Again, they're mathematical abstractions. When your professor tells you, well, under perfect competition firms are really small, your professor doesn't mean that, well, they only have like 10 employees. Like really small means like literally of size zero. I mean, it's kind of a, it's sort of a calculus-based argument. In other words, the claim is as the number of firms approaches infinity, i.e. as the size of each firm approaches zero, the profits obtained by the individual firm in the long run approach zero and price approaches marginal cost and so forth. So if we're in that diagram I showed you of the perfectly competitive market, the firms literally have size zero. I mean, there are a lot of small businesses around, but I've never seen one that had the size zero had zero labor and zero capital, right? So I mean, that can't literally be true. So no matter how small a firm is, it's bigger than size zero. The firm produced, contributes some output to the market and so forth. In the world of purposeful human action, we're not dealing with infinitesimally small units, right? Remember Carl Menger's analysis of economic goods and Menger's analysis of marginal utility, of course, is in terms of, refers to actors choosing discrete quantities of actual goods in the real world. Not like, oh, in the limit, in a calculus sense, the change in utility approaches zero, okay? You know, there's another point too, if you try to come up with sort of a welfare analysis of anti-monopoly policy. So suppose the government says, well, we're gonna make it illegal for a firm to sell less output than it could hypothetically have sold if the market were more competitive. Yeah, essentially, we're compelling the firm or an individual to produce more, okay? Well, then you're violating the sort of property rights or rights to life and so forth of the person who's being forced to bring more units to market than otherwise would be the case. You often see this kind of example used with like celebrities, to take for example, my doppelganger, George Clooney, you know, I don't know how many movies per year George Clooney makes. I mean, in the old days, in the golden age of Hollywood, 1920s, 30s, 40s, you know, actors worked every day and they made dozens of movies per year. Now a big star like George Clooney might be in one or two movies per year and you know, people want to see them or at least they did when they could go to the movies. I guess they wanna stream them now and so somebody makes money off of that. You know, you could argue that, well, there's only one George Clooney, so he has a monopoly on George Clooney acting, right? I mean, the other actors are kind of similar but they're not perfect substitutes. So, I mean, he should be compelled, if you follow the sort of standard logic, to act in as many movies per year as is humanly possible. I mean, he should be acting 16 hours a day. He gets to sleep and have bathroom breaks but he should continually be acting. Otherwise, he is withholding some of his labor from the market and making the price of George Clooney's labor artificially high. I imagine it's pretty darn high, right? But if he acted every single minute of every day, his earnings would probably go way down, right? So why is he allowed to withhold labor from the market to jack up the price? I mean, if you think, well, that's silly. Of course, George Clooney should not be compelled to act against his will to provide more units of George Clooney labor to the market than he desires. You know, well, why should Jeff Bezos be required to provide more Amazon stuff to the market, to have more transactions or provide more units of Amazon web services or whatever, right? Any alleged monopolist is producing less than what the regulator thinks should be produced. Okay, so if you're gonna compel people to produce more, then we should all be compelled to do whatever we're told to do all the time and not have any control over our own labor. Another point to this is a little bit more subtle is, you know, this whole idea about the demand curve. They say, well, if the demand curve for a product is very inelastic, that gives the seller more ability to raise price over cost. Maybe you did an example in your class at school, you know, comparing like, you know, cigarettes and candy bars or something and looking at how the elasticity of demand affects prices and quantities in those markets. I mean, elasticity of demand is not sort of given by nature, the shape of the demand curve, the properties of the demand curve, the elasticity of the demand curve reflects consumer preferences, right? And if demand is inelastic, that means that people are not willing to reduce their consumption very much in the face of an increase in price. Well, okay, they could have chosen something different. I mean, elasticity reflects consumer choice. So it's not obvious why, you know, well-being is somehow better in a world where firms act as if they're facing perfectly elastic demand curves as opposed to demand curves that are not perfectly elastic or maybe super inelastic, right? That's