[mikaelgarcia]

Hello everyone. I get into debates quite often with my roommate on these issues, and one recurring theme that seems to pop up is monopolies. While I’ve demonstrated countless times that it is actually government involvement that creates monopolies, (specifically using DiLorenzo’s paper “The Myth of Natural Monopolies”), he always seems to retort with the fact that, even though the government will no longer have a role in the market, companies may still have an incentive to merge if they see fit. Now I’m not against mergers per se, but my roommate seems to be correct in suggesting that it is possible that these mergers could eventually create a monopoly, at least momentarily.

But! As DiLorenzo points out, a momentary monopoly is not a true monopoly, at least in the contemporary sense. Simply because a company dominates an industry at one point in history does not mean they will always dominate. But, for the sake of argument, if one company does dominate an industry for a prolonged period of time, and that company happens to own all of the resources that can be made to manufacture a particular product (I know this is unrealistic), and the company plays fair, economically, so that consumers never have a reason to quit buying their product, would this constitute a free-market monopoly? And if it did, would it necessarily be a bad thing? Thanks for reading, hope this isn’t too convoluted.

[jmherbener]

The general point to keep in mind is that mergers, like all production decisions in the market, can be judged according to their effect on net income and net worth. If a merger lowers the value of the combined assets in serving consumers, then investors have incentive to break up the assets into components and thereby, increase their capital value. Entrepreneurs are continuously trying different combinations of assets by merging and breaking up.

So a merger is only viable in the market if it increases the value of assets. But if it increases the value of assets, this demonstrates that it better serves consumers than other ways to organize the assets.

In your situation, if a company owned all sources of supply of a resource, then whether or not it was a wise business decision to keep control of them and produce all the product in one enterprise or sell the sources of supply one-by-one to different groups of investors can be determined by which alternative renders the highest prices for the sources of supply.

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