Economics Dictionary of ArgumentsHome
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| Monopoly price: A monopoly price in economics is the price set by a monopolist, a sole producer in a market, to maximize profit. Unlike competitive markets, the monopolist can restrict output to create scarcity, raising prices above marginal cost. This leads to higher profits but can result in reduced consumer welfare and allocative inefficiency. See also monopolies, competition, marginal costs. See also Monopolies, Oligopolies, Cartels, Markets, Price._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Dictionary of Arguments. | |||
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Murray N. Rothbard on Monopoly Price - Dictionary of Arguments
Rothbard III 671 Monopoly Price/Mises/Rothbard: A succinct definition of monopoly price has been supplied by Mises:“ If conditions are such that the monopolist can secure higher net proceeds by selling a smaller quantity of his product at a higher price than by selling a greater quantity of his supply at a Iower price, there emerges a monopoly price higher than the potential market price would have been in the absence of monopoly.“(1) Rothbard: The monopoly price doctrine may be summed up as follows: A certain quantity of a good, when produced and sold, yields a competitive price on the market. A monopolist or a cartel of firms can, if the demand curve is inelastic at the competitive-price point, restrict sales and raise the price, to arrive at the point of maximum returns. >Elasticity. Rothbard III 672 If, on the other hand, the demand curve as it presents itselfto the monopolist or cartel is elastic at the competitive-price point, the monopolist will not restrict sales to attain a higher price. >Monopolies. Mises: As a result, as Mises points out, there is no need to be concerned with the "monopolist"(…) whether or not he is the sole producer of a commodity is unimportant and irrelevant for catallactic problems. It becomes important only if the configuration of his demand curve enables him to restrict sales and achieve a higher income at a monopoly price.(2) If he learns about the inelastic demand curve after he has erroneously produced too great a stock, he must destroy or withhold part of his stock; after that, he restricts production of the commodity to the most remunerative level. Rothbard III 674 Inelasticity/Rothbard: The inelastic demand curve, giving rise to an opportunity to monopolize, may present itself either to a single monopolist of a given product or to "an industry as a whole" when organized into a cartel of the different producers. In the latter case, the demand curve, as it presents itselfto eachfirm, is elastic. At the competitive price, if one firm raises its price, the customers preponderantly shift to purchasing from its competitors. On the other hand, if the firms are cartelized, in many cases the lesser range of substitution by consumers would render the demand curve, as presented to the cartel, inelastic. This condition serves as the impetus to the formation of (…) cartels (…). >Cartels/Rothbard, >Monopoly price/Rothbard. Rothbard III 674 Monopoly Price theories/Rothbard: We are devoting space to analysis of monopoly-price theory and its consequences because the theory, though invalid on the free market, will prove very useful in analyzing the consequences of monopoly grants by government. >Free market/Rothbard. 1) In the first place, it is not true that the “monopolist” (…) is removed from the influence of competition or has the power to dictate to consumers at will. The best of the monopoly-price theorists admit that the monopolist is as subject to the forces of competition as are other firms. The monopolist cannot set prices as high as he would like, being limited by the configurations of consumer demand. Rothbard III 675 Elasticity: Consumers make the curve elastic by their power of substituting purchases of other goods.(1) Furthermore, as the market advances, as capital is invested and the market becomes more and more specialized, the demand curve for each product tends to become more and more elastic. >Elasticity. 2) Monoploy profit vs. monopoly gain to a factors: (…) in the case of the monopolist, it is asserted, his unique position allows him to keep making (…) profits permanently. RothbardVs: To use such terminology is to misconceive the nature of "profit" and "loss." Profits and losses are purely the results of entrepreneurial activity, and that activity is the consequence of the uncertainty of the future. Entrepreneurship is the action on the market that takes advantage of estimated discrepancies between selling prices and buying prices of factors. The better forecasters make profits, and the incorrect ones suffer losses. >Gain and Loss. The same is true for the monopolist. In the evenly rotating economy, he obtains his "specific monopoly gain," not as an entrepreneur, but as the owner of the product which he sells. His monopoly gain is an added income to his monopolized product; whether for an individual or for a cartel, it is this product which earns more income through restriction of its supply. >Evenly Rotating Economy. Question: Why cannot other entrepreneurs seize the gainful opportunity and enter into the production of this good, thereby tending to eliminate the opportunity? In the case of the cartel, this is precisely the tendency that will always prevail and lead to the breakup of a monopoly-price position. >Cartels/Rothbard. Rothbard III 678 Monopoly gains/Rothbard: We have said that the gain is derived from income from the sale of a certain product. But this product must be produced byfactors, and we have seen that the return to any product is resolved into returns to the factors which produce it. >Production factors/Rothbard, >Factor income/Rothbard. Time: (…) no income, except time