 It's my pleasure to speak with you this afternoon about competition and monopoly. Super interesting and timely topic. Now, for several years at Mises University, the lecture on competition and monopoly and antitrust and regulation and so forth was given by my dear friend, Walter Block. And Walter came of age in the 60s. And it was sort of a different era back then in macroeconomics. The Keynesian model was dominant. And even the Chicago School was kind of considered a fringe movement. In microeconomics, everyone was talking about John Kenneth Galbraith and his sort of critiques of big companies. And antitrust enforcement was a really big deal. People were talking about the robber barons all the time. And so Walter, when he spoke about competition and monopoly, even until recently, he would give a lot of examples about the robber baron era. And he'd talk about Standard Oil and so forth. I mean, I think he knew those cases. Well, Walter, I think he was an expert witness in the Standard Oil case of 1911. But who cares about that stuff today, right? Now we're all about markets that are really dynamic and all economists, even mainstream economists, are in favor of robust competition. And they don't worry about monopoly so much. And all that sort of antitrust body of antitrust experience is really more relevant to understanding the past than understanding the present. But oh no, such is not the case. You see increasing complaints nowadays about the big tech companies being the standard oils of today, Tim Cook and Zuckerberg and Jeff Bezos. These are the robber barons of our day. And they're much worse and more nefarious than John D. Rockefeller and Andrew Carnegie and all these other folks that your high school history teacher taught you were the great villains of modern times. And in fact, the US has not yet brought a major antitrust suit against Google or Apple or Facebook or Amazon for attempts to monopolize their respective markets. But it would not surprise me in the least if such a case were on the horizon. Some of you may recall or have read about 20 years ago, 25 years ago, when Microsoft was considered to be the dominant player in tech, a company that could never be pushed from its perch as the most important IT firm because of its dominance of the desktop computer or the operating system running the desktop computer. Those of you millennials in the crowd might be thinking, what's a desktop computer? So Microsoft obviously doesn't wield the clout that it used to. And who knows what the future holds for these guys. But of course, the government is very active in playing this role in sort of steering markets, especially in technology markets. One of the biggest cases in recent months was an attempt by the US Justice Department, the Trump Justice Department, to block the merger of AT&T and Time Warner, and the judge ruled against the Justice Department in favor of allowing the merger to go through. But notice the headline here. Judge clears $85 billion bid for Time Warner with no conditions, like how shocking, right? We live in an era in which when large companies want to do things like perhaps combine their assets with those of other large companies, they have to get permission, de facto, right? And a judge with the assistance of regulators and bureaucrats, right? And other experts will make a decision about what we will allow this company to do. Well, no, we're not gonna let you merge. Well, okay, we'll allow it, but you gotta do this and this and this, right? That's kind of the norm for today. And my point is the fact that we live in the internet age and that many people, even mainstream economists, talk about dynamic competition and looking at processes through time and making sure that innovation plays its proper role. By no means does that suggest that antitrust enforcement is weaker than it was before or that mainstream economists are less worried about so-called monopoly problems than they were. So let's talk about competition and monopoly from an Austrian perspective. So what do I mean by competition? That's sort of a very commonplace word, right? We talk about competing all the time and everyday language, usually what we mean by competition is one of two things, right? Either there's just a word for kind of a contest, a situation in which individuals or groups are trying to do better than some other individuals or groups at performing some task. It's a big competition at school or in a race who can run the fastest race or which team can win the World Cup, right? That's a competitive event. I like competitive cooking myself. That's one of my hobbies to watch on TV, maybe to participate someday if I practice hard. We also use the word in a more descriptive sense of a situation like that that is particularly intense, like the written and oral exams that means as you, we say they are highly competitive. What we mean is it's hard, but I don't wanna discourage any of you from participating, of course. But everybody knows what it means to describe something as competitive. Now, what about kind of legal and economic notions? Well, in a more kind of technical sense, right? Historically, the legal meaning of the term competition or the terms competition and monopoly has referred to sort of legal restrictions or legal barriers to entry. So in kind of the common law notion, a market or an industry is competitive if the government does not interfere with it, if the government takes a hands-off posture and lets anyone who, any merchant, any producer, any industrialist who wants to give this industry a try, who wants to enter this market can go for it and neither succeed or not succeed, right? Monopoly referred to the