totally up to consumers. It's not a technological concept. Elasticity is an economic concept that reflects human choice. In his opening talk on Sunday night, Joe Salerno briefly mentioned a difference of opinion between Mises and Rothbard on monopoly. I'll just say a little bit more about that here. Mises rejected the standard approach to monopoly that I've sort of briefly outlined here, but Mises did articulate a theory of monopoly price that does come from the Austrian tradition of Manger and Bumbavark and Wieser and others, but which is not, I think is not as sort of, has sort of fallen out of favor within the Austrian tradition today. And Mises' theory was not one about the existence of monopoly as a situation or not identifying firms as monopolists, but rather Mises argued that under certain conditions, the prices that obtain in certain kinds of markets are different than the prices that would have obtained in other kinds of conditions. So Mises had a theory of monopoly prices. Mises thought you could distinguish praxeologically competitive prices from monopoly prices. And Mises argued that, well, if you have these special conditions, you have a single seller of a unique good, a good for which consumers perceive there to be no substitutes. Again, this consumer perception, so Mises didn't think this was some kind of a market failure, he just sort of noted it in doing his analysis that if you have a unique good and a single seller or cartel of sellers and the demand for the product is inelastic above the competitive price, the price that would have obtained if there were lots of sellers of this same good, then the price is gonna be higher than it otherwise would have been, okay? Mises thought logically you could sort of, you could theorize about what a monopoly price would be and what the competitive price would be. And he said, well, in practice, the existence of monopoly prices does violate consumer sovereignty in the sense that consumers would have been willing to pay for additional units had they been released to the market, okay? Like I say, of course you have to add to that the fact that consumers' willingness to substitute is also a matter of consumer preference and choice, right? But Mises thought these conditions, in practice, these conditions will hardly ever obtain and so there's no sort of public policy response needed. Mises just thought it was sort of an interesting theoretical puzzle, an interesting situation to think about, not really relevant for policy. So Rothbard actually embraces Mises' approach to monopoly pricing but disagrees with some of the steps in Mises' analysis. Rothbard argued as I sort of hinted before that actually all sellers face a downward sloping demand curve, okay? Rothbard says, well, given that, given that we don't really know what the competitive price would have been if conditions had been different, we really can't distinguish the price that obtains on the market from a price that would have obtained on the market if you'd had more sellers or a different elasticity of demand. All we observe is actual prices that occur in market exchange, right? We don't observe the imaginary construct of the competitive price, we only observe the actual price. And so even theoretically, we can't really distinguish monopoly prices from competitive prices. In other words, all firms try to maximize their revenues, they try to maximize their net income, their profit given their beliefs about demand as we discussed yesterday. Entrepreneurs are buying factors of production, combining them into goods and services, offering those for sale on the market based on their beliefs about demand and so forth. And this idea that, well, it's only if the demand curve is inelastic above a certain point can monopoly occur. Rothbard points out, all firms price in the elastic range of the demand curve. Why? Because if they were currently pricing in the inelastic range of the demand curve, they would do what with the price? They would raise it because if the demand curve's inelastic when you raise the price, your total revenue goes up, right? And you're producing less so your total costs presumably go down so your profit would increase. I mean, all firms, no matter what the market conditions are always gonna be pricing in the inelastic part of the demand curve. So above the actual price, the demand's gonna be inelastic no matter what? So all prices, this characterizes all prices not just a special set of prices, okay? Rothbard argued instead for a return to the common law or natural law notion of monopoly as an exclusive government grant. Rothbard said we should reserve the term monopoly for cases like the US Postal Service or the East India Company or a public utility in many, many cities and towns across the world. It's only one company that provides water. In the US as you may know, most of these or many water, electric, waste disposal services are not provided by a government agency. They're provided by private firms that have shareholders and are incorporated and so forth but firms that