Are Monopolies Bad?

agaglio said:

Now I don't claim to be an expert in the field of economics, but it appears to me that monopolies are a positive influence in our economy. Monopolies can offer products to consumers at lower prices (due to cheaper costs) than other businesses. It also appears impossible for a monopoly to gouge prices. Won't another business swoop in and steal their customers away with cheaper prices? I guess I just don't see a reason for the anti-trust laws.

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Well if there are low barriers to entry then it's not a real monopoly. There are indeed certain positive attributes of monopolies. For example, it's generally agreed that monopolies have a greater incentive to innovate. And as you note, if the cost savings from efficiency are large enough, they can exceed the typical "monopoly markup" and lead to a better outcome. But that's an "if", not a "when". Depends on the industry.

And in some cases even where monopoly exists, it may not be wise to do anything about it. Anti-trust is useful, but can be very clumsy. A big problem is delimitation of the market, which directly impacts how much market power a firm has.... regulators can easily make things worse if they aren't careful. Historically, taxing a monopolist has been a common policy tool but it hurts consumers as much as it hurts the firm.

Price predation has been a big issue in this thread but I don't think it should be. The theory behind it is shaky because of the strict conditions necessary for it to succeed, and how costly that strategy is to the incumbent. And empirical evidence for this practice is extremely scarce. There are things that need to be discussed when it comes to monopoly power, but price predation is not one of them

Standard Oil is about the worst example. An economist named John McGee wrote a classic paper on it back in the 1950's and dispelled all the common myths concerning its alleged monopoly practices.

agaglio said:

No it doesn't. It depends on their possible profits.

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But if you're going against a monopoly that is using their power to maintain their market share your potential profits are zero, the point you seem to be missing.

And because a business that does not expect to ever make profit doesn't attract investors the business never starts in the first place.

And as a result monopolies that actively defend their monopoly do not often have competition even try to enter their markets. Which makes the continuous comments about "they'll lose money selling at a loss" moot, because they rarely have to do that, they could use exclusivity agreements and other defenses that don't even touch the price. But even if they do resort to predatory pricing most companies today are sufficiently diversified that they would only have to use it in a small percentage of their business. Going back to Microsoft, if you were to compete against their Office Suite their other software sales wouldn't be affected and you probably only are able to compete regionally which gives them the rest of the world to make their monopoly profits to cover the temporary predatory pricing.

Even if it weren't illegal, you would rarely see it because very rarely would anyone be stupid enough to enter the market in the first place.