condition of government interference in the market, right? For example, by the state granting an exclusive right for a particular entrepreneur or firm to be in some industry. The East India Tea Company had a legal monopoly from the British Crown, of course, the Dutch East India Company had a similar monopoly from the Dutch Crown and their government said, no other Dutch ship or no other English ship can legally sail out to the Spice Islands and bring back tea and spices and so forth, right? That's what people understood by monopoly when the government intervenes in a market and favors one particular entrepreneur or firm over another. But those of you who are economic students or if you keep up with any of the contemporary literature and jargon know that that is not at all what competition means to most economists, right? In kind of mainstream economics and neoclassical economics, you know, competition, terms like competition and monopoly refer to particular abstract, artificial constructs or models, in particular, the concepts of so-called perfect competition or imperfect competition, which I'll describe in more detail in just a moment. And in mainstream economics, if any firm has the ability to charge prices higher than the actual marginal cost of production, i.e. to earn a profit, then that firm must not be operating under competitive conditions, right? Monopoly is defined as the ability to increase price over marginal cost to charge prices higher than cost, which, I mean, so basically any profitable firm has some kind of monopoly privilege, according to sort of standard, the standard approach. Everybody's talking about privilege nowadays, profit privilege, right? If you're in a profit, you got monopoly privilege of some kind. Now the Austrians have, as it won't surprise you to know, have a very different perspective on monopoly and the meaning of competition, though there's some variation within the Austrian tradition, as I'll suggest in just a moment. Okay, so just a brief review of the neoclassical approach before we go into some criticism. This will be familiar to those of you who are economics majors. What mainstream economists mean when they talk about perfect competition or imperfect competition or various flavors of competition is really a way of characterizing the structural features of various markets, right? So we look at a particular market theoretically or we look at an actual market in the world and we say, well, okay, so, you know, is it a bunch of producers selling kind of an identical product, a homogeneous product or is each firm selling a differentiated product? You know, is each product, are certain products completely unique such that there are no substitutes for them whatsoever? First we gotta assess that, right? Then we have to look at how many buyers and sellers. Are there lots of buyers and sellers or just a few? Are they kind of equal in their spending power or their buying power or selling power or some of them much larger or some of them much smaller? How difficult is it to enter a new market or exit an existing market? Not just in the legal sense that I talked about just before, but even, you know, in an economic sense, right? I mean, it's just hard, right? So, you know, if I wanna be a successful, you know, pizza entrepreneur, I gotta have some knowledge of how to make pizza, right? I've gotta be able to get the funds to set up a, you know, to rent a store and to get a pizza oven and so forth. And if I don't have enough money to do that, well, then entry is restricted, right? That's a barrier to entry that might be a concern from an antitrust perspective, right? Anything that impedes my ability to enter any business that I can dream of costlessly is potentially an entry barrier, right? So, essentially, every market is characterized by entry barriers in this sense. No market is really competitive and therefore it is appropriate, potentially, for the government to intervene in any market kind of situation. And, you know, you might look at information conditions if there's any private information or hidden information that could cause a problem as well. So, the wheat market, right? So, every economics textbooks, favorite example of a perfectly competitive industry, which it really isn't, of course, in which there is a very large number of sellers, lots of little wheat farmers, and it's all just wheat. You know, you can put all the grain into a big grain elevator and nobody cares whose wheat it is, it's just a big homogeneous thing of wheat. As opposed to a market-like large-body commercial aviation in which, for passenger planes, there are only two firms, right, in the market today, Airbus and Boeing. Of course, there have been other firms in the past, McDonald Douglas and Lockheed and so forth, but basically there are two firms in the business of selling large-body commercial jets and major economists call that a duopoly, right? It's a market with just two firms. Or, there may be cases where there's only one firm in the industry. If we define the industry as the search engine that everybody uses, right, then Google has a monopoly. Well, I mean, yeah, technically there's like Bing, right, but when have you ever Binged something to get some information, right? So, the point is, economists wanna look at these, you know, different markets and say, okay, our first task is to say, well, is this market, is it close to the sort of theoretical notion of perfect competition? Is it close to pure monopoly? Is it more like a duopoly or an oligopoly with three or four or five firms? And then we decide what to do about it. Of course, as I mentioned, none of these cases strictly fit the definitions, right? I