“Monopoly” Is No Excuse for Government Intervention
Chapter 10 of Rothbard’s Man, Economy, and State with Power and Market ([1962, 1970] 2009), “Monopoly and Competition,” proffers a compelling reelaboration of monopoly theory: it highlights, indeed, some inconsistencies within the neoclassical analysis conventionally held as true and taught in undergraduate and graduate microeconomics classes.
Rothbard’s monopoly analysis differs from the neoclassical one in (at least) three main elements. First, it adopts a different definition of monopoly. Second, it lays out the pointlessness of contrasting monopoly with “pure” (or perfect) competition—whose theoretical framework rests upon fallacious premises. Third, it dismantles the “monopoly’s loss of efficiency” argument—consumers retain their sovereignty over production.
Monopoly: Define It Properly
The conventional neoclassical definition of monopoly is quite blurred insofar as it identifies the monopolist as “the sole seller of the good”: however, what constitutes a particular good is hard to tell. In fact, such a definition would make it difficult—if not impossible—to discern monopoly (defined as such and earning an alleged monopoly rent) from consumers voluntarily distinguishing between two goods that they do not perceive as homogeneous (thus voluntarily paying different prices and a premium).
As Rothbard clearly explains,
only consumers can decide whether two commodities offered on the market are one good or two different goods. This issue cannot be settled by a physical inspection of the product. The elemental physical nature of the good may be only one of its properties….No one can ever be certain in advance—least of all the economist—whether a commodity sold by A will be treated on the market as homogeneous with the same basic physical good sold by B. (pp. 665–66)
So, the simple fact of being “the sole seller of a given good” is not sufficient to identify a monopolist—it’s too vague a criterion and would lead to paradoxes such as “every single producer is potentially a monopolist.” Hence, Mises approached the subject from a different perspective:
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 lower price, there emerges a monopoly price higher than the potential market price would have been in the absence of monopoly. (Human Action,  1998, p. 278)
The idea here is pretty much straightforward: a monopolist firm, if consumers’ demand so permits, can sell an allegedly suboptimal quantity—compared with “pure” competition (see below)—while nonetheless reaping profits higher than it would earn under “pure” competition. However, as we shall see below, the very idea of a comparison with the “pure” competition scenario makes no sense and inv
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