Monopoly Power Implies a Good is Not Important?
Mark Thoma reads John Tamny so we don’t have to. Tamny writes:
What seemingly is missed every time the anti-trust crowd gets in a froth over a proposed merger is the nature of profits. If anything, consumers should hope that companies succeed in achieving monopoly profits. Large profits by definition speak to an unmet market need that is being met. More importantly, large profits attract competition. It can even be argued that if companies do not achieve monopoly gains, they’re engaging in activity that is not important to consumers and that will not attract competition.
Dr. Thoma replies:
Yeah, wheat farming is pretty unimportant. I’ll be so much better off if someone can monopolize that industry and raise the price of bread. Tamny confuses prices as a short-run signal to direct resource flows and equilibrium prices at inefficient levels due to market power. Yes, profits and losses are necessary in the short-run to encourage entry and exit. But monopoly profits that persist through time in the long-run equilibrium are not in the economy’s best interest.
Wheat is an important product but I doubt we are about to see a wheat cartel. There is a petroleum cartel but U.S. anti-trust laws can’t change that. So let’s focus on the industries that Mr. Tamny wrote about – personal computers and telecommunications. Since Tamny concedes what his NRO colleagues refuse to – that being that Microsoft has a virtual monopoly in terms of PC operating systems – I guess he thinks personal computers are not important. And if he believes that telecommunication is important – then why is he endorsing a return to an era some 25 years ago when AT&T had a monopoly?