mean, if you wanna be literal about it, the definition of perfect competition includes, you know, it requires that a market have an infinite number of firms, each of which in the limit has a size, you know, assets or sales of zero. I haven't seen any of those, right? But most economists get lazy. They say, well, if there's lots and lots of little firms, that's good enough. Okay, of course, even wheat is not really a homogeneous product because you got lots of different kinds of wheat. You've got number three wheat and number four wheat and winter wheat and red wheat and you've got nowadays, you've got organic wheat and GMO free wheat and all different kinds of wheat. But to none of these examples completely fit. I mean, there are substitutes for large body commercial airplanes, namely the smaller ones. They're made by firms like Embraer and Canadair and so forth. And of course, there are substitutes for all of the products that Google offers. We just don't think they're as good. Okay, that's not, this would be the literal definition of monopoly. So let's look at, you know, two examples, the perfectly competitive firm first and then a firm that has a monopoly, right? How many of you have seen this kind of diagram before? Right, lots of you. So imagine, this is a neoclassical economics treatment. Imagine a market like the wheat market. We assume that there are lots and lots and lots of little tiny wheat farmers, each of whom supplies wheat to the wheat market. And we assume that consumers don't care whose wheat, you know, they don't distinguish one farmer's wheat from any other farmer's wheat. It just all goes into the wheat market. Therefore, from the perspective of an individual farmer, the story goes, that farmer, you know, can sort of bring as much wheat to market as he or she wants without affecting the market price. Right, because each farmer is so small relative to the market, you know, you could dump all your available wheat on the market. That's not gonna drive the price down because you're so small relative to the whole market. Likewise, you know, you could withhold wheat from the market. You could not bring wheat to market that day, but that's not gonna drive up the market price because you're such a small player relative to the market. So in that sense, the demand curve facing the individual firm is perfectly elastic. That's a horizontal demand curve, meaning the market price doesn't change no matter what quantity an individual firm brings to market. Of course, if all firms increase their wheat production or all firms decrease their wheat production in tandem, in harmony, right, then the market price would be driven up or down. But if each farmer assumes that other farmers are doing their own thing, then the farmer can supply as little or as much as he or she wants without affecting the price. That's why you get that horizontal demand curve. And of course, marginal revenue is just equal to price in this case. The amount of revenue you get from selling one bushel of wheat is always the same, right? We could talk about how that affects the ability to calculate marginal revenue product like we were doing yesterday, but we won't do that now. So imagine that this individual firm has an upward-sloping marginal cost curve, you know, U-shaped average cost curve, then in kind of a long-run equilibrium, right, each firm will be producing the quantity of wheat at which the price is just equal to the marginal cost. And if there's sort of entry and exit, the ability for different firms to enter and exit depending on market conditions, you kind of settle in this place where you get this long-run competitive equilibrium in which that particular price quantity pair right here, right, is also at the minimum of the average cost of production. So you get two things here that are supposed to be, you know, desirable from an efficiency standpoint, right? All the time, both in the short run and the long run, firms are charging prices equal to marginal costs. So when consumers are deciding how much wheat they wanna buy or bakers are deciding how much wheat they wanna buy as an input, right? They're making that choice using a number, the price that also corresponds to sort of the opportunity cost to society of using a bushel of wheat. And therefore you get this sort of perfect allocative efficiency. And in the long run, because if this price marginal cost point is above the average cost of production, firms will earn profits, other firms will enter, that'll drive down the market price. And if the price marginal cost pair lies below the average total cost curve, then firms will leave the industry and that will bring the price up. You get this kind of equilibration where in the long run, right, the price that each farmer charges is also exactly equal to the minimum of the average cost of production. It's like this is the cheapest possible way we could get wheat. Okay, so everybody's happy except farmers, right? Because farmers don't earn any economic profit, right? Each farmer earns just enough to compensate him for not becoming a pizza entrepreneur or whatever his next best opportunity is. Okay, there's nothing left over, there's no residual, there's no economic profits. So your economics professor, unless you're lucky enough to have an Austrian professor, will say, look everybody, this is what a market ought to be from an individual producer's point of view. When we have a world like this, everything's great, everything's efficient, unfortunately, because of these robber barons and other bad people, some markets are not like this. So we've got to do something to fix them to make them more like this, right? In many cases, your