Ok so you mentioned you denied monopolies and attacked the Canadian education system by saying that we're being taught something different by denying when the Canadian education system recognizes the concept of monopolies and monopolistic power. I'm getting my information from Microeconomics: Canada in The Global Environment written by Parkin & bade. I'm not familiar with the man that you posted in your avatar but you haven't disproven that monopolies exist and you're attacking the credibility of Parkin & Bade when they explain why monopolies exist.

And you also mention that you study laissez-faire economics. Who's your professor/supervisor? What university do you attend? Are you pursuing a Undergraduate degree, a Masters, or a Ph.D?

How can you deny the existence of monopolies when it's clearly evident such things as the utilities (consumers don't get a choice in their waterlines)? I'm not personally attacking you, but I feel that I need justification for your refusal to admit the concept of monopolies and how even a free-market libertarian approach will not have the strength to limit monopoly powers.

I didn't attack the Canadian education system. I simply said that you are being taught something different.


His name is Milton Friedman. He was probably the foremost economist in the study of laissez faire economics for his time. He won the Nobel Prize for economic science in 1976.


Michael Marlow, Ph.D. He was the senior financial economist for the U.S. Treasury Department from 1983-88.


I was going to Cuesta Community College, but I'm now attending California Polytechnic State University.


Well I was pursuing a Masters in theoretical physics, but CalPoly isn't the best place for such a degree. My interest in economics grew and I switched to pursuit of a Masters degree in economics. That is now my official field of study.


It's so convenient that you metion this. First of all, I never said monpolies don't exist--ever. I only said that monpolies only exist because of government intervention. I made the assertion that every coercive monopoly in history was formed directly from government intervention.

Anyway, on to you example of utilities.

Utilities are probably the best-known example of true regional monopolies you could have given, and for that I commend you. However, we must analyze why this is.

Have you ever heard of government franchising? I'm not talking about private franchising (i.e. McDonald's).

Where I live, everyone gets their electricity and natural gas service (utilities) from one company: Pacific Gas & Electric (PG&E). Are they a monpoly? Yes, but only regional. What I mean is, they don't control the entire gas and electric market, they only control the market in their region.

How did they achieve this? Was it by producing high-quality goods and services, while offering low enough prices to drive out all competition? No.

Like all coercive monpolies, PG&E was granted a government franchise license. That means that the government mandated that PG&E, and only PG&E, would be allowed to offer gas and electric services in the region it mandated. By granting this, the government was able to force out all competition, since it made PG&E the only legal provider of these utilities in that region.

This is how all utility companies work in the U.S., and while I'm not altogether an expert on utilities in Canada, I know they do use franchising to the same effect.

This monopoly was not created by a lack of government controls and regulations, it was created directly because of government controls and regulations.

If franchise licenses did not exist, this region would be fair game for all potential competition for offering these services and utilities. But since they do, PG&E maintains a government-protected regional monopoly.

As a side note, I'm wondering how you ended up achieving the change from physics to economics? I'm thinking about studying in mathematics after I get my physics degree but did how did you catch up in the economics field? Were you taking undergrad classes in during you're undergrad years or did you have to take extra classes after you're Bachelor's in Physics?

I'm only arguing from my limitted experience in introductory economics, but once one business gets the rights to the infrastructure, it becomes expensive for other business to enter the market simply because the monopoly is done paying and develop their own infrastructure. How do you share the pipelines, the gaslines, etc or keep them separate without creating an infrastructure mess. A natural monopoly exists when one business can simply outperform every other business. Intellectual property is a government defined monopoly, but how many small towns can support a multitude of hospitals. It's not realistic for a resident in a small town to be able to travel to another hospital. A natural monopoly isn't defined by any government regulations or licenses but simply can be more efficient than having multiple firms in the area. But once you let them in, how do you keep them from charging the demand price rather than the ATC price.

See I would argue that having a public monopoly that even though they become political tools, we can keep them in line and force them to charge the ATC price.

I still may concede because your level of knowledge is probably greater than my own.

Oh and provide me with suggested readings

Is it possible for you to explain what you're studying? You said you study laissez-faire markets, but what goal are you trying to obtain or research that isn't currently understood? I don't understand how studying laissez-faire markets is a complex issue as basically, you'd have government retrenchments and unregulated monopolies.

And you still haven't explained how we can deter natural monopolies. You keep on attacking government for creating monopolies but natural monopolies don't require governments to form at all. They form simply because they can outperform smaller firms in the Long-run average cost.

Well most of it is understood. Just like when you take applied physics or computer programming in school. Although it's already understood by people, it doesn't mean that you fully understand it.


We definitely can, by using the government, but I don't think we should.


