Monopoly, which means “exclusive control of a commodity or trade,” traces its English origin back to the 1530s. The word is derived from the Latin word monopolium and from the Greek word monopolion meaning “right of exclusive sale.”
Many take it for granted that the free-market produces monopolies. Yet, the word was used to refer to grants of privilege that European governments made to large, lucrative companies such as the Dutch East India Company.
Most of us have experience with telephone, power, and cable providers to whom the government has granted monopolies. Two recent examples help to illustrate the principle that government is the source of coercive monopoly.
Southwest Airlines wants to build a new $100 million international concourse at Houston’s William P. Hobby Airport. Who could object? You guessed it, Southwest’s major international competitor flying from Houston—United Airlines. United Airlines currently has Houston’s biggest share of international flights from its base at Houston’s Bush International Airport.
What possible argument could United Airlines make to oppose Southwest? After all, they can’t just tell the truth and argue that they are trying to preserve their monopoly profits in Houston by keeping out a competitor.
No, United argues that by opposing Southwest, they are helping Houston. Southwest’s international concourse, they say, would weaken Houston’s larger airport and kill more jobs than Southwest would create.
Can this be so? Clearly new competition from Southwest will reduce airline fares to international destinations to which both Southwest and United fly. Reduced fares will increase airline passengers and bring increased tourist revenue to Houston as Houston becomes more of an international hub.
Of course, it is entirely possible that United Airlines will experience a loss in revenue as increased competition forces United to reduce its fares. However, this is no more a concern for public policy than the reduction of profits at incumbent local supermarkets when a Whole Foods or Trader Joe’s comes to town.
Speaking of supermarkets, in the southern New Hampshire town of Bedford, supermarket chain Hannaford is suing the town on zoning grounds over its approval of a site for its lower cost rival, Market Basket. The new Market Basket store will be twice the size of Hannaford and certain to take business away from Hannaford.
Anyone who has had a Walmart come to town has probably experienced the same issue—incumbent merchants attempting to use the political process to block competition.
But, you might be asking, what about free-market monopolies such as Google? The key point is that Google is not using the coercive power of government to maintain its market position. They are forced by competitive pressures, from search engines such as Bing and potential entrants, to innovate and keep prices low—in this case, consumers pay zero for the services of Google.
As Harry Browne once observed, “The free market punishes irresponsibility. Government rewards it.” Consumers will never voluntarily reward firms that behave irresponsibly by seeking profits through the political means of blocking competition. Business people know this. Those who seek to protect their market position by using the coercive power of government understand that they are punishing consumers to benefit themselves.