professor tells you firms do not operate in a perfectly competitive environment, they hold something called market power, right? So a firm with market power is in an entirely different situation. What kind of a firm is this? Well, market power exists and sort of is defined by the condition where the firm faces a downward sloping demand curve for its product, okay? I want people to buy more of my pizza, I've got to charge a lower price per pizza, right? I mean, we assume that demand curves are downward sloping in markets. So if the demand curve from my product, from my point of view is also downward sloping, then I no longer face this situation with a perfectly elastic horizontal demand curve, which allows me to do something very sneaky, right? So if you, as you know, those of you studying this, when the demand curve is downward sloping, right, that's price as a function of quantity, then the amount received on the margin from selling one more unit, i.e. the marginal revenue is not exactly in the same place. The marginal revenue curve does not coincide with the demand curve, right? It's more steeply sloped than the demand curve and it lies below the demand curve. So that green line represents the marginal revenue from selling one, two, three, four, five units. The point is marginal revenue decreases more quickly than price. But because, you know, to sell more units on the market, you have to lower the price, not just for the last unit sold, but for all of the units that you sell, all the ones that came before it. So on the margin, you're actually adding even less to your revenue than the price. Who cares, what's the point? Well, if you have a marginal revenue curve that is below the demand curve and more steeply sloped, when the profit maximizing firm, profit maximizing entrepreneurs says, well, I wanna produce the quantity where marginal revenue is equal to marginal cost. Notice where that is, that's right here, right? Call that QM, the monopoly quantity, right? So the firm maximizes profits where marginal revenue, that's the green curve, is equal to marginal cost, which is right here. What price does the firm charge at that quantity? Well, the highest price that you can get and still be able to sell that much stuff, which is not right over here. In fact, you sort of march all the way up to the demand curve and scoot over to the vertical axis. So the monopoly price is right here, right? So notice there's this kind of wedge, right? The price that the monopolist charges when the monopolist is maximizing profits is greater than the marginal cost of production at that quantity, okay? So price is higher than marginal cost, which means what? Left over money for that greedy monopolist, okay? So what you get in this sort of standard analysis, right? That because the firm with market power faces a downward sloping demand curve, that firm maximizes profits by producing the quantity at which marginal revenue equals marginal cost, same as any firm. But at that place in this situation, the price is greater than the marginal cost. And the way it sometimes described is the following. If this market were perfectly competitive, right? And we're looking at the whole industry, not just an individual firm, a perfectly competitive industry would have an equilibrium price quantity combination here, right, where the marginal cost curve hits the demand curve. So this is how much output would be produced if this were a perfectly competitive market with lots of firms. But because it's only one firm, the firm decides to produce less. The firm deliberately restricts quantity relative to the perfectly competitive amount in order to ride up that demand curve and jack up the price from PC to PM. Thus earning profits, thus lining the monopolist's pockets with ill-gotten gains, okay? That's the standard story. They don't usually make it as dramatic as that. That's a bad outcome, right? Because it means profits for the firm and less well-being or surplus for consumers. And there's also this little yellow piece, the so-called dead-weight loss, which nobody gets subject for another day. But the point is in sort of this kind of standard approach, you start by describing a kind of a market that could never exist. Define that as the ideal from a welfare or efficiency point of view. And then use that to show that all actually existing markets are inefficient, do not maximize social welfare. And therefore there's some case to be made for fixing this somehow. What can we do to make this market more like the previous one? Well, we could say, oh, there's just one firm in the market, that's bad. Let's make it two or five or 10 or 100 firms. How do we do that? Well, we file an antitrust suit and force the firm to be broken up into little tiny firms. Or maybe we just leave the firm as it is, but we regulate the price. We allow you to exist as one firm. But we command that you charge this price instead of this price, public utilities fit in that example of that kind of scenario. Now, I'm being a little bit, I guess not exactly facetious, but I'm kind of overstating the case. Most mainstream economists, most neoclassical economists, if you press them on these points, we'll say, well, yeah, it's really not that simple. In fact, there are some problems with this approach to monopoly, the standard approach to monopoly. For example, one of you famously associated with Joseph Schumpeter, Schumpeter over here with the flower, who's kind of a dandy. Schumpeter said, look, yeah, I mean, profits are, monopoly is bad in the standard way. It means more money for the firm and less well-being for the consumer. And you can have dead weight losses, but that's kind of the