Monopoly and the State: A Rebuttal (Part 1)
What Is a Monopoly? The Forgotten Definition
We’ve all been told the same story: monopolies are what happen when capitalism runs off the leash. A few massive corporations squeeze out competition, jack up prices, and laugh all the way to the bank. The invisible hand? Crushed under the boot of quarterly earnings and disproportionately high executive compensation.
That’s the cartoon version, at least.
But what if the real story of monopoly, and how it manifests, has been lost? What if monopoly isn’t a natural outcome of market forces but a direct consequence of coercion? Not the free market gone wrong, but the state doing what it does best: picking winners and punishing competition.
That’s the argument I will make in this six-part series, and it starts with reclaiming the definition of “monopoly” itself.
Monopoly: Two Definitions, Two Worldviews
In the mainstream textbook, a monopoly is a firm with no competitors. One seller. High barriers to entry. Pricing power. The ability to restrict output and make you pay more, simply because you have no other choice.
However, I was raised in the Austrian tradition and do not find this definition to be compelling, let alone sufficient. The Austrian school defines monopoly differently and more precisely. A monopoly exists only when competition is legally excluded. In other words, when the state says, “You may not compete here. Only this person or firm is allowed.”
Rothbard put it bluntly:
“[T]his type of monopoly can never arise on a free market, unhampered by State interference.”
This reflects a fundamentally different economic worldview from what is typically taught in introductory economics courses. Unlike the mainstream narrative, the Austrian perspective holds that:
Size ≠ monopoly.
Success ≠ exploitation.
And pricing power doesn’t mean power in the coercive sense.
So long as entry is free and rivals are allowed, no firm, no matter how big, can safely rest on its laurels.
The Tyranny of “Perfect Competition”
Mainstream economics holds up “perfect competition” as the ideal. Picture a market with:
A zillion tiny firms,
All selling identical products,
With perfect information,
And absolutely no ability to influence price.
It’s a tidy model that also describes a market where no firm can innovate, no one can differentiate, and everyone is just racing to the bottom. More like a simulation than any real market.
I have little patience for this kind of model-worship. Actual competition is a process, messy, dynamic, driven by entrepreneurial discovery and consumer preferences that evolve over time and across different places. In short, the real world.
The irony then is that the closer we get to textbook “perfection,” the further we drift from reality, and from actual life and activity within a market.
Everyone’s a ‘Monopolist’ Now?
Here’s where things get weirder in the mainstream models: the mere fact that a firm can raise prices without losing all its customers makes it “monopolistic.” That’s nearly every business that’s ever existed.
If this is our standard, then everyone is a monopolist, because every person is the exclusive provider of their own labor, ideas, and time.
Thus, this is simply a meaningless label. If we define monopoly as “any firm with a loyal customer base and a distinct product,” we’ve stopped describing a problem and started punishing success.
Why Definitions Matter
Why does any of this matter?
Because how we define monopoly shapes how we think about policy. If monopoly just means “big,” then every successful firm is a suspect. If it means “has some pricing power,” then we may as well regulate my favorite local bread maker/café/second café/farm café/podcaster/gym owner (seriously, these guys are amazing entrepreneurs).
But if monopoly means the legal suppression of competition, then the real culprit is coercion, and coercion usually comes with a badge and a three-letter name.
Rothbard again:
“[M]onopoly is a grant of special privilege by the State, reserving a certain area of production to one particular individual or group.”
That’s the frame that Austrian economics brings to the table. Not the size of the firm, but whether others are free to enter the market.
Coming Up Next: Can Markets Discipline Power?
If monopoly isn’t just about size or profits, but about force, then what happens to powerful firms in a free market? Are they really self-correcting, or is that just wishful thinking?
In the next post, we’ll dig into the answer: how entry, innovation, and consumer choice check monopoly power faster and more effectively than any antitrust lawsuit ever could.
Because in a real market, no empire is permanent. And no one is safe from someone with a better (or sometimes, even, worse) idea.
Enjoying this series?
Next up: “Can Markets Discipline Monopoly Power?”