have been given an exclusive grant by the city, you're the only one that can lay electric wires. You're the only one that can put pipes in the ground and send water to people's houses and so forth. Sometimes it's not quite that obvious. I mean, a patent is a monopoly. It's a monopoly grant, a grant of monopoly privilege, temporary, 17 years or whatever. So as long as I hold the patent, no one else can legally produce the same good or service as the one on which I have the patent. Some other kind of exclusive grant or a charter, trading privileges, licensing and so forth is sort of a kind of monopoly. Occupational licensing has the same kind of monopoly effect. To cut hair, you've got to have a barber's license. It's illegal to cut hair without a barber's license in most places. So that restricts the quantity of people who can cut hair and it increases the profits of those who have the license. Okay, I mean, I think occupational licensing is terrible except in higher education where we need the PhD granting process to prevent students from getting low quality education. I mean, it's for your protection. It's nothing to do with my wages. Even trade policy tariffs and quotas can have a monopolizing effect in this sense. So what we mean by monopoly in the Rothbardian system is some government restriction on the ability of people to compete. If the city of Auburn said, Tom Woods may not play chess and then Walter Block is the champion, well then Walter Block earned his championship through monopoly privilege. We'd say Walter has some monopoly power on the chess board. That's probably the only way he could win, isn't it? So I wanna return to something I mentioned earlier just sort of turning to what's going on in the world today. You know, this sort of naive idea that well, in the absence of strong anti-trust policy and regulation, markets will tend toward monopoly in the neoclassical sense. Therefore, we need the antitrust laws and we need government to regulate utilities and so forth to try to make them more competitive, keep their prices down. You know, that was sort of the dominant paradigm in the mid 20th century. And then it was challenged from a number of dimensions. Oliver Williamson's transaction cost approach criticized the structured conduct performance view sort of a vertical relations. I mentioned that just because Williamson, Nobel Prize winner, passed away a few months ago. A lot of people are revisiting his work. The Chicago School, as I mentioned in the 60s and 70s and 80s published a number of critiques of the structured conduct performance paradigm. In the 90s and 2000s industrial organization economics became dominated by game theory as a sort of standard analytical tool. And that sort of threw into question some of the Chicago School's contributions. And people sometimes referred to post Chicago antitrust analysis referring to the game theoretic industrial organization modeling. And that was kind of the dominant thing when I was trained. But in the last three or four years, we've seen a revival of something that to me is much closer to the old structure conduct performance paradigm. It's critics call it hipster antitrust. It's adherents call it something like Neo Brandeisian named after Justice Brandeis who was a strong proponent of strong antitrust enforcement during the Progressive Era. This antitrust, I don't know, activist, I guess, named Lena Kahn. It's kind of at the forefront of the hipster movement. She's a law student who wrote an article that criticized big tech companies and said, well, even though they don't look like monopolists on the seller side, because most of their stuff's free. All the Google services, you get are free. You don't pay for those. You use Twitter and Facebook and so forth, Instagram. Those are all free. So it doesn't really, we can't really say they're charging monopoly prices and earning monopoly profits to consumers. Maybe you can say that for Apple, but not for the platforms. Well, they must be monopolist in some other way. It has something to do with on the labor side or how they squeeze their input providers or whatever. So she's kind of one of the stars of the hipster movement. Interestingly, one of the areas in which we've seen a revival of interest in the traditional monopoly theory and the traditional antitrust analysis is in the study of minimum wages. Okay, so Mark Thornton has a lecture later in the week on labor markets and minimum wage laws, which I'm sure you'll be interested in if you're interested in this. But it's worth mentioning now as an application or extension of Austrian monopoly theory, okay? In last, I don't know, decade or so, we've seen a lot of policy attention on minimum wages, right? You get the fight for 15 movement. I guess that started in Seattle and other places, now spread to other cities. We observe in many entry-level employment sectors a substitution away from labor towards automation. At a higher minimum wage, more and more fast food joints are gonna switch to kiosks because they're cheaper than hiring workers at $15 an hour. I