price we have to pay as a society to get innovation, because Schumpeter thought that innovations primarily come from large firms and large firms need a budget. They need an R&D budget to be able to do experiments and improve products and so forth. So if in a perfectly competitive world, we would never get any improvement because firms don't have any money left over for research. So we have to allow some monopoly because that gives us more economic growth in the long run. You know, other sort of sophisticated thinkers like Harold Demsets, who I would describe as a kind of Chicago style neoclassical economist, but a very thoughtful one, says, look, you know, how do you know that monopoly exists? Well, simply looking at market shares as people often do is not a good indicator, right? And of course, we all know this. It's not the case that Google, somehow mysteriously dominates the search market and uses that to screw us over somehow. Or I'm still waiting to find out how they're screwing us over by offering us free search results and maps and mail and all the other stuff they offer. In fact, Demsets points out, you know, why do firms like Google have such a large market share? Well, because they're better. I mean, they offer products and services that people prefer to other products and services. And you know, through learning by doing and economies of scale and so forth, they get pretty good at it. Yeah, it's hard for someone else to compete with Google in the search business, but it's not because Google did anything inappropriate. Google just offered a better product than those of its rivals, okay? So why would we wanna penalize firms for being good at what they do? Because being good at what you do tends to lead to growth. People wanna buy your product, they pay you a lot of money, your competitors go bankrupt, you sit on a big cash hoard, you use it to expand and so forth. What else are you supposed to do? Just quit and go home. There's also the very interesting literature that from the late 70s, early 80s, by people like William Baumall, late William Baumall on what they call contestable markets or contestability. The idea that even in markets that are not, even markets that are not perfectly competitive that have just a handful of firms in them, may still look a lot like competitive industries in the standard sense if there is the potential for other firms to enter, right? So even if I'm the only pizza vendor in town, I'm not gonna jack my prices way up above marginal costs because if I did so, then somebody else would just set up a pizza shop across the street. It's not very hard to do. And then I would lose money, I don't wanna deal with that. So just the threat of potentially having to compete with some rival might discipline my behavior as an incumbent, even if that rival is not currently in the market. Okay, so what can we say about this from sort of an Austrian point of view? Well, let's start kind of with sort of first principles, right? Remember, Austrian economics is not, Austrians don't attempt to describe phenomena using abstract mathematical models, but rather try to trace out cause and effect in a realistic fashion, hence causal realist economics, looking at the actual choices made by real persons and theorizing about real human action. And of course, real human action does not exist in terms of infinite quantities and infinitely small firms and perfectly smooth and continuous curves, right? So think about this way. I mean, each seller, no matter how small, contributes a discrete quantity to the market. So, I mean, conceptually there doesn't make sense to say that for any demand curve really to be perfectly elastic. I mean, you know what that means mathematically, a perfectly straight line, right? I mean, even a very small wheat farmer is adding some quantity to the wheat market. Now, you might say, well, it's only, you know, 100 bushels and the wheat market has millions and millions of bushels. Okay, well then that action would have very small effect on price. And depending on how prices are quoted, right? If they're quoted in certain increments, that may not be enough of an increase in quantity to bump the price needle, you know, down to the next lowest increment. But it doesn't follow, that's not the same thing as saying that the firm faces a perfectly elastic demand curve. There's no infinitesimally small units. So basically all firms, no matter how large or small, no matter how many competitors they have, face the same kind of situation, right? We discussed this in my entrepreneurship talk yesterday. All entrepreneurs are trying to earn profits, right? By seeking combinations of resources that will yield what they expect to be revenues greater than their costs. They're doing so under uncertainty, right? Whether you're the only firm currently offering a particular product or whether there are many firms offering that same product, whether there are lots of entrepreneurs trying to get those same inputs or just a few, from a subjective perspective, the problem facing the entrepreneur is exactly the same, right? There's no actual knowledge and technical differences and so forth, but from a praxeological point of view, there's no difference between a competitive firm and a monopolized firm in terms of the objective of the entrepreneur and the means the entrepreneur uses to try to achieve that objective. But we can think about some more specific issues. I mean, what is the following? Requiring firms to increase their output beyond what the entrepreneur considers to be the profit maximizing quantity, right? The entrepreneur's desired quantity. In a sense, it's a violation of the entrepreneur owner's