Reply To: Social harm of monopoly


The additional profit from having a legal-privilege monopoly can be taken either in the form of additional annual net income or in the form of a one time capital gain. They are equivalent. The gain, then, accrues to the initial owner of the special resources used. All latecomers, who must buy the assets to enter the market, earn no additional profit. That is why the latecomers continue to lobby for additional legal privileges.

Take the case of the taxi medallions in NYC. If you acquired one from the city in the 1950s, its price today might be $500,000, which is the present value of the future additional revenue generated by owning the legal privilege. The original owner of the medallion can either stay in the business and get the additional annual revenue or sell out and get the capital value of the medallion. They are equivalent monetary sums. But the new entrant only earns a normal rate of return because he must pay for the medallion. It is part of his cost structure. Of course, it is also part of the (opportunity) cost structure of the original owner as well if he stays in business.