Mondays With Murray: Competition and Monopoly

At the age of 12 my brother went off to college and left his lawn mowing business for me to operate.  Before he left he was gracious enough to introduce me to his clients and his clients allowed me the opportunity to earn their business.  As the summer grew hot and I gained more experience operating my modest business, two important factors that would contribute to maintaining and growing my business became clear.  First, my clients came first, their grass needed to be cut at their requested time intervals and trimmed to their expectation.  Second, my price was the major reason clients retained my service and new customers sought my services.  Professional landscaping services could not compete with the price I offered.   Even with this realization, common sense told me that if my service did not continue to meet expectations, then my customers would find someone who would.  Without fully understanding the concept of competition, and the impact it has on price and quality, my actions aligned with that of a successful provider and producer.  At that time, my major concerns were making money and getting my lawns cut so I could spend as much time as possible playing basketball and homerun derby with my friends.  I did not realize that my libertarian philosophy was being molded by my natural, common sense reactions to meet the needs of the landscaping market.This week’s installment of Mondays with Murray features a video of Rothbard describing the market transformations that result from competition and monopolies in a given industry.  Rothbard’s lesson served to remind me of the invaluable experience that I gained while learning about competition from real life experiences growing up.   In the below video Rothbard discusses two types of competition, the impacts that result from government monopolies, and bursts into laughter while describing the blatant cronyism involved in a New York scandal involving a notorious former Bronx Democratic political boss.https://www.youtube.com/watch?v=Jjb79j2OoiARothbard describes the difference between the two types of competition, potential and active.  Proponents of market intervention by the State struggle with this concept.  They would claim a business that operates in an industry which does not face any actual competitors, would raise prices and lower quality at the detriment of the consumer and to the benefit of their bottom line.  Rothbard points out that even if there is only one firm in a given field, they must be cognizant of potential competitors entering the industry.  Businesses hate to bring in other competitors because they will lower profit.  Rothbard states that potential competition is equally powerful to actual competition.Politicians claim to know what consumers desire and pass legislation that they believe will deliver the results the free market is unable to provide.  These legislators intervene in the marketplace with a variety of measures that include the outright sale of monopoly privileges and offer protection that prevents competitors from entering the market.  Airline security is a prime example of an industry that has been centrally planned and monopolistic privileges have been granted by the State. The Transportation Security Agency, the TSA (we've written about them a few times here, here, and here), has been granted exclusive monopoly privileges by the federal government.  Only select parties benefit in this scenario, Rothbard identifies the monopolist and the government bureaucracy as the two parties that prosper.  It goes without saying that prospective competitors suffer because they are not allowed into the market.  The consumer is also harmed, because the granting of exclusive monopolistic privileges shifts the supply curve to the left.  This decreases supply of the service and increases price.  The quality, safety, and efficiency of the service are also compromised as there is no pressure applied to the firm, because the threat of actual or potential competition has been removed.Towards the end of the video Rothbard breaks into laughter as he is discussing the blatant political cronyism displayed during the selection of a vendor to supply a computerized parking ticket tracking system for New York City.  The selection process was between two companies, Motorola and CompuSource.  Motorola even at the time of this scandal in the 1980s had a strong reputation.  The other company CompuSource, which ended up winning the contract, didn’t have the computer software or the money to procure the computerized system.  They did have a lobbyist, Stanley Friedman, with disingenuous intentions and political connections.  Rothbard busts out laughing as he describes the deal the lobbyist Friedman had with CompuServe.  Friedman was to become the majority shareholder as payment for his work as a lobbyist securing the contract!Receive access to ALL of our EXCLUSIVE bonus audio content – including “Conspiracy Corner”, “Degenerate Gamblers” and the “League of Liberty Podcast” by joining the Lions of Liberty Pride and supporting us on Patreon!