The monopolist is the figure the word power first calls to mind, and rightly, for he is power in its purest and least complicated form: the single seller of a thing for which there is no substitute, facing the whole demand of the market alone. He does not, as the cartoon has it, simply charge what he likes — even he is bound by what buyers will pay, and the higher his price the fewer of them will pay it. What he can do, and the price-taker cannot, is choose the point on that demand which suits him best: hold back the quantity, let the scarcity he has manufactured lift the price, and pocket the difference between that price and the cost of the last unit made. The loss to everyone else is not merely that they pay more. It is that trades which would have benefited both sides simply do not occur, because the seller finds it more profitable to leave them undone.
The monopolist, then, is the price-maker grown to his full and final size — and the first question the figure raises is where such a creature comes from, for single sellers do not spring up by chance. They are made, and made in three broad ways. Some are the gift of nature, or rather of cost: industries in which one firm can supply the whole market more cheaply than several, so that competition would be sheer waste. Some are the gift of the state, conferred on purpose: the patent that grants an inventor a monopoly for a term of years, the franchise that hands one company a city's water or its rails. And some are seized — by cornering a scarce resource, or holding the one bridge, the one mine, the one pass that all must use. The three are worth keeping apart from the start, for they are not equally to be deplored: the seized monopoly is the robber of the textbooks, but the natural and the legal monopoly are, in their different ways, designs — arrangements a sensible society might choose, and sometimes must.
The natural monopoly deserves the closer look, because it holds the whole volume's difficulty in a single case. Consider the supply of water to a city. To serve it at all requires a vast and costly network of mains beneath the streets; but once the network is laid, the cost of serving one more household is slight, and falls, reckoned per household, the more households are served. A firm that serves the whole city thus delivers water more cheaply than two firms each serving half and each digging up the streets — and far more cheaply than ten. Here competition is not merely difficult but positively wasteful: the efficient number of suppliers is one. And there lies the trap the volume keeps stepping into, for the very scale that makes the single supplier the cheapest also makes him a monopolist, free to charge whatever the captive city will bear. The efficiency that justifies the monopoly and the power that condemns it are not two facts to be weighed against each other; they are one fact seen from two sides.
What the single seller costs us we have partly seen, and need only name again before going past it. There is the deadweight loss, the trades killed by a price held above the cost of one more; and there is the transfer, the surplus marched out of the buyers' pockets and into the seller's. But monopoly exacts a third cost that the diagrams of the first plate do not show, and it may be the heaviest of the three. A firm that fears no rival is under no discipline to keep itself lean. Its costs are permitted to drift upward, its managers to grow comfortable, its products to age; the spur that competition applies — improve or perish — is simply absent, and a slackness sets in that wastes resources no triangle on a graph will ever catch. The loss here is not the bargain forgone but the excellence never attempted: the firm that, secure in its position, never troubles to be as good as it might.
And yet — for the volume is bound to give power its due — there is a case for the single seller, and it is among the most important in all of economics. It runs through innovation. The competitive firm, earning just enough to cover its costs, has neither the surplus to fund invention nor much reason to attempt it, since any improvement is instantly copied by its rivals and the advantage competed away. The prospect of a monopoly changes everything: the inventor who knows that success will buy him, for a time, a market of his own will brave the expense and the risk that no price-taker would. Schumpeter built his whole vision of capitalism on this insight — that the competition which counts is not the haggling over a penny but the perennial gale of creative destruction, in which each temporary monopoly is the prize that lures the next inventor to topple it. The patent system is that argument cast into law: a monopoly deliberately granted, for a fixed term, as the price a society agrees to pay for being invented for. Static efficiency says break every monopoly; dynamic progress says that some monopoly is the engine of everything. Between the two the subject has never struck a final balance.
