Few concepts in economics are so thoroughly twisted as monopoly.  Politicians use the word like a weapon, and the public repeats it without a thought.  A firm with a large share of the market is called a monopoly.  If it dominates an industry, it must be “too big.” This is the caricature—simple enough for a stump speech, but completely detached from reality.

A monopoly isn’t a large market share.  It’s not the fact that one firm may temporarily supply all of a particular good.  A local coffee shop may be the only one in town that offers a certain roast.  A craftsman may be the only one making a special tool.  In both cases, they hold 100% of their niche.  Does this mean they’re monopolies?  By the political definition, yes—but by the economic definition, absolutely not.

A true monopoly exists only when the state steps in and bars entry.  It’s not market dominance that makes a monopoly—it’s privilege.  When government grants exclusive rights, licenses, or patents that prevent others from producing the same good, that’s monopoly.  Without state power, no firm can guarantee itself permanent control.  Even the largest corporations are always one innovation away from being displaced.

What we mostly see today are quasi-monopolies.  These are enforced not by outright bans but by regulations.  Rules are written that only the established players can afford to follow.  They can pay for the certifications, compliance officers, and lawyers.  The small competitor can’t.  Regulation is dressed up as safety or fairness, but it functions as a barrier to entry.  The result is the same as outright monopoly: reduced competition, higher prices, lower quality.

Consider the absurdity.  Bureaucrats, paid by taxes, write rules that prevent new entrants.  Those rules reduce consumer choice and raise costs.  Then politicians point to the higher prices as proof of “corporate greed.” The problem isn’t greed—it’s privilege.  Without government barriers, greed would be checked by competition.

The free market, left alone, punishes complacency.  A firm that charges too much or produces shoddy goods creates an opening for rivals.  If one company supplies the whole market, it’s because no competitor has yet succeeded in offering a better deal.  But this position is never secure.  It invites challenge.  Only government can turn a dominant market position into a fortress.

Economists and politicians love to speak of “perfect competition,” with charts showing the optimal number of firms, the optimal price, the optimal level of output.  Nobody knows the optimum.  Should an industry have three firms, or thirty?  Should prices be a little higher, or a little lower?  These are questions only entrepreneurs and customers can answer through the process of trial and error.  Any attempt to dictate the “right” structure is pure illusion.

The truth is simple but unpopular: monopolies don’t exist in a free market.  Every monopoly is born from privilege, never from the market.. Every time you hear a politician railing against monopoly, remember: he is usually defending the very privileges that create them.  The emperor insists he has clothed you in protection—but he has only shackled you in chains.

Reference

Murray Rothbard; Man, Economy, and State