rights. Okay, this is easy to see with certain kinds of examples. Apparently from what I read in 2017, the highest paid actor, the highest paid Hollywood celebrity is Mark Wahlberg. I was surprised, I thought it would be Tom Cruise maybe, but Tom Cruise is like 15th, okay? So Mark Wahlberg is currently the highest paid actor in Hollywood. He's in a lot of movies, right? Some of them are good, some of them are not so good. But you know, you can say, well, look, you know, there's only one Mark Wahlberg. I mean, there are some substitutes, but they're not perfect substitutes, right? So if consumers really desire to see Mark Wahlberg in movies, right, and would be willing to pay enough at the box office so that Mark Wahlberg could pocket enough earnings from doing movies to make it worth his while, then I mean, basically he should be working every minute of every day, right? Let's say Mark Wahlberg makes 10 feature films per year. Well, he should make 20 or 50 or 100, right? That might increase consumer welfare because we'd be willing to pay enough on the margin to make him at least break even from doing all those additional movies. But no, in fact, Mark Wahlberg doesn't make every film ever made, you know, every film that he could. I imagine, I don't know the guy personally, but if he's like other Hollywood stars, when he's not currently filming a movie or doing other crazy stuff that those people do, you know, he's looking at scripts, right? His agent gets scripts and they make pitches to Mark Wahlberg and they send it to him. You know, would you be interested in doing this film? No, we'd love for you to play this part. I mean, he's selective. He chooses what parts he wants to play because if he's in every single movie and every single TV show and every single commercial, then we're gonna get, you know, Wahlberg fatigue and that's probably gonna lower his value on the market. All right, so each of us makes, we make ourselves our labor available on the market in the way that we see is appropriate. And it wouldn't make sense to say, oh, you have to work more hours because consumers want to see you more. Okay, well, sorry. You know, the world wants to hear me lecture every day, but you know, I need breaks. I don't want to. And it would be weird to sort of force me to give another lecture. Okay, well, if it applies to Mark Wahlberg who has a monopoly on Mark Wahlberg or Peter Klein who has a monopoly on Peter Klein lectures, I mean, how's it really any different with Jeff Bezos? Right, except that he has 150 billion reasons to do whatever the heck he wants. You know, why should the owners of Amazon, let's say that Amazon is one of these, is a monopoly and Jeff Bezos is a robber baron and blah, blah, blah, right? So essentially what the implication is, Amazon is not supplying enough product to the market. Right, Amazon is not producing as much as it conceivably could so that it can charge higher prices than it would charge under more competitive conditions. Right, or standard oil or anybody. If the argument is the monopolist restricts quantity in order to be able to charge a higher price and the remedy is to require the monopolist to increase quantity, well then, I mean, then everybody should be required to offer whatever services consumers want, right? But we recognize that that would be a violation of individual sovereignty and that would reduce welfare in the sort of meaningful Austrian sense of that word. There's a lot of other problems too. I mean, where does elasticity of demand come from? Right, some entrepreneurs face a more elastic or less elastic demand for their product. Or remember, elasticity is not something given by nature and elasticity is not something that the entrepreneur sort of creates. No, elasticity reflects people's willingness to pay certain prices for certain quantities of the good. Elasticity comes from the consumer, right? Elasticity of demand reflects consumer preferences. So if you say, well, Google has too much market power because none of the other search engines are as good and therefore Google sort of forces people to use Google search and therefore it can force you to watch a bunch of ads, see a bunch of ads you don't really wanna see and it can steal all your information, et cetera. I'm gonna talk about that later in the week. Lecture on the economics of data privacy. But I mean, look, nobody forces you to use Google. Nobody forces you to use Amazon or Netflix or whatever. Nobody forced anyone to purchase the products of Standard Oil or Carnegie Steel, right? If in fact those firms face an inelastic demand for their product or a less than perfectly elastic demand, thus allowing them to earn monopoly profits, what of it? Right? That's a reflection of subjective consumer preferences. We choose, you know, you say, oh, well, there's no good substitute for Google. Well, that's because that's in our minds. We have decided we like Google better. It's not like some engineering thing because yeah, I mean, Bing is kind of the same thing as Google. We just don't like it as much, okay? So what makes one product a substitute for another product and therefore the number of substitutes available for a given product in determining whether or not it has a monopoly, quote unquote, exists in the minds of consumers. It's not given by engineers or given by nature, okay? So what about monopoly in the common law meaning, right? So as you may know, in Murray Rothbard's writing, he adopted this kind of common law notion of monopoly and said, look, if we go back to that common law definition, we can analyze monopoly in terms of government privilege, right, a monopoly, a firm has monopoly power if the government