It is government that makes monopolies; free market brings competition

Robert Pratt

Thomas J. DiLorenzo, in a piece titled The Myth of the Natural Monopoly, points out that: “If competition is viewed as a dynamic, rivalrous process of entrepreneurship, then the fact that a single producer happens to have the lowest costs at any one point in time is of little or no consequence. The enduring forces of competition — including potential competition — will render free-market monopoly an impossibility.”

“The theory of natural monopoly is also ahistorical. There is no evidence of the “natural-monopoly” story ever having been carried out — of one producer achieving lower long-run average total costs than everyone else in the industry and thereby establishing a permanent monopoly,” DiLorenzo points out.

He’s right, monopolies and near monopolies only exist when politics gets involved whereby politicians grant special status to industries such as power utilities or in the past the local phone or cable TV company paying franchise fees and being shielded from competition. None of these companies has ever been among the lowest cost, highest innovation providers for any long length of time and yet the whole theory behind “natural monopolies,” used to justify government protection, rests on that disproven idea.

Not only do regulated government protected monopolies such as electric utilities not operate with the lower costs theoreticians predicted during the heyday of “natural monopoly” thinking, which sadly continues today with some, time has proven that such protected firms actually operate with higher costs than comparable industries in competitive environments. The reason is simple, why endure the pain of innovation and cost control when in the end you can make customers pay your increased costs.