Thursday, April 12, 2007

The Supreme view of monopoly, and monopsony

Monopoly and its reflection, monopsony1, are supposed to be the evil, fraternal twins of the free market. Yet, neither concept is possible absent government intervention, at best - and, some will argue that a monopoly or monopsony price can never exist in the market regardless of government interventions.2

US Supreme Court Justice Thomas recognized that fact in the recent Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., Inc. decision. Thompson relied on the reasoning found in R. Blair & J. Harrison, Monopsony 66 (1993) when writing the unanimous decision to vacate the judgement of the Court of Appeals for the Ninth Circuit.

Thomas noted that predatory pricing schemes benefit the consumer more than the businesses suposedly engaged in such practices. This explains why such schemes are rarely tried; no business is assured that losses suffered to gain market control will be offset by future monopoly/monopsony profits. The consumer is always fickle and unpredictable.

Despite the reasoning provided in this and other Supreme Court decisions, textbooks still warn about the effects of monopolies and monopsonies, providing media-hungry attorneys-general and federal regulators with enough ammunition to go after businesses for perceived affronts.

While the fight against business always plays well in the media, there is no economic basis for the claims made by those who either hate entrepreneurs or love the camera.


notes:

1. Monopsony is defined as a buyer's monopoly, a single buyer with the ability to set the market price for a good or service.

2. Refer to the three books on the Austrian School of Economics in a previous post. Please note that this does not include any government service since all government services are non-market, tax-supported activities. Government services are the monopolies that we all should fear.

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