The Importance Of The Market Impact Of Monopolies

In a presidential address to the Southern Economics association, economist Richard McKenzie discussed the long-standing stigmas surrounding the market impact of monopolies and why such implications are false. The key point of his argument was that the economist standard static model of monopoly exaggerates in many ways the harm done by the prevalence of monopolies in a market economy. In fact, instead of a world with simply purely competitive markets, monopoly prevalence is actually necessary in order to have a dynamic, functioning market economy. Due to the firms in perfect competition having little control over price or even idealization of consumer value, an entirely perfectly competitive firm would actually be less efficient than one made

The first one he mentions is the case of Microsoft, who at the time of the article was facing an antitrust case, and yet consumers were not opposing Microsoft as they assumedly would compared to a typical monopoly. The market share possessed by Microsoft was hovering around 80% at the time of the case, and yet there did not seem to be an insurmountable entry barrier to the operating software market. The antitrust case, although usually a concern brought up by consumers, was actually brought about by Microsoft’s competitive rivals, setting up an interesting predicament for the government to intervene. With Microsoft’s reputation of a perfect competitor being contested, McKenzie boldly states that either Microsoft is not a monopolist or that hypothetical monopolies did not function as they thought. Microsoft’s key focus to their brand was to constantly add new features to their brand, but adding new features is more a trait of a perfect competitor trying to differentiate their product. With this potential, a question is posed regarding if monopolies could function more effectively than originally thought. McKenzie mentions that monopolists get a bad rap philosophically because goods involved in a monopolistic market exist, but there is no way to earn them. This term is considered unearned rents. Thus, the feeling is that since monopolists did not earn the market share of a good, consumers have more right to the consumer surplus. McKenzie contests this, however, stating that the idea is illogical. All goods are in some way created and conceived, and subsequently markets are