Fears of Monopoly in a Relatively Free Market

There are few things that scare Americans more than the idea of a business monopoly. If a business is too large and competitors are too few, the successful business can raise prices as high as it wants to exploit the consumer. The rich monopolist gets richer, and the American workers become poorer. The economist Ludwig von Mises argues that the fear of monopoly in a free market is exaggerated for the following reasons. First, if a company were to raise prices because they are the only provider of a good or service in a given region, “that would stimulate the formation of rival firms whose competition would break the monopoly and restore prices and profits to the general rate (p. 64). Second, there are very few commodities on planet Earth that cannot be substituted with some other commodity. If a company has a monopoly on the production of steel, people can use alternatives such as aluminum. This requires a monopolist to keep prices down so as not to encourage the use of substitute commodities. Third, even if a monopoly is formed, it cannot raise prices ad infinitum because at some point the price would be so high that demand would drop to where they would make less profit than if they had charged lower prices (p. 66).  Due to these constraints on big business in a market economy, many economists argue that if a monopoly does form, it is not the result of a free market, but it is the result of government intervention that protects certain companies or industries from competition.

Reference

Ludwig von Mises, (1962). Liberalism: The Classical Tradition, Liberty Fund Inc. p. 64-66.