somehow restricts other firms or other entrepreneurs from competing with the favored entrepreneur, the favored firm. The judge last night talked about the Lysander Spooner post office case. I don't know if you guys knew about that case, but Spooner argued, I think it was about 1844. He argued that, well, the Constitution does give the federal government in the U.S. the authority to operate a post office, but it does not give the post office a monopoly. There's nothing in the Constitution about limiting competition to the post office. So he opened up his own post office and he charged rates that were much lower than the U.S. Postal Service rates. And so eventually they went after him and Congress passed a law in response to Lysander Spooner making it illegal for anybody to deliver first class mail. That's not in the Constitution. That's congressional legislation. So the U.S. Postal Service and the post office in most countries has a monopoly in the common law sense because it's illegal for anybody else to compete with it. A lot of local electric companies, water companies and so forth have exclusive rights to produce that good or service. A patent, even those who defend patents and that's a controversial area, can see that a patent is a kind of monopoly. A patent is a temporary legal right to be the exclusive producer of a certain thing or exclusive user of a certain technology. Now, people who defend patents argue kind of a la schumpeter that well, yeah, patents are not good from a sort of market efficiency point of view but we have to give patents, we have to give short term, 17 year temporary monopolies to induce people to invent new stuff. Tariffs and quotas can be sources of monopoly privilege as well, right? I mean, it's currently not illegal for Chinese steel makers to sell their steel in the United States but Trump has made it a lot more costly than to do so. Trump has talked about banning, he doesn't like the fact that if you drive up down Fifth Avenue in New York, you see a lot of Mercedes Benz limousines. He says those should be Cadillacs or Lincoln Continentals and he wants to ban German automakers from exporting to the US although it's not even clear what that means since most Mercedes sold in the US are made in Alabama just up the road from here. But if there were some kind of a tariff on, if all BMWs were made in Germany and there's a 50% tariff, that's kind of like monopoly protection for American auto producers, right? Now there are some less obvious sources of monopoly privilege, certain kinds of regulation and even tax policy. So you could argue that progressive taxation, right? Which limits capital accumulation is a kind of, provides a kind of privilege for people who already have a lot of capital, right? It's hard for me to amass a fortune to compete with Jeff Bezos or whatever. He's already got a fortune, right? So he might be in favor of high progressive taxation because it makes it harder for somebody else to be the next Jeff Bezos, okay? A lot of environmental and labor rules, right? They say, well, we just want to protect workers, we want to make sure that firms protect the environment and so we're gonna impose costly regulation on firms. Well, I mean, if you're a large successful firm, if you're Walmart, you can afford to have a certain number of parking spaces reserved for disabled customers. You can make sure that all of your facilities are accessible and so forth. You know, if you're a mom and pop startup, you may not be able to do that. In fact, that may make it prohibitively costly for a mom and pop startup to compete with a dominant incumbent. So what about regulation, right? Including antitrust policy here is sort of a form of regulation. Well, one approach to, in the standard literature, is to say, well, if we can't break up the monopolist and transform the industry into a competitive one, we can at least regulate the monopolist and sort of force the monopolist to produce something like the competitive price and quantity. Well, you have a knowledge problem there. I mean, what is the perfectly competitive price and quantity? All we know from a praxeological point of view is that real prices that exist in real markets are those that emerge from a competitive in our sense process in which entrepreneurs can try different things and so forth. We don't know what these hypothetical, perfectly competitive prices are. And of course, the idea of setting up a government agency with the authority to regulate price and quantity for firms that opens up a whole nother Pandora's box. Right now you've got a big bureaucratic agency that can abuse its authority and firms can engage in rent seeking and so forth. So if you think that regulation is too difficult, you might prefer to just split firms up using antitrust judgments or make it illegal for them to grow or to merge or whatever. So there's a lot of sort of the key pieces of legislation in the US are the Sherman Act from 1890, which prohibits what they called restraints on trade. The Clayton Act, which outlaws charging different prices to different customers or making a customer buy one thing if they want as a package, if they want to buy something else, the Robinson-Patman Act, which outlaws so-called predatory pricing. Other countries, the EU has competition policy. Of course, it's newer. These laws come from the 60s when the European Commission was becoming established but they essentially imposed the same kinds of restrictions on firms as antitrust laws in the US. Same thing in many other countries. Well, you can imagine there are a whole host of problems with using antitrust action to deal with so-called monopolies. So one problem is, well, what's