I go over what it means to be a "monopoly" in economic terms and discuss why so many get confused about its use.

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Transcript

What is a monopoly?

The word “monopoly” strikes many visual pictures, from the popular depression-era boardgame to the depiction of fat, rich businessmen in black suits cackling at their control over industry.

Often, socialists and other economic leftists will use this term to mean anyone who seems to have significant corporate success in the market.

But is “being successful” what makes a “monopoly” a “monopoly?”

The answer is, NO.

A monopoly, in real economic terms, means that a business has total control over an industry or resource to the forceful exclusion of others.

Actual monopolies are rare because it’s simply too difficult for a business to control all forms of enterprise by themselves.

Let’s think about an example to help you see this.

Imagine that by some magical turn of events, Taco Bell was able to buy out every single restaurant in the United States, like in the movie Demolition Man.

Some might think that, at this juncture, Taco Bell now has a monopoly on restaurants.

However, even if Taco Bell bought out all restaurants in a single day, if the next day, people started making their own food at home, and then started to offer some for sale, the Taco Bell monopoly would be broken up by new entrants into the market.

What this means is that monopolies cannot really be maintained so long as anyone is free to compete with existing businesses.

Generally, people can freely compete with big businesses UNLESS the government uses violent force to try to shut down competition.

For example, a local government may give a limited license for one taxi company to operate in the city.

In this case, the government has created an artificial monopoly by forcefully banning competitors to the taxi company within the city’s boundaries.

A government may also give a business a special form of forceful monopoly through regulatory capture, that is, making it so difficult to enter a business due to costs and regulatory approvals, that it’s simply not possible for anyone to compete except for crony, established businesses.

The government may also grant a form of monopoly protection using intellectual property, making it so that other people cannot make use of an invention unless they get permission from the creator.

As you can see, monopolies do not really exist effectively unless there is government force involved.

Otherwise, as with any business, people could freely enter in and come compete with any successful business, and that business is left with trying to outcompete through prices or special offerings.

Any business that somehow becomes a sole goods or services provider through voluntary means can only do so by offering the best products at the best prices as compared to any other.

Otherwise, someone else could compete on whatever angle the business is missing, whether it’s on quality, service area, or price.

What is more likely to be monopolized are scarce, limited resources which cannot be reproduced.

For example, if a business bought the last corked bottle of wine from the year 1820, they would have a monopoly on the wine that still exists from that period.

No one else could produce wine from that time unless they somehow got hold of a time machine to get more.

As you can see in this form of monopoly, resource limitations that favor certain businesses can only come about if the resource is scarce enough for one business to hold it to the exclusion of others or, by state force limitation, if a business is given a monopoly over a resource or operations in providing a service.

And with this fuller picture about what it means to have a monopoly, you can readily see that the state is itself a form of monopoly.

The state claims to be the highest and sole form of justice provider in a region.

Those who try to create courts outside of state sanction are often punished and shut down as criminal justice issues are monopolized by state governments.

So, when someone tries to tell you that monopolies are just successful businesses generally, or they conflate government-created monopolies with private free market business, you can tell them the truth that monopolies are not a threat by default.

The threat they could pose is largely a product of state violence when the government picks winners and losers.

Outside of that, people are always free to compete and offer goods and services among existing, successful businesses.

With new entrants, existing businesses may try to change practices and lower prices to compete with the new competition, benefiting consumers who then get lower prices or new alternatives.

We all win when we have a free market in competition that drives opportunities upward and costs down.