Skip to content

Markets and Competitive Markets

2014 April 11
by Ian Welsh

Markets are almost entirely a product of government regulation and enforcement, and cannot be anything but. This is not just about the common observation that government must enforce contracts, but about the how it enforces contracts because contract law changes over time, and is differs from country to country.

Even more fundamentally, what property is, government determines. For example, most land could not be sold through most of history. Patents and copyrights are not universal in human existence and they radically undermine the argument for markets because for competition to work people must be able to enter any business which has high profits. If patents or copyright make it impossible to produce products that others are, then competition does not drive down prices.

Competition in many products is hard, in any case. Take cable and phone companies and the internet access they offer. In 90s America government forced phone companies to let other companies sell internet over their phone lines. When they stopped, internet prices soared because competition is impractical. A new company cannot drive new phone lines to every house, or new cable, and we don’t want them to: it would be an insane misuse of resources.

Property, from ownership of land, to the right to broadcast over the airwaves, to the right to make something and deny other people the right to make it as embedded in patents and copyrights is entirely a social choice, enacted through government. What property is, what may be sold, and what may not be sold: what is a market good, what is tradeable, is a matter of law and convention.

Markets are a way of distributing goods and services through the profit motive. A competitive market is a market where it is easy for new businesses to enter markets and in which no competitor has a sustained advantage other than their people.

Every grant of monopoly, such as copyright and patent, every natural monopoly such as water and sewage and power and phone and internet and cable; every oligopolistic grant such as auctions of spectrum to telecom companies; every grant of money-creation to a few; every network-effect or first-mover advantage; every inherited fortune or oligopoly engaged in non-competitive pricing makes a market less competitive.

Markets which are not competitive do not produce the benefits of competitive markets. They are, however, still markets. They still distribute goods and profits according to what is most profitable.

11 Responses
  1. stirling permalink
    April 11, 2014

    yes and no, Because markets existed for governments.

  2. stirling permalink
    April 11, 2014

    off topic but amusing nonetheless, Hillary is wearing very thin, there should be a primary against her because she’s looking very old.

  3. Celsius 233 permalink
    April 11, 2014

    @ stirling
    April 11, 2014
    off topic but amusing nonetheless, Hillary is wearing very thin, there should be a primary against her because she’s looking very old.
    ~~~~~~~~~~~~~~~~~~
    LOL, Hilary is yesterdays used goods, old laundry, or non-recyclable detritus…

  4. brian_damage permalink
    April 11, 2014

    “contract law change over time, and is differs from country to country.”

    versus

    “contract law changes over time, and is different from country to country.”

  5. April 11, 2014

    Markets are also just weird when it comes to information.

    Information only behaves like an exchanged commodity or service under certain circumstances i.e. if it is withheld and so paid for in advance or until some legally enforceable future payment is agreed, which is still in advance, just deferred.

    So we end up with copyright and other information laws just so we can continue to pretend information does fit a market system, despite that outside of the prearranged payment scenario, a market never can really redistribute resources in a way that makes much sense for information.

  6. The Tragically Flip permalink
    April 11, 2014

    I sometimes like to say property is a government program.

    The ability to leave your house and expect that when you come back, no one will be occupying it*, and claiming it belongs to them is a government program. Without government you can only “own” what you can physically possess or convince others to physically guard on your behalf.

    * – banks are naturally, exempt from this expectation now. Anything they want to claim, is theirs!

  7. S Brennan permalink
    April 11, 2014

    Perhaps I overstep my bounds; but the Pope has a few comments to add to this blog on the subject of the ‘prevailing economic system”.

    “Some people continue to defend trickle-down theories which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness in the world…This opinion, which has never been confirmed by the facts, expresses a crude and naïve trust in the goodness of those wielding economic power and in the sacralized workings of the prevailing economic system.

    The worship of the ancient golden calf has returned in a new and ruthless guise in the idolatry of money and the dictatorship of an impersonal economy lacking a truly human purpose. The worldwide crisis affecting finance and the economy lays bare their imbalances and, above all, their lack of real concern for human beings; man is reduced to one of his needs alone: consumption.”

    http://www.rawstory.com/rs/2013/11/26/pope-francis-rips-capitalism-and-trickle-down-economics-to-shreds-in-new-policy-statement/

  8. April 12, 2014

    But if you point out that markets cannot exist without some form of government to enforce the basic contracts that underlie markets, the Libertopians go “uh uh, you’re wrong!” Then if you ask them to give you an example of any market anywhere in the world that has existed without some sort of government to enforce the basic contracts that underlie markets, they start stammering and stuttering and then talk about Sharia courts in Somalia. Which, erm, are government, more or less, since their judgements are backed up by local militias with guns who rule via rule of gun. Which is feudalism. Which is government. Duh.

    Then there’s the limited government Libertopians who insist that okay, so you need government to enforce contracts, but it should stop there. At which point you end up noting the anarcho-socialist criticism of that position, which I think is what Ian is referring to above. That is, there are those who, by dint of accident or purpose, have more power than others due to ownership of resources which are impractical or impossible to duplicate in a cost-effective manner, and these people have more economic power and can impose their own contract terms. Then the market no longer is a meeting of the minds, it is a tyranny imposed by those with more power.

    I do not necessarily agree with the anarcho-socialist’s solution to that problem, but they do provide a valuable service in pointing out that tyranny based on economic power is no different from tyranny imposed by guns. Either way, someone with more power than you is dictating the terms of your life.

    What is especially hilarious is when the anarcho-capitalists (libertarians) then insist that preventing the imposition of economic tyranny is, itself, tyranny. The irony of saying that prevention of tyranny is tyranny never seems to occur to them. I don’t know whether they’re dim, or whether they know darn well they’re talking nonsense but it’s nonsense that they want to be true so they’ll talk it nevertheless. Either way, it’s silliness.

    And enough late night meanderings on my part…

  9. Dan H permalink
    April 12, 2014

    Badtux,

    Most of the Libertards I run across are OK with that tyranny, because ultimately they see economic advantage as being “earned”. I think most of the adherents here are poor folk who’ve been fucked over too many times. Stockholm syndrome is the name of their game. They are literally invariable of helping themselves. The truly dangerous bastards are the clever ones keeping those damaged souls so.

  10. Dan H permalink
    April 12, 2014

    Should be “incapable”.

  11. April 12, 2014

    Yep, Hillary is looking old. It’s like she had a stroke or something. That’ll age you fast.

Comments are closed.