don't remember who I saw two or three days ago on social media wanting a, was it $50 minimum wage, $50 per hour minimum wage? Would solve some progressive activists how that would solve all our problems. I don't know what people like Sanders and AOC want the minimum wage to be. I'm sure it's much higher than 15. Probably if you've taken an undergrad econ course, you've done an analysis of the minimum wage already. And the way we typically do it or at least the way we used to do it was using a sort of simple model of the labor market with supply and demand curves, okay? With an upward sloping supply curve and a downward sloping demand curve and you've got the quantity of labor on the horizontal axis and you've got the rental price of labor, the wage on the vertical axis. And how many of you've seen this kind of a model before? So, well, in a free market for labor, the equilibrium wage would be whatever that is where the supply and demand curves intersect. If the government passes a minimum wage law where the minimum wage is above the market clearing wage, right? That means that at that higher wage, the quantity supplied is gonna be greater than the quantity demanded. So you've got this extra surplus of labor on the market. More people wanna work at that higher minimum wage than there are jobs available to them because employers are less willing to offer jobs at a higher mandated minimum wage so you get unemployment, right? So, the standard economist critique of minimum wage laws is to say, yeah, but maybe it's good for those workers who are able to keep their jobs and remain unemployed, sorry, remain employed, but it's gonna throw a lot of people out of work and so it doesn't provide a net benefit on the labor market, okay? Okay, fine. This seems pretty, it's hard to argue against this. I've seen people like, even Paul Krugman back before he turned evil would say that things like, well, this analysis is of course correct, but I personally prefer to have fewer people working at a higher wage than more people working at a lower wage. It's just a subjective preference on the part of the policy analyst. That's why I want a higher minimum wage, but nobody thought that it was sort of good for the labor market in general. Okay, this analysis, and maybe you use this when you argue with your friends about minimum wage laws, this analysis is obsolete now, okay? Rather, what's becoming more the mainstream analysis is to say, no, no, no, this doesn't work because this model assumes that the market for labor is competitive. What if it's not competitive? What if rather than monopoly power in the labor market, we need to worry about monopsony power? Okay, so remember, monopsony is like the equivalent of monopoly but on the buyer side rather than the seller side. Okay, so if a monopolist is a single buyer selling a unique good or service, a monopolist is a single seller selling a unique good or service and therefore able to charge prices higher than competitive prices, a monopolist is a buyer, a large powerful buyer who is able to influence the price on the market to push it below what it would be in a competitive buying situation. Okay, so just as monopoly prices are supposed to be above the competitive prices, monopsony prices are, I'm an monopsony wage would be a wage that's below the wage that would obtain if the labor market were competitive. So if employers have monopsony power, then the wages that obtain in an unregulated labor market are lower than they would be in a competitive labor market. Okay, and if it's not possible to use antitrust to sort of break up these big firms and take away their buying power, the next best alternative is to regulate the wage to push the wage up to get it closer to what we think the wage would have been in the absence of monopsony. Okay, that's the currently fashionable argument in policy circles for minimum wages. Okay, you can find a handy Vox explainer if you want this theory Vox explained to you and you can find a lot of good stuff on this. You know, I probably should have mentioned earlier when we were talking about monopoly, you know, what's the remedy for monopoly power in the mainstream analysis? Well, I mean, one remedy would be leave things the way they are, you know, leave the big firms in place but just regulate the prices they can charge, right? Don't let a monopolist charge high prices, force them to charge lower prices through some kind of price regulation, right? Or you could just sort of break them up, use antitrust to divide, split the big firm into lots of little firms. I mean, hopefully not little firms of size zero. I'm not sure what you'd use for that, like an atom bomb or something, but you know, in this case, if it's not feasible to break up the firms to take away their monopsony power, then you just use price regulation, thinking of the wage as a price, to force the wage to be higher than it otherwise would be and closer to its sort of competitive level. It won't surprise you, probably, to hear that I think there's some problems with this analysis, okay? There's