![]() But I want to emphasize that in all monopolies, subgroups engage in both roles. I’ll discuss monopoly subgroups acting as allies in the dental and legal industries. I’ll discuss monopoly subgroups in their role as adversaries in the sugar, cement and construction industries. I then provide several historical examples of monopolies from my own research and that of others. The new theory thus demonstrates that monopolies in fact cause substantial economic harm, and that harm falls disproportionately on people with fewer financial resources. In this new theory, groups within monopolies act as both adversaries that reduce productivity and allies that eliminate substitutes. In this essay, I first review the standard theory of monopoly that contends it inflicts little harm, and then I introduce a new theory that refutes that view. Thus, monopolies drive the poor out of many markets. But the blocking of low-cost substitutes particularly harms the poor, who might not be able to afford the monopolist’s product. The reduction in productivity exacts a toll on all of society. But because production of the substitutes is restricted, total output falls. Thus, in contrast to conventional theory, the monopolist actually produces more of its own product than it would in a competitive market, not less. By limiting supply of these competing products, the monopolist drives up demand for its own. The new research also shows that monopolists typically increase prices by using political machinery to limit the output of competing products-usually by blocking low-cost substitutes. These productivity losses are a dead weight loss for the economy, and far from trivial. Monopolies do drive up prices, as conventional theory suggests, but because they also reduce productivity, they often ultimately destroy most of an industry’s profits. ![]() 2 This research shows that monopolies are not well-run businesses, but instead are deeply inefficient. ![]() In this essay, I review recent research that upends both the theoretical and empirical elements of this consensus view. And because empirical studies have found that monopolists do not restrict output or raise prices by very much, most economists have concluded that monopolies inflict relatively little harm on the economy. This consensus is based on a theory that assumes monopolies are well-run businesses that limit their output in order to drive up prices and maximize profit. Schmitz, Jr.Photo by Stan WaldhauserĮconomists overwhelmingly agree that the actual costs of monopoly are small, even trivial. ![]()
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