![]() If perfect competition is a market where firms have no market power and they simply respond to the market price, monopoly is a market with no competition at all, and firms have complete market power. In this module we explore the opposite extreme: monopoly. Think about it this way: If you very much wanted to win an Olympic gold medal, would you rather be far better than everyone else, or locked in competition with many athletes just as good as you are? Similarly, if you would like to attain a very high level of profits, would you rather manage a business with little or no competition, or struggle against many tough competitors who are trying to sell to your customers? By now, you might have read the module on Perfect Competition. There is a widespread belief that top executives at firms are the strongest supporters of market competition, but this belief is far from the truth. How do monopoly firms behave in the marketplace? Do they have “power?” Does this power potentially have unintended consequences? We’ll return to this case at the end of the module to see how the tea and cotton monopolies influenced U.S. This leads us to the topic of this module: a firm that controls all (or nearly all) of the supply of a good or service-a monopoly. The South, wanting to secede from the Union, hoped to leverage Britain’s high dependency on its cotton into formal diplomatic recognition of the Confederate States of America. At that time, the Southern states provided the majority of the cotton Britain imported. Step forward in time to 1860-the eve of the American Civil War-to another near monopoly supplier of historical significance: the U.S. (Credit: modification of work by “ashleylovespizza”/Flickr Creative Commons) These states attempted to leverage this economic power into political power-trying to sway Great Britain to formally recognize the Confederate States of America. In the mid-nineteenth century, the United States, specifically the Southern states, had a near monopoly in the cotton supplied to Great Britain. This is what Eeckhout calls the Profit Paradox.Figure 9.1. When technology change allows a firm to establish a dominant market position, its power to extract excess profits is not good for its consumers, its suppliers, its workers, nor, alarmingly, for democracy. Unfortunately, as Eeckhout argues in this readable and cogent book, the opposite is true. Sure, they conceded, this might allow some firms to make excess profits, but those profits will feed through to more jobs and higher wages. The Profit Paradox: How Thriving Firms Threaten the Future of Work, by Jan EeckhoutĪs the post-war Keynesian consensus frayed in the 1970s, prominent Chicago school lawyers like Robert Bork argued that firms become large because they are efficient, largely due to economies of scale. Here Niko Lusiani and Emily DiVito consider how the tax system could be used to shift incentives and broaden ownership beyond a handful of latterday robber barons. READ ARTICLE Billionaire market power: how could an individual wealth tax curb corporate consolidation in the us?Ĭoncentrated control of large corporations has created vast fortunes over the last four decades and fueled the drive towards market domination. READ ARTICLE Making sense of abnormal, excess, non-routine, super-normal, residual, and windfall profitsĪs some companies reap outsize profits while consumers struggle to keep pace with inflation following the pandemic and Russia’s aggression against Ukraine, lawmakers around the world have been considering whether and how to respond. A revived anti-monopoly movement must make full use of this difference to ensure that taxes encourage investment while eliminating rent-extraction as a business model. A steeply progressive version of the same tax would reduce the economic and political power of monopolists and reintroduce competition in an economy increasingly burdened by rent extraction.įor too long policymakers have failed to distinguish between productive profits and rents derived from market concentration and the control of scarce resources. READ ARTICLE Corporate taxation to curb monopoly power: a brief history and a proposalĬorporate income tax in the United States was originally introduced as an antitrust measure. The resulting social and economic costs of monopoly are artefacts of the political process and can be reversed by government action. READ ARTICLE How local, state, and federal tax policies in the us undermine small business and fuel corporate concentrationįor decades the United States’ tax system has favoured large corporates over locally embedded and competitive firms. ![]() But we still have a few more rolls of the dice. It is obvious to everyone that the game is rigged. Monopolists and rentseekers have been running rings round the democratic fiscal state for decades. Reframing tax policy to reset the rules of the monopoly game ![]()
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