Coercive monopoly

In economics and business ethics, a coercive monopoly is a firm that is able to raise prices and make production decisions without the risk that competition will arise to draw away their customers.

[6] Exclusive control of electricity supply due to government-imposed "utility" status is a coercive monopoly because consumers have no choice but to pay the price that the monopolist demands.

"[3] However, some people, including Alan Greenspan and Nathaniel Branden, argue that such independence from competitive forces "can be accomplished only by an act of government intervention, in the form of special regulations, subsidies, or franchises.

This period, called Prohibition, presented lucrative opportunities for organized crime to take over the importation ("bootlegging"), manufacture, and distribution of alcoholic beverages.

Al Capone, one of the most famous bootleggers, built his criminal empire largely on profits from illegal alcohol and effectively used coercion (including murder) to impose barriers to entry on his competitors.

In Capone's case, the U.S. government created the necessary conditions for a coercive monopoly by outlawing the manufacture and sale of alcohol, thereby enabling unnaturally high profits on the black market, and was not providing the usual service of enforcing trade contracts.

[10] The ability of firms in a coercive monopoly to increase their profits through setting prices above competitive levels brings about the need for antitrust law.

[11] Eric Raymond, an author and one of the founders of the Open Source Initiative, says "The thing a lot of people somehow missed is that the courts affirmed the findings of fact – that Microsoft is indeed a coercive monopoly.

It insists that it never excluded competitors; but we can think of no more effective exclusion than progressively to embrace each new opportunity as it opened, and to face every newcomer with new capacity already geared into a great organization, having the advantage of experience, trade connections and the elite of personnel.

[14] This difference in regulation highlights the need to level out antitrust laws across the world in order to control this exclusionary and exploitive conduct in coercive monopolies.

The state-owned petroleum companies that are common in oil-rich developing countries (such as Aramco in Saudi Arabia or PDVSA in Venezuela) are examples of government monopolies created through nationalization of resources and existing firms.

Thus, if the government protection the United States Postal Service was lifted and mail delivery could be included in free competition, the number of entrants into the industry would likely increase.

[note 2] Economist Lawrence Reed says that a government can cause a coercive monopoly without explicitly banning competition by "simply [bestowing] privileges, immunities, or subsidies on one firm while imposing costly requirements on all others.

"[17] For example, Alan Greenspan, in his essay Antitrust, argues that land subsidies to railroad companies in the western portion of the U.S. in 19th century created a coercive monopoly position.

Economist Murray Rothbard, noted for his espousal of anarcho-capitalism, argues that the state itself is a coercive monopoly as it uses force to establish "a compulsory monopoly over police and military services, the provision of law, judicial decision-making, the mint and the power to create money, unused land ('the public domain'), streets and highways, rivers and coastal waters, and the means of delivering mail.