There remains the monopolist's subtlest art, the one promised at the outset, and it overturns a tidy assumption of the first plate. There we supposed the seller posts a single price, the same to all comers, and on that supposition the deadweight loss is unavoidable — the units priced out of reach simply go unsold. But suppose the seller can tell his buyers apart and charge each the most that he, particularly, will pay: the rich buyer a high price, the poor buyer a low one, each just below the point at which he would walk away. Now the seller makes the sales he formerly lost — the poor buyer, offered a low enough price, buys after all — and the deadweight loss shrinks, even vanishes, the output swelling back toward the competitive level. Discrimination is, by the efficiency test, an improvement. But every penny of the surplus those trades create is captured by the seller, for each buyer is charged exactly his limit and left with nothing. Here efficiency and exploitation, which the simple model holds apart, walk arm in arm: the more perfectly the monopolist discriminates, the more trades occur, and the more completely the buyers are stripped.
What was once a textbook curiosity — perfect discrimination, charging each buyer his private maximum — is fast becoming an industry. To charge each buyer his limit, one must know each buyer's limit, and for most of history no seller could; the single posted price endured in part because ignorance enforced it, and a posted price has at least the rough virtue of charging the duke and the pauper alike. The data economy dissolves the ignorance. A seller who knows what you have searched and bought, what device you carry, what you can afford and how long you wavered, can approach a price set for you alone — and the uniform ticket gives way to a quiet, individuated reckoning that no one else can see in order to compare. The power to discriminate is the power to know; and the knowing, and the watching that feeds it, return in the plate on the platform.
If the single seller is sometimes the cheapest way to supply us, he cannot simply be abolished, and the question becomes the awkward one of what to do with a monopoly one cannot do without. The textbook offers a menu, and every dish disappoints. One may regulate him — set his price by public authority — but the efficient price, equal to the cost of one more, will not cover the great fixed cost of his network, so the regulator must either subsidize the loss or permit a higher price and surrender the very efficiency he came to secure; and he must do it knowing far less of the firm's true costs than the firm itself, and at constant risk of being captured by it. One may nationalize him, and exchange the slackness of the private monopolist for the slackness of the public one. One may, with Demsetz, auction the franchise to whoever will serve cheapest, putting competition for the market in place of competition within it — though the winner, once enthroned, is a monopolist like any other. Or one may simply tolerate him, and trust that the fear of some distant rival keeps him honest. There is no clean answer, only a choice among flawed ones, because the thing itself is a knot: a power that is also an efficiency, and cannot be undone without undoing both.
Strip away the cases and the cures, and the single seller stands as the plainest illustration the volume affords of its governing thought. His price is the price-maker's carried to the limit: chosen, not found; bounded by nothing but what the buyer will bear; owing nothing to the cost of one more or to the pressure of any rival, because he has none. It is, of all prices, the one with the least of the fact of nature in it and the most of the naked verdict — the contest at its most one-sided, the strong wholly strong and the buyer with truly nowhere else to go. And still it is posted on the shelf in the same plain numerals as the competitive price beside it, and still the buyer, reading the tag, cannot see which kind of price he pays. Monopoly does not change how a price looks. It changes only everything behind it.
It would be the simplest thing to end there, with the single seller condemned, and much of the time the condemnation is just. But the plate has turned up too many complications for so clean a verdict. The monopoly may be the cheapest way to bring us water or power, so that breaking it would cost us more than bearing it. It may be the deliberate and time-limited reward we have promised our inventors, the price of the cures and the engines that competition alone would never have funded. Its discrimination may, even as it strips us, conjure trades a single price would have denied. The single seller is therefore not merely the villain of the piece but the sharpest form of the question the whole volume turns upon: whether power in a market is an aberration to be hunted down and broken, or a permanent feature of the economic world — sometimes wasteful, sometimes the price of progress, sometimes the only efficient way — that the law and the citizen may hope to manage but never finally abolish.
The single seller is the contest at its most one-sided — and the proof that a power worth condemning may also be a power we cannot do without.
The single seller is where the study of power begins in earnest, because he is power with nothing else mixed in — no rival to share the market, no competition to blur the picture, only one will facing the demand of all. The plates that follow reintroduce the complications the monopolist strips away: the few who must reckon with one another, the many made a little powerful by their differences, the barriers that keep the position safe, the law that assails it. But each is a departure from the pure case set out here. A price is a verdict on a hidden contest, mistaken for a fact of nature; and in the monopolist we meet the contest with only one fighter left standing, handing down the plainest verdict of all — which we may yet, on reflection, decide not wholly to overturn. The argument remains open.