Perhaps the moment where I was convinced of the validity of capitalism as a completely sustainable and self-regulating system was reading this article by former colleague of Ayn Rand Nathaniel Branden. My largest objection to the unfettered, and unregulated free-market, had been my concern that the greed and selfishness that capitalism uses for public benefit would eventually create a monopolistic society with large companies unable to be stopped. But as Branded wrote:
The question is often asked: What if a large, rich company kept buying out its smaller competitors or kept forcing them out of business by means of undercutting prices and selling at a loss—would it not be able to gain control of a given field and then start charging high prices and be free to stagnate with no fear of competition? The answer is: No, it would not be able to do it. If a company assumed heavy losses in order to drive out competitors then began to charge high prices to regain what it had lost, this would serve as an incentive for new competitors to enter the field and take advantage of the high profitability, without any losses to recoup. The new competitors would force prices down to the market level. The large company would have either to abandon its attempt to establish monopoly prices—or else go bankrupt fighting off the competitors its own polices would attract.
There are many other remedies the free market has to bring about equilibrium - and shift market power away from large companies: defection.
Imagine for a moment that you are working for a widget company which, because of innovation in production, enjoys a 90% share of the market. You are getting paid $200,000 a year and you basically run the widget making system. If those above you begin to profit at a greater and greater margin than your work profits, then at some point you will decide it is worth the risk to defect and either start your own widget company or join the 10% competitor.
Many innovations in industry have come about because of this market-made incentive. In fact, Google is about to face new competition from within their own ranks:
[Anna] Patterson instead intends to upstage Google, which she quit in 2006 to develop a more comprehensive and efficient way to scour the Internet… Cuil had kept a low profile while Patterson, her husband, Tom Costello, and two other former Google engineers - Russell Power and Louis Monier - searched for better ways to search. …Patterson believes that’s at least three times the size of Google’s index, although there is no way to know for certain. Google stopped publicly quantifying its index’s breadth nearly three years ago when the catalog spanned 8.2 billion Web pages.
As Google grew larger, and made more and more money (by fulfilling customers wants and need at a better price and with better quality) their threat from competition also grew. That’s right, as a company comes closer and closer to monopoly, they will have a harder and harder time maintaining it - just the opposite of what many who support anti-monopoly legislation proclaim.
This offshoot of Google will be three times the size of its brother company, and possibly obtain even more profit. All of this to the benefit of consumers who can basically sit back and watch while the dollars stay in their pocket (from cheaper prices) and the products are made in greater abundance and with a higher quality.
Capitalism, if left to its own devices, with no regulation from government, will constantly move towards balance and fairness in business transactions. That even includes one of the greatest spectres invented to promote government intervention: monopolies.
Well done!
Even further: no monopoly is possible without some intervention of government force. Each new ‘rule’ of operation that becomes law, forces new entries to match that rule. They may have a way of providing the same product just as well as, or better than, the established firm, but they must now organize themselves according to the Law. That costs the start up company. The forced expense can make the difference between failure and success, the difference between competition for the existing major player and no competition. The major player(s) monopolize.
A personal experience: I had a design for a Pizza on Wheels… where pizza would be made as a van drove to the customer destination. I had a wooden counter, but worked on a sheet of stainless steel. The law required stainless steel everywhere. The expense was prohibitive to the start up, but would not be so prohibitive, as a fixed cost, to an established firm. That alone is rather trivial, but multiply it by the millions of pages of bylaws from city to city, and the cost to society is absolutely enormous. And, the prominence of established players is assured, as semi-monopolies, kept in place by the force of such laws.
Americans are MORE enslaved today, by laws and taxes, than were the blacks of Southern Slavery ——my comment is not about violence toward slaves, but about how the productive effort of individuals is affected by laws AND taxes.
I could agree with the premise of this article if we can first establish that the government is needed to prevent force being used by a massive corporation. I have yet to be convinced that capitalism can work in a pure anarchy system.
I think a little more reading of history is in order. Look closely into the guilded age, the robber barons, and “the trusts”. True monopolies WERE created by the very act of buying up the competitors, without any assistance from the government. Standard oil comes to mind. In modern times IBM and Microsoft (the dirtiest player of all) are/were very much monopolies in this model. None required government intervention to come come into being or exist as a monopoly. With internationalization of business, it would be much harder to do today, but possible.
That being said, the government getting involved in regulating (other than preventing outright fraud, of which there is/was plenty) or breaking up these entities is totally counterproductive. All large monopolies will fall given enough time. As long as you realize time frames involved can be very very long and are willing to live with monopolistic pricing for the duration. As much as it would be nice to have capitalistic purity, the truth is that it is usually changing technology not competition that acts as the trust buster.
http://www.bellevuelinux.org/standardoil.html
I do think Standard Oil could be a good case against a fully anarchist free market, but a libertarian market would disallow use of force in business spheres and dishonest contracts. Ability to pressure suppliers to reduce costs is actually a benefit of a monopoly, as are the economies of scale. Both allow the monopoly to produce a CHEAPER product for their customers. The case of standard oil does provide a good example though of how with high cost of entry it is difficult for a new venture to remain in business long enough to undercut a monopoly that is highly marking up its product.
Note that the dissolution of Standard Oil (in 1911) doesn’t seem to have had much downward impact on the price of oil, and in fact it seems to have increased:
More information:
http://www.micheloud.com/FXM/SO/rock.htm
http://www.history.rochester.edu/fuels/tarbell/MAIN.HTM