Name one natural monopoly (a real monopoly, not just a company that controls the majority of the market), that wasn't formed by using government intervention.

And if you can name one, please tell me if it was a harmful monopoly or not. In other words, please tell me if they were able to use their monopoly status to overcharge above the market level and stay in business.

I'm asking for a simply overview of what you're studying. I'm not sure why this is so hard.



Ok, but I think we should. So you still haven't dealt with how we deal with natural monopolies other than using government.



One example of a monopoly. The local pharmacy in a small town which can't support more than two pharmacies but can support one. And let's also imagine that most people can't get access to distant goods.

And I'm still citing the utilities as natural monopolies w/o government intervention unless you can detail what form of government intervention took place in allowing that natural monopoly to form. The average total cost of a natural monopoly is smaller as the monopoly gets bigger, so I fail to see how increased competition addresses this problem. Perhaps you can explain more clearly.[/quote]

I'm sorry, I must have misunderstood you.

My major field if study with Dr. Marlow's classes are history of free market/laissez faire economics. Also, I have another class with him that covers theory and application of free market economics and market mechanisms (production, trade, supply & demand, etc.).

That is, in a nutshell, what I am studying. Although I am also taking some classes in business management, so that could be considered my minor, even though I don't have a declared minor.


Good enough. But why do you think we should allow the government to do this? For what purpose?


Yes I believe I have. I said we shouldn't let the government "deal with them." I want the government out of all private affairs of the people, including trade (economy).


You didn't really answer the second part of my question:



But that's ok, because this example of the pharmacy is perfectly realistic. However, I'm having a little problem with this:



This may have been true back in the early 19th century, before the advent of automobiles, airplanes, commercial trains, etc.

Things like pharmaceutical drugs are becoming more readily accessible over extreme distances with every passing year.


I already explained this. The monopolies such as seen in utility companies were created by government-granted regional franchises. These companies enjoy a competition-less market not because they laid the first network of water pipes or power lines, but because the government made all other competition within this region illegal.


Again, it's very important to make the distinction between monopolies that form because of high efficiency, low pricing, and high quality products/services, and monopolies that are "harmful." You did name an example of a natural monopoly, but even that's only a regional monopoly, and not a monopoly in the true sense of the word. People do have easy access to pharmacies all over the world.

A natural monopoly such as you gave an example of would never have the opportunity of becoming harmful, as in, charging far above what the normal market price would have been with competition. They can attempt to corner the market, but such monopolies have never, in the history of economies, been able to successfully do this, without government help.

Many essential services are natural monopolies in which there are physical and logistic constraints to a level of market competition which would favour the consumer. Domestic gas and water are examples. You cannot have every player who wants a piece of the gas/water/electricity/etc action running pipes and cables across the landscape. Crucially, they cannot all run pipes, cables and meters into your house without making it look like an onshore gas terminal. Even if they could, there are only a very limited number of players who could raise the initial capital to create a viable supply from scratch(ie already bloated corporations) . Even if there were many who could raise the investment capital, they would all end up with too small a proportion of market share to make the massive investment worthwhile. Even if one player could gain a viable proportion of market share by undercutting multiple competitors, their returns would likely be reduced to the extent that they could not maintain supply without some kind of subsidy in the short to medium term.

THis is why in Britain, for example, most of the big essential utilities were initially in public ownership. Yes, they were monopolies created by the state, but the conditions which necessitated those monopolies were no more created by the state than the hills and valleys or the physical properties of water which make it difficult to transport. Eventually they were privatised, but sufficient competion as to favour the consumer could not have come into being without state intervention. Any private company that owns the infrastructure without which a service cannot be delivered is not going to share or sell it voluntarily or even rent any part of it out to a competitor who will undercut them. THus, e.g., British Gas was forcibly split into competing companies and expensive infrastructure modifications to allow multiple suppliers made at public expense. Otherwise they would never have hapenned.

There are such things as natural monopolies. Competitors can launch a challenge at the stocks and shares level, but this always favours the financier at the expense of the consumer. What they cannot do is build national supply infrastructures on the speculative off-chance they might make a profit.

We definitely can, by using the government, but I don't think we should.
[/quote]

In my talkings with David Friedman natural monopolies do not exist.

Regards,
Richard Sherratt

A natural monopoly can thrive if it is always able to buy out it's competition before they even get started. This is why I support making monopolies state owned. They should be bought off the market by the government. This way the shareholders wouldn't be too badly deceited, the government would acquire a profitable company it could then ruin by mismanagement and political leadership, thus allowing competitors to catch up. No monopoly should be protected with legislation though, ever.

I can't even begin to think all the things that are wrong in the model above according to traditional economics. Right now I think it's a winning system, but I'm sure I'm quickly proven wrong.