income, could accrue to the owner of a capital good, because every capital good must, in turn, be produced by higher-order factors. Ultimately, all capital goods are resolvable into labor, land, and time factors. Rothbard III 679 Monopoly price: To attain a monopoly price, the factor-owner must meet two conditions: (a) He must be a monopolist (…) over the factor; if he were not, the monopoly gain could be bid away by competitors entering the field; and (b) the demand curve for the factor must be inelastic above the competitive-price point. >Demand/Rothbard. Rothbard III 680 Can there be a world of monopoly prices? There can never, (…) be a world of monopoly prices, even assuming monopoly-price theory. Because of the fixity of consumers' monetary stock and the employment of displaced factors, monopoly prices could not be established in more than approximately half of the economy's industries. >Competition/Rothbard. Rothbard III 683 Competition: Incidentally, it is by no means true that the large firms will always be the strongest in a "price-cutting war." Often, depending on the concrete conditions, it is the smaller, more mobile firm, not burdened with heavy investments, that is able to "cut its costs" (particularly when its factors are more specific to it, such as the labor of its management) and outcompete the larger firm. In such cases, of course, there is no monopoly-price problem whatever. >Production factors. Rothbard II 690 Observability: Many writers have attempted to establish some criterion for distinguishing a monopoly price from a competitive price. Some call the monopoly price that price achieving permanent, long-run "monopoly profits" for a firm. This is contrasted to the "competitive price," at which, in the evenly rotating economy, profits disappear. >Evenly Rotating Economy. RothbardVs: Yet (…) there are never permanent monopoly profits, but only monopoly gains to owners of land or labor factors. Money costs to the entrepreneur, who must buy factors of production, will tend to equal money revenues in the evenly rotating economy, whether the price is competitive or monopoly. The monopoly gains, however, are secured as income to labor or land factors. There is therefore never any identifiable element that could provide a criterion of the absence of monopoly gain. >Measurements/Rothbard, >Observation/Rothbard, >Competition/Rothbard. Rothbard III 692 Scarcity of production factors/Rothbard: (…) the attempt to establish the existence of idle resources as a criterion of monopolistic "withholding" of factors [is not] valid. Idle labor resources will always mean increased leisure, and therefore the leisure motive will always be intertwined with any alleged "monopolistic" motive. It therefore becomes impossible to separate them. The existence of idle land may always be due to the fact of the relative scarcity of labor as compared with available land. This relative scarcity makes it more serviceable to consumers, and hence more remunerative, to invest labor in certain areas of land, and not in others. Rothbard III 903 Monopoly price/legal monopolies/Rothbard: [for the free market] (…) we buried the theory of monopoly price; we must now resurrect it. The theory of monopoly price, as developed there, is illusory when applied to the free market, but it applies fully in the case of monopoly and quasi-monopoly grants. >Legal monopolies/Rothbard. Observation/measuring/distinguishability: For here we have an identifiable distinction: not the spurious distinction between "competitive" and monopoly" or "monopolistic" price, but one between thefree-market price and the monopoly price. The "free-market price" is conceptually identifiable and definable, whereas the "competitive price" is not. The theory of monopoly price, therefore, properly contrasts it to the free-market price (…). 1. Mises, Human Action, New Haven, Conn.: Yale University Press, 1949. Reprinted by the Ludwig von Mises Institute, 1998. p. 278. 2. Thus: The mere existence of monopoly does not mean anything. The publisher of a copyright book is a monopolist. But he may not be able to sell a single copy, no matter how low the price he asks. Not every price at which a monopolist sells a monopolized commodity is a monopoly price. Monopoly prices are only prices at which it is more advantageous for the monopolist to restrict the total amount to be sold than to expand sales to the limit which a competitive market would allow. (Mises, Human Action, New Haven, Conn.: Yale University Press, 1949. Reprinted by the Ludwig von Mises Institute, 1998. p. 356) 3. As Mises warns: „It would be a serious blunder to deduce from the antithesis between monopoly price and competitive price that the monopoly price is the outgrowth of the absence of competition. There is always catallactic competition on the market. Catallactic competition is no less a factor in the determination of monopoly prices than it is in the determination of competitive prices. The Shape of the demand curve that makes the appearance of monopoly prices possible and directs the monopolists' conduct is determined by the competition of all other commodities competing for the buyers' dollars. The higher the monopolist fixes the price at which he is ready to sell, the more potential buyers turn their dollars toward other vendible goods. On the market every commodity competes with all other commodities.“ (Mises, Human Action, New Haven, Conn.: Yale University Press, 1949. Reprinted by the Ludwig von Mises Institute, 1998. p. 278)_____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. "Vs" indicates differences in content, not necessarily the chronological progression of a controversy. If a German edition is specified, the page numbers refer to this edition. |
Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977 |
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