some problems with the monopsony argument. I mean, first, we can talk about kind of theoretical problems along the same lines as Rothbard's critique of Mies' argument for monopoly pricing in output markets, okay? So just as Rothbard argued that, you know, all demand curves facing sellers are at least somewhat inelastic downward sloping, we can also point out that all supply curves for laborers on the market are at least somewhat upward sloping. Okay, there's no such thing as a perfectly competitive labor market where the supply curve for labor is perfectly elastic, right? Firms can go out and hire as many workers as they want at the given wage without affecting that wage. I mean, that world doesn't exist either because labor is not perfectly heterogeneous, sorry, labor is not perfectly homogeneous, right? So every worker can affect the supply of labor at least a little bit by choosing to work or not to work or to work more hours or fewer hours. Because there's really no way to distinguish a competitive input price, in this case, a competitive wage from a monopsony input price, in this case, a monopsony wage. So this is perfectly analogous to Rothbard's argument about output prices, okay? So, you know, again, if you think the logic through, in the absence of legal restrictions, suppose it's the case that some firms are paying wages that are below the wages that would obtain under competitive conditions. You know, the equilibrium or market clearing wage is $10 an hour, but some firms, just because they can, because they're big and powerful and mean, right? They only pay $8 an hour for their workers. Well, I mean, that would provide an incentive for another firm to jump into the market, an existing firm or a new firm, you know, an offer, what did I say, $8? No, offer $8.50 and bid some workers away from the firm that was charging prices that were too low. And well, that would give an incentive for yet another firm to jump in, and so forth. Remember when we were talking yesterday about entrepreneurship and profit, right? Entrepreneurs are competing against each other for factors of production, and they would like to pay as little as they can for factors for inputs. They would like to pay a price that's way below the discounted marginal revenue product. If they can, good for them, that gives them some extra profit to put in their pocket, right? But if we assume that there are lots of other entrepreneurs also trying to do the same thing, then it's unlikely that you'll be able to get a unit of the factor at a price that's much less than the discounted marginal revenue product. Now, you wouldn't pay more, but if there's a lot of firms competing, you're probably gonna pay pretty close to that discounted marginal revenue product. Well, this is an application of that exact same principle where the input being provided is labor, right? And so the entrepreneur is hiring units of labor services and is probably not gonna be able to pay a lot less than the discounted marginal revenue product of labor. Otherwise, other entrepreneurs will jump in and take advantage of that and help to drive that price up towards its DMRP, okay? And let's be practical here. I mean, is the monopsony argument really a good one for minimum wage laws? I mean, let's just think about it on a practical basis. What do we know about the institutions of the labor market in most times and places, especially at kind of the entry level, for entry level wages? It's really hard to imagine a single buyer or a buyer's cartel for something like unskilled labor. I mean, how many of you worked in food service as we euphemistically call it when you're in high school? You know, you worked at McDonald's or Burger King or something. A lot of people work in fast food. I mean, you know, it's not super skilled labor. Anybody can learn how to do it. And you know, even if you're from a small town, I mean, look at Auburn, Opelika. It's not a huge city. It's not New York City. It's not teeny tiny, but it's kind of a small, small city. I mean, how many fast food restaurants are there? Just between here and the hotel, how many fast food restaurants do you pass by? Is it really conceivable that either they would all somehow form a cartel, hey, let's all agree. Nobody pay more than $3 per hour. I mean, it doesn't make sense. In fact, I mean, today and for certainly, probably for the last decade. There are very few, you know, cities and towns or MSAs or the prevailing wage for fast food workers is not quite a bit more than the minimum wage. I mean, even in Auburn, McDonald's is paying more than the state of Alabama legal minimum wage for fast food workers because that's how you get them. Otherwise you can't hire enough. Why? Because lots of other people want to hire them too. Okay, so the legal minimum wage, I mean, the equilibrium wage in the absence of minimum wage laws would probably be much higher than the minimum wage anyway. So in most US cities and towns, I don't know about the entire world, but in the US, mostly minimum wage laws, it's kind of virtue signaling, right? I