Rules of Evidence

This post was a response to a student's post about monopolies.

This question is difficult in the abstract. Let me talk a little about monopolies. Creating a monopoly in today's world are something extremely difficult to pull off without government assistance. For decades, one of the most successful monopolies in the world was the De Beers monopoly over diamond production. However, it currently controls only about 40% of world production. http://en.wikipedia.org/wiki/De_Beers

Probably the most common monopolies we see are monopolies created through intellectual property law. Thus, a company with a patent or copyright by law has a monopoly over the production or sale of that product for a limited period of time. 20 years in the case of a patent.

The next most common type of monopoly is a regulated monopoly, such as a utility company. The government grants a monopoly, but forms a commission to regulate things like prices. The theory behind a government regulated monopoly has to do with what is called a natural monopoly (http://en.wikipedia.org/wiki/Natural_monopoly). If a business requires high fixed costs (for example big power plants) and has low variable costs (for example it does not cost much to hook one more house up to the power grid) the theory says it is cheaper for customers if government allows just one big producer, but regulates the company to prevent it from charging excessive prices. While the theory makes sense, it practice there have been problems such as regulatory capture (http://en.wikipedia.org/wiki/Regulatory_capture) the problem of freezing into place inferior technologies.

Not quite as common in the US, but very common around the world are government owned corporations, such as national oil companies or airlines, which have a monopoly on an industry in their home country.

Rare and usually short lived are companies that are able to obtain a monopoly over an industry through practices such as predatory pricing (http://en.wikipedia.org/wiki/Predatory_pricing ). This means that they would undercut competition by underselling any competitors until they go out of business, at which point in time they would increase their prices and reap monopoly profits. This is tough to do. First there are too many large sources of money attracted by the prospect of high prices. Even if the company could eliminate competition, once it tried to raise its prices significantly it would attract new competition. In addition, if a company was willing to lose money through underselling competition until the competition was driven out of business, a prospective competitor could simply short the would-be monopoly's stock and as its stock fell in response to the loses it incurred trying to undersell the competition, the competitor would make up for this situation through the money it brings in through shorting the stock predator’s stock. http://independent.org/publications/tir/article.asp?issueID=19&articleID=201

A final possibility is a monopoly obtained through criminal means. Criminal monopolies over things like gambling and prostitution are not unusual. In such cases, instead of using law (and thus government force) to create a monopoly, criminal gangs use direct force to create monopolies.

		August 6, 2007 *The Monopoly Myth*
	This post was a response to a student's post about monopolies. This question is difficult in the abstract. Let me talk a little about monopolies. Creating a monopoly in today's world are something extremely difficult to pull off without government assistance. For decades, one of the most successful monopolies in the world was the De Beers monopoly over diamond production. However, it currently controls only about 40% of world production. http://en.wikipedia.org/wiki/De_Beers Probably the most common monopolies we see are monopolies created through intellectual property law. Thus, a company with a patent or copyright by law has a monopoly over the production or sale of that product for a limited period of time. 20 years in the case of a patent. The next most common type of monopoly is a regulated monopoly, such as a utility company. The government grants a monopoly, but forms a commission to regulate things like prices. The theory behind a government regulated monopoly has to do with what is called a natural monopoly (http://en.wikipedia.org/wiki/Natural_monopoly). If a business requires high fixed costs (for example big power plants) and has low variable costs (for example it does not cost much to hook one more house up to the power grid) the theory says it is cheaper for customers if government allows just one big producer, but regulates the company to prevent it from charging excessive prices. While the theory makes sense, it practice there have been problems such as regulatory capture (http://en.wikipedia.org/wiki/Regulatory_capture) the problem of freezing into place inferior technologies. Not quite as common in the US, but very common around the world are government owned corporations, such as national oil companies or airlines, which have a monopoly on an industry in their home country. Rare and usually short lived are companies that are able to obtain a monopoly over an industry through practices such as predatory pricing (http://en.wikipedia.org/wiki/Predatory_pricing ). This means that they would undercut competition by underselling any competitors until they go out of business, at which point in time they would increase their prices and reap monopoly profits. This is tough to do. First there are too many large sources of money attracted by the prospect of high prices. Even if the company could eliminate competition, once it tried to raise its prices significantly it would attract new competition. In addition, if a company was willing to lose money through underselling competition until the competition was driven out of business, a prospective competitor could simply short the would-be monopoly's stock and as its stock fell in response to the loses it incurred trying to undersell the competition, the competitor would make up for this situation through the money it brings in through shorting the stock predator’s stock. http://independent.org/publications/tir/article.asp?issueID=19&articleID=201 A final possibility is a monopoly obtained through criminal means. Criminal monopolies over things like gambling and prostitution are not unusual. In such cases, instead of using law (and thus government force) to create a monopoly, criminal gangs use direct force to create monopolies.