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Markets Work: Disruptive Entrepreneurship Breaks Up Monopolies
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Markets Work: Disruptive Entrepreneurship Breaks Up Monopolies

Editor’s Note: This article is part of a week-long series illustrating how the free market works, from around the globe to our day to day lives.

For a long time, people have believed that it is the duty of government to disrupt monopolies. If the market is expected to work, so it goes, the government must ensure that practices are fair and no company becomes too powerful.

Both those on the left and prominent conservative figures assert this position. In fact, the last monopoly the government broke up was not under a liberal administration, but that of Ronald Reagan’s when Bell System dissolved.

The justification used to give the government power to break up a monopoly derives from a fundamental distrust of the marketplace. A truly free market wouldn’t have legislation preventing monopolies from forming because it wouldn’t need it. When the government is involved in the market, it intervenes not out of charity or goodwill, but because it sees opportunity; opportunity to gain more power either through fear or corruption.

Intervention in the name of expanding competition in the market is a noble cause, but a dishonest one. Markets do not need help from the government to increase competition. Competition is intrinsic to the existence of the marketplace. A free market needs no more help in fostering competition than a fish needs help swimming.

The perfect example of this comes from the establishing of the sharing economy. The arrivals of Uber, Lyft, and other ride-sharing companies have shocked and terrified the taxi industry. Taxi companies have operated as a virtual monopoly in cities for decades, with practically no competition.

Within recent years, as ride-sharing has increased in popularity, taxi companies have turned to the government for help to prevent the breakup of their monopoly. In 2014, the taxi industry spent about $3,500 in lobbying state legislatures for every $1 that ride-sharing companies do. The government was not needed to protect the market from monopolization, and in this case, it was doing the opposite.

While Uber and Lyft have been widely successful, the number one thorn in their side continues to be government regulation preventing them from operating in certain cities.

In the past, as governments claimed to help competition by breaking up monopolies, they simultaneously instituted the very regulations that enabled monopolies to occur. Even when monopolies in the market do occur, they hardly last if not for government intervention. Large businesses and corporations typically have enough money and power to survive a little more regulation, especially if subsidies lift the burden of regulatory compliance. And, as usual, any extra cost is passed on to the consumer or the worker. Even when the government breaks a monopoly, it’s hardly crippling. What was once a monopoly becomes a duopoly, which might make good press but actually does little to increase competition.

While certain companies may have a commanding market share, they do not have the monopoly on force the way government does. Because a company cannot stop someone from competing with them, without government intervention, market monopolies always inevitably fade away as human innovation expands. This fact is effectively how and why the taxi industry has rushed to the government for help. They know their industry is dying rapidly, and are clinging to the authority of the state to make it last till the bitter end.

It is entirely plausible that if it weren’t for government intervention, the taxi industry would be all but extinct.

The same principle holds true in the hotel industry given the success of Airbnb. While several hotel chains compete against each other, their true fear only recently began surfacing. The home sharing economy, much like the ride-sharing economy, is completely revolutionizing the way we travel. And the hotel industry, like the taxi industry, wants the government to stop it. It is, therefore, no surprise that hotel industries are calling for the state to legislate against Airbnb all over the world. Hotels can handle competition among themselves, but the sharing economy is what they really fear.

The monopolies and corporate oligarchies that exist today are not being undone by government authorities trying to drive economies the way they want, but by the free market itself. The market needs no help in regulation and increasing competition. If government stays out of the way, trust-busting is a natural occurrence. In fact, intervention is becoming less efficient as time moves because capitalism is progressing faster than the state can keep up.

As liberty continues to bring communities closer together, it disrupts the established order. As long as the government is limited to the role of protecting life, liberty, and property, the market will always find a way to ensure competition wins out. Without government, no business is exempt from failure, and all are accountable for their actions.

This kind of creative destruction ensures every business is at the top of their game, else they fail. This natural check on power that only capitalism can provide is exactly why markets work.

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  • calebfranz

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