In Defense of Monopoly: How Market Power Fosters Creative Production

by Richard B. McKenzie, Dwight R. Lee

Overview

In Defense of Monopoly offers an unconventional but empirically grounded argument in favor of market monopolies. Authors McKenzie and Lee claim that conventional, static models exaggerate the harm done by real-world monopolies, and they show why some degree of monopoly presence is necessary to maximize the improvement of human welfare over time.

Inspired by Joseph Schumpeter's suggestion that market imperfections can drive an economy's long-term progress, In Defense of Monopoly defies conventional assumptions to show readers why an economic system's failure to efficiently allocate its resources is actually a necessary precondition for maximizing the system's long-term performance: the perfectly fluid, competitive economy idealized by most economists is decidedly inferior to one characterized by market entry and exit restrictions or costs.

An economy is not a board game in which players compete for a limited number of properties, nor is it much like the kind of blackboard games that economists use to develop their monopoly models. As McKenzie and Lee demonstrate, the creation of goods and services in the real world requires not only competition but the prospect of gains beyond a normal competitive rate of return.

Product Details

ISBN-13:	9780472116157
Publisher:	University of Michigan Press
Publication date:	02/04/2008
Pages:	320
Product dimensions:	6.30(w) x 9.10(h) x 1.10(d)

About the Author

Richard B. McKenzie is the Walter B. Gerken Professor of Enterprise and Society in the Paul Merage School of Business at the University of California, Irvine.

Dwight R. Lee is the Bernard B. and Eugenia A. Ramsey Professor of Economics at the University of Georgia, Athens.

Table of Contents

Preface     xiii
"The Wretched Spirit of Monopoly"     1
Smith, Bentham, and Ricardo on the "Evils" of Monopoly     4
Bastiat and Marx on Monopoly as "Plunder"     9
Marshall on the "Net Revenues" of Monopoly     13
Schumpeter on the Vital Role of the "Monopoloid Specie"     15
The Schumpeter Hypothesis     19
Concluding Comments     22
Deadweight-Loss Monopoly     25
The Efficiency of Perfect Competition     26
The Inefficiency of Monopoly     30
The Locus of Market Failure: Firms?     34
The Locus of Market Failure: Consumers?     36
The Added Waste of Rent Seeking     37
The Imperfection of Perfection     39
Zero Economic Profits     42
Transitionary Economic Profits     47
Economic Profit as a Source of Capital     48
Market Efficiency and the Count of Competitors     50
Concluding Comments     52
Monopoly as a Coordination Problem     54
The Conventional View of Monopoly     56
An Unconventional View of Monopoly     57
Changes in Agency Costs     62
Innovation     63
Concluding Comments     63
Agency Costs and Cartels     64
Welfare-Enhancing Monopolies     67
The Paradox in the Microsoft Antitrust Case     68
Unraveling the Paradox     72
Digital Markets     75
The Relevance and Potential Welfare Value of Entry Barriers     81
The Problem of Digital Piracy     87
Once Again, Why Monopolies?     90
The Microsoft Problem for Microsoft's Competitors     91
Concluding Comments     94
Locked-in Consumers     96
Consumer Lock-In     96
A Product with Network Effects: A Model     100
Efficiency Considerations     104
Creating Networks     106
Concluding Comments     109
Monopoly Prices and the Client and Bonding Effects     110
The Client Effect     110
The Bonding Effect     122
Concluding Comments     123
The Monopsony Problem     126
The Conventional Monopsony Model     127
The Mysterious Existence of Monopsony     130
The Monopsonistic "Company Town"     135
Firm and Worker Mobility and Monopsony Market Power     139
Concluding Comments      140
The NCAA: A Case Study of the Misuse of the Monopsony and Monopoly Models     143
The Conventional Cartel Argument against the NCAA     146
Sciencle as Ideology     153
The Mistaken Presumption of "Underpaid" Athletes     155
The Mistaken Interpretation of Cheating     157
The Mistaken Presumption of Monopsony Power     159
Sports Demand and NCAA Membership     162
College and University Sports as Games     164
College Athletics as an Open Market: A Review of the Legal Literature     166
Concluding Comments     171
Monopoly as Entrepreneurship     173
The Entrepreneurial Role in Firms and Markets     174
Monopoly Rents as Entrepreneurial Entitlement     177
The Justice of Entry Barriers Reconsidered     183
Monopolies, Public Goods, and the Gains from Price Discrimination     186
The Efficiency of Monopoly Failures     191
Concluding Comments     196
Property and Monopoly     198
Property Rent as Monopoly Theft     199
The Property-Monopoly Equivalence     203
Copyrights as Monopoly Abuse     205
Property in Proper Context     211
"Good" and "Bad" Monopolies      214
Monopoly Profits versus Economic Profits     215
Concluding Comments     216
Summing Up     218
Notes     227
Bibliography     273
Index     289