As a boy, one of the recurring themes in my social studies books was that monopolies are bad. I learned that a few big ones had sprung up during America’s Gilded Age and that ‘robber barons’ were to blame—that is, until Trust Busters bestride white horses came to the rescue.
History’s a funny thing. Remember all those eighth-grade tall tales about how FDR’s New Deal got us out of the Depression? Tales of Gilded Age trusts and trust-busting are sometimes just as tall. Generally speaking, though, almost everyone across the political spectrum, including economists, thinks that monopolies are suboptimal. After all, monopolies give us:
Barriers. Monopolies, especially state-sanctioned ones, create barriers to entry that make it nearly impossible for new entrants to compete.
Sticker Shock. Because there is little-to-no competition, a monopoly can set prices far above what it could expect in more competitive conditions.
Discrimination. The monopoly can arbitrarily change the price and quantity of a good or service, often determining the market price alone.
No Substitutes. There are almost no substitutes for products in monopoly conditions, so the consumers of goods and services have no alternatives.
Poor Quality. A single seller will offer poor quality products or customer service.
While reasonable people will disagree about how monopolies form and what should be done about them, most agree that market competition is better for everyone.