When you go to the grocery store, you likely don’t think much about the brand of corn you buy (ignoring somewhat recent concerns about things like GMOs). Instead of a company that sells a product with no close substitutes, imagine an industry where there are a large number of sellers who market an identical product.
Imagine the opposite of the definition of monopoly above. In fact, this sort of categorization is used explicitly by anti-trust experts. Another way we can categorize firms is their ability to affect the price of goods. Likewise, this definition of monopoly isn’t the only way to conceptualize the problems created by a lack of competition. Market PowerĮven though we can’t use this definition to identify monopolies in practice, this doesn’t mean we can’t imagine this sort of firm. It also means coming to an objective answer as to whether a firm is a monopoly is impossible by this definition. It only means that we’ll have a tendency to overestimate the number of monopolies if we ignore that many goods can be substitutes for other goods. That doesn’t mean the concept of monopoly is totally drained of importance. If you define a good narrowly enough you could argue all firms are monopolies. Is a smartphone a “good” or “close” substitute for a computer? Is college football a close substitute to the NFL? What about the NBA? Is a grocery store a substitute for a restaurant? Is Twitter a substitute for Facebook? Is Zoom a substitute for transportation? The point of these questions is that it isn’t clear. It’s important to recognize immediately that this definition is, at best, ambiguous. This is a pretty standard definition of monopoly, especially the first part about having a product with “no good substitutes.” Other textbooks will say a product with no “close” substitutes. In the Microeconomics textbook I use for my courses (Gwartney, Stroup, Sobel, and Macpherson) the definition of monopoly is, “a market structure characterized by (1) a single seller of a well-defined product for which there are no good substitutes and (2) high barriers to the entry of any other firms into the market for that product.” What is a monopoly? Well, I think it’s important to consider the literal textbook definition.
#Government monopoly examples in real life free#
In order to answer how a free market would address monopolies, we first need to understand what a monopoly is and what a monopoly is not. “without anti-trust laws how would the free market keep monopolies from forming? If other companies could just buy smaller companies without creating innovation, how would progress happen?” On this same topic, for Ask an Economist, I received a question from AJ.
In the president’s recent State of the Union address he called for “bipartisan legislation to strengthen antitrust enforcement.” For those who aren’t policy wonks, antitrust law is the law that attempts to prevent the creation of monopolies and cartels.
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