the relevant market? So again, people say, well, Google has a monopoly on search. Common statement. Okay, well, I mean, as we've already pointed out, I mean, it doesn't technically have a monopoly on searching on the internet because there are other search engines. You know, if you really are concerned with consumer privacy, there's like duck-duck-go and there's other search engines that supposedly don't track you and so forth. There's a lot of search engines. Now, are they as good as Google? Well, I mean, I don't know. That's not something a court can easily determine, right? But clearly there exist other search engines. In fact, I mean, there are other ways to get information too. Oh, I want to eat pizza at some place downtown. What time do they close? Google, ch-ch-ch-ch-ch. Well, guess what? For the younger people in the room, there was a day when we didn't have these things. And if you wanted to find out when the restaurant closed, you would like call on a traditional phone and say, hey, what time do you close? You're like, oh, how'd you get their phone number? Well, we had these big, thick books called telephone directories, where you just go look up the name of the pizza parlor, look up the number, call. Okay, yeah, that's not, I prefer doing it this way. I prefer Googling it, but that doesn't mean there aren't other ways to get information besides Google. So what counts? There's a famous antitrust case in the U.S., the 1960s called the Brown shoe case. That's an old Brown shoe advertisement where the court said, well, basically the relevant market for determining monopolistic practices is whatever affects people's behavior in any market. In other words, the defense Brown shoe is arguing that they sell their products on a national market, right? And so they were competing with all the other firms that sell in national markets. But the Justice Department said, no, no, the relevant market is each individual town. So if you have 50% of the market share in one particular town, then you have monopoly power. Even if you only have 5% of the national market. So I mean, is this sort of an arbitrary decision on the part of the court as to what is a relevant geographic market? There's a lot of issues that the sort of approach is way too static, doesn't take into account what the future of the market might be. There's all kinds of problems with letting firms, you know, with antitrust policy, your competitors can complain to the government that you're a monopolist and urge the government to file a lawsuit against you. In fact, private parties in the US can actually file antitrust complaints against their rivals, their competitors. There's obvious potential for abuse in that case. Antitrust cases take a long time to resolve. There's a famous example in the 1960s and 70s, the US claimed that IBM was a monopolist and there's this lengthy antitrust trial that went on for more than a decade. And by the end of the trial, the market that IBM was alleged to have monopolized, namely the mainframe computer market, it pretty much disappeared. So they just dropped the case because there was no longer anything to talk about. But from a kind of a philosophical point of view, big problem with antitrust law is that it's all kind of what the legal, the jurists call ex post facto rules. Meaning there's no way to know ex ante if a given behavior is or is not a violation of the antitrust law. You only find that ex post based on whether you win or lose the antitrust case. I mean, it's not like a tort, it's not like punching somebody in the face. Well, yeah, maybe I'll be able to get away with it. At least in principle, I know punching somebody in the face is not legal. But I sell pizzas for 10 bucks a pizza, I wanna charge 11 bucks a pizza, is that legal? There's no way to know. I mean, that could be an antitrust violation. There's no way to find out until you try it and get sued by the Justice Department. There's a great book that you gotta look at by, I think we have it downstairs. It's a comic book, sorry, a graphic novel called Tom Smith and His Incredible Bread Machine. It's kind of a funny book on about a fictional entrepreneur who invents this magical bread machine then the government tries to shut him down. There's a great scene where the antitrust officials are berating him with the following text. You're gouging on your prices if you charge more than the rest, right? So price gouging is when you charge a price that's too high. But it's unfair competition if you think you can charge less. That'd be predatory pricing, right? A second point we would like to make to help avoid confusion, don't try to charge the same amount, that would be collusion. Okay, so no matter what price you charge, you could conceivably be violating the antitrust laws. Okay, so to summarize from an Austrian point of view, competition should be understood as a process of rivalry among entrepreneurs who are free to compete as they see fit within some kind of illegal framework. And that might result in markets with just a few firms or markets with a lot of firms and they might be big or small. Firms might earn high profits, they might make losses. There's all kinds of things that could be going on in those markets. As long as the government is not granting special favor to some entrepreneurs over others, we can say that that market is competitive. And it follows that attempts by the state to sort of limit monopoly power or monopoly privilege cannot improve wellbeing, cannot improve market performance and so forth. The best government policy towards monopoly is don't give any out, right? Don't create monopolies and then we don't have a monopoly problem. Thanks.