mean, politicians can say I support minimum wages, but even without those laws, the wages would be higher than the minimum wages anyway. The minimum wages are typically not binding, in other words. Also keep in mind that, you know, of all the different factors of production that go into making a McDonald's hamburger, you've got the meat and the bread and the machinery and the investment capital that's needed to set up the restaurant and the managerial expertise and all the specialized tools and so forth. The input that is the most mobile and flexible and most easily substitutable is no offense. You and me, right? Whoever's working in the McDonald's, right? That labor is highly mobile, right? If one firm were paying way below what other firms pay, you're not gonna stay and work there. You can go work for another place. So it just really, you might imagine some markets where monopsony arguments might be plausible, right? There's a highly specialized kind of labor, I don't know, say in sports or something. If you're a professional basketball player and you're not getting a good contract offer in the NBA, you really, I mean, you could go play professional basketball in China or something, but that's probably not a close substitute for playing in the NBA. So maybe you earn less than you would if there were six different professional basketball leagues because you don't have many other options for how to utilize your talents. It's a very specialized kind of labor. Is that really the case for people who earn the minimum wage, minimum wage jobs? No, I mean, labor is a highly non-specific and highly mobile factor. So it really just isn't plausible. I think this is just sort of a fancy way of justifying, again, the virtue signaling. If you say you advocate minimum wages, it makes it sound like you're for the little guy, you don't want workers to get ripped off and all that kind of thing, but I don't think this is a very good argument for it. Okay, so just to summarize, the most sensible way to think about competition is not as this kind of imaginary construct with an infinite number of infinitesimally small firms and so forth, but rather we should think about competition as a process of rivalry among entrepreneurs and also factor owners, including laborers and so forth, who are free to compete as they see fit within some kind of legal framework within a framework that establishes property rights and enforces contracts and so forth, right? So as long as people are not legally prevented from trying out a particular venture or competing, trying to get hired in a particular job, then those markets are competitive. That's really the only meaningful sense of the terms competition and monopoly. It doesn't matter if you've got just a few firms or a lot of firms, it doesn't matter if the firms are large or if the firms are small, it doesn't matter if firms are currently earning high profits or earning losses, right? Remember in the neoclassical model of perfect competition in this sort of long run equilibrium, all firms are earning zero economic profit. So you often see these studies, we go out and try to estimate the profit margin and automobile manufacturing or whatever and we find that it's greater than zero. Therefore, that market is not competitive. I mean, come on, it's also, I think I mentioned this yesterday too, all of the stylized anecdotal examples. Well, what about Google? No one will ever be able to overthrow Google even though it doesn't have a state license. I can legally create a search engine, but it's not likely that many people are gonna use it. I mean, yeah, but Google has not been around for 200 years, right? I mean, Google was introduced when other search engines, Yahoo and one called Altavista is not around anymore, dominated that market. I sometimes show my students an article that was published, I think it's 11 years ago now titled in one of the tech magazines titled, will my space ever lose its monopoly? I mean, as long as there is no legal prohibition on other people competing with you, your market position is not safe, no matter how large of a share of the market you might currently have, okay? Obviously, we want a system that encourages entry and exit, right? If I'm out competed by somebody, we don't want government subsidies that keep my firm alive, that prevent me from laying off workers and so forth. I mean, we can talk about coronavirus stimulus later if you want, this afternoon in the Q and A, but we want a system that encourages innovation and experimentation and so forth and the typical kinds of legal protections, anti-monopoly law and competition policy and so forth typically have the exact opposite effect, okay? Government attempts to limit monopoly power as conventionally defined cannot make society better off, can't make workers better off, can't make consumers better off. I mean, the best government policy towards competition or the best government policy towards monopoly is don't create any, okay? Let people compete in the market and we will get all the benefits of competition. Thank you.