The argument of the volume
The price families rested, though they rarely said so, on a single assumption: that no one who traded could move the price. The worker took the wage the market set; the lender took the rate; the firm took the price of its wares as a fact of nature, and asked only how much to make at that price. This is the price-taker, and the competitive price is the price among price-takers — disciplined, by the press of many sellers and many buyers, down to the cost of the last unit made, so that no one is overcharged and no one underpaid, because anyone who tried would find his counterpart gone to a rival. Market power is the breaking of this assumption. Let one seller grow large enough to be the only seller, or one buyer the only buyer, and the price is no longer a fact he must accept but a lever he can pull. He becomes a price-maker; and the price he makes is not the competitive price but the price that serves him — higher, if he sells; lower, if he buys — wrung from a counterpart who, finding no rival to flee to, must take it.
Follow the monopolist, the famous case. Alone in his market, he faces not the flat demand of the price-taker — who can sell all he likes at the going price — but the whole downward-sloping demand of the market itself: to sell more, he must lower his price to all, and so the revenue from each extra sale is less than its price. Weighing this against his cost, he stops short — produces less, and charges more, than a crowd of competitors would have — and pockets the difference as the profit of his power. Some of what he gains is merely taken from his buyers, a transfer from their purses to his; but some is destroyed outright, the value of all the trades that would have happened at the competitive price and do not happen at his — the deadweight loss, the dead weight of market power, value that simply vanishes because the price was set above the cost. And the whole of this runs in mirror for the monopsonist: the single buyer, facing the market's upward-sloping supply, buys less and pays less than competition would, transferring to himself what should have gone to those he buys from, and destroying the trades his low price strangles. Too few sellers or too few buyers: the same power, the same restriction of quantity, the same waste, in mirror.
That market power harms invites the question of what restrains it, and three answers have contended, each the subject of plates to come. The first is entry: the hope that a monopolist's fat profit will lure rivals into his market, whose competition will erode his price back toward cost — so that power, where entry is easy, is self-correcting, and lasts only as long as the barriers that keep rivals out. The second is the law: antitrust, the state's hand breaking the great combinations, forbidding the cartels, and policing the conduct by which firms acquire and keep their dominance. And the third, subtlest, is time and invention: the Schumpeterian faith that every monopoly is temporary, doomed to be overthrown by the next innovation, so that the prize of a transient dominance is the very spur that drives the progress, and the cure for today's monopoly is tomorrow's. Between these — entry, law, and innovation — the argument over market power turns; and beneath them lies the deeper matter the flagship will reach, that what we are really speaking of, in all of it, is alternatives: power is the want of them, competition their abundance, and a fair price nothing but the price that the freedom to find another compels.
The argument remains open. What follows is an attempt to fix its exact edges.
The twelve plates of this volume
- i The Monopolistin print the single seller who makes the price instead of taking it: how, facing the whole demand alone, he holds back his wares to lift the price above its cost — the trades thus strangled the deadweight loss of his power, and the same logic, mirrored, the buyer's who is too few. Read the plate →
- ii The Markupin print the measure of market power: how far the price stands above the cost of the last unit made, the gap that is nothing under competition and yawns under power — and the evidence that, of late, it has been widening. Read the plate →
- iii The Moatin print why the monopoly is not stormed: the barriers that keep rivals out — the vast scale that fits but one firm, the patent, the network that swells with each user, the brand and the cost of switching — and the natural monopoly no entrant can challenge. Read the plate →
- iv The Cartelin print the few who would act as one: oligopoly and the collusion that mimics monopoly, the cartel's standing temptation to fix the price and each member's standing temptation to cheat — a prisoner's dilemma the law and the cheater both undo. Read the plate →
- v The Decreein print the law against the trust: a century's swing from the breaking of the great monopolies, through the creed that only the consumer's welfare counts, to the new alarm at the bigness of the platforms — and the question of what, if anything, concentration costs beyond price. Read the plate →
- vi The Segmentin print price discrimination: why the same seat, pill, or program is sold to each buyer at a different price, the three degrees of the practice, and the surprise that to charge each his utmost may waste less than to charge all alike. Read the plate →
- vii The Gridin print the natural monopoly and its leash: where one network serves all most cheaply and rivalry would only duplicate the pipes, the regulation — by price cap or rate of return — that lets the one firm stand but not gouge. Read the plate →
- viii The Exitin print the deepest turn: that power is nothing but the other side's want of an alternative, so that monopoly and monopsony are one — and that a fair price is only ever what the freedom to walk away compels, dissolving the moment one side has nowhere else to go. Read the plate →
- ix The Galein print Schumpeter's creative destruction: the recurring storm of invention that topples each monopoly with the next, and the hard suggestion that the prize of a temporary monopoly is the very spur that drives the progress. Read the plate →
- x The Tributein print rent-seeking: the real resources — the lobbying, the lawyering, the courting of power — spent to win and keep a monopoly, a waste beyond the deadweight loss, for the prize of privilege is fought over with treasure that vanishes in the fighting. Read the plate →
- xi The Gatekeeperin print the platform's new dominion: the network that gives itself away and grows mightier the more it is used, the winner that takes all, and the data moat the old antitrust was not built to breach. Read the plate →
- xii The Markdownin print the mirror of monopoly: not the giant that sells too dear but the one that buys too cheap, the single buyer who marks down the wage or the price he pays — monopsony, met first in the wage, now seen entire. Read the plate →
In closing
This volume took up the last of the price's failures, and the most direct. The others struck at what the price could carry — the knowledge it could not convey, the costs it could not count, the shared things it could not defend. The power strikes at the price itself, seizing it from the market and giving it to a firm: where there are too few on one side — too few sellers, or too few buyers — the price is no longer taken by all but made by one, and made to serve the one against the many.
The volume traced the anatomy of that power and the means against it. The monopolist, facing the whole demand alone, holds back his wares to lift his price, and the trades he strangles are the deadweight loss of his dominion; the monopsonist does the same in mirror, buying too little to pay too little. Such power persists, the volume showed, only behind barriers — the scale that fits one firm, the patent, the network, the brand — for where entry is free the monopolist's profit summons the rivals who compete it away. Where the barriers hold, the law has reached in: a century of antitrust, swinging from the breaking of the great trusts, through the creed that only the consumer's welfare counts, to a new alarm at the bigness of the platforms. And over all of it hangs the Schumpeterian question, whether the monopoly we condemn today is not the prize that lured its own creation, soon to be swept off by the next innovation in the ceaseless churn of creative destruction.
And then the volume turned on power itself, and found it to be a simpler and stranger thing than its anatomy suggested. Power is not, at bottom, a matter of size or number; it is a matter of alternatives. The monopolist has power over his buyers because they have nowhere else to go; the monopsonist, over his sellers, for the same reason; and the competitive price was never fair because the sellers were many, but because the buyer could always turn to another — exit, the standing possibility of walking away, was the whole of the discipline. So a fair price, the volume found, is not a property of the good, nor of its cost, but of the bargaining position: it is what the freedom to find another compels, and it dissolves the instant one side is trapped. The question what a fair price is worth, when one side has nowhere else to go, has therefore a hard answer: there is no fair price then, only the price of being trapped — and the work of competition, of entry, of antitrust, and of invention is, every one, the work of giving the trapped party somewhere else to go. With this the failures stand complete. The price cannot convey what is hidden; cannot count what is unowned; cannot defend what is shared; and cannot discipline what it cannot contest — four failures, four edges of the great coordinator, beyond each of which the price must be helped by something else: a device, a right, a covenant, a rule. The price was never the whole of the market, and the market was never the whole of economic life. The failures map the edges of the price; what lies beyond them — the institutions that scaffold it, the behaviors that underlie it — is the rest of the table, and the rest of the science.
If power is only the other side's want of an alternative, and a fair price only what the freedom to leave compels, then every monopoly is a door held shut, and every remedy — the rival, the law, the invention — a way of prying it open. The question is no longer whether the price is fair, but whether the one who pays it is free to walk away. Is he?