Second, monopoly affords the consumer no protection against extortion. The monopolist may persist in offering inferior quality at a high price, since the purchasers of his product lack the alternative of turning to another source of supply. He may obtain his profit, not by serving the community, but by refusing to serve it.
Third, monopoly affords the worker no protection against low wages, long hours, and poor conditions of employment. The firm that possesses a monopoly in the sale of its products may also enjoy a monopsony in the purchase of the labor required for their production. It may control the only market for special types of skill, the only market for labor in a whole region. Such a situation deprives the worker of the alternative of turning to another employer for better terms. His only protection lies in organization for collective bargaining, enforced by the threat to strike.
Fourth, monopoly inflicts no penalty on inefficiency. The monopolist may achieve economies through combination and integration; he may eliminate wastes and cut costs; but he is under no competitive compulsion to do so. Through inertia, he may cling to traditional forms of organization and accustomed techniques. His hold upon the market is assured.
Fifth, monopoly is not conducive to economic progress. The monopolist may engage in research and invent new materials, methods, and machines, but he will be reluctant to make use of these inventions if they would compel him to scrap existing equipment or if he believes that their ultimate profitability is in doubt. He may introduce innovations and cut costs, but instead of moving goods by price reduction he is prone to spend large sums on alternative methods of promoting sales; his refusal to cut prices deprives the community of any gain. The monopolist may voluntarily improve the quality of his product and reduce its price, but no threat of competition compels him to do so.
Sixth, monopoly prevents the full utilization of productive capacity. Monopolistic agreements may, for a time, yield so large a profit that they attract new enterprises into the fields which they control. Capacity is increased but prices are maintained and output is not allowed to grow. A large part of the productive plant is condemned to idleness.
Seventh, monopoly obstructs adjustment to economic change and thus contributes to general industrial instability. In the competitive sector of the economy prices are flexible; in the monopolized sector they are rigid. In the former area, price is cut to maintain output when demand declines. In the latter, output is cut to maintain price. By refusing to sell at figures which would move his goods, the monopolist leaves factories idle and labor unemployed. Consumer income falls and, with it, the demand for products of competitive industries. The prices of these products are further depressed. Their producers can no longer buy the goods whose prices are maintained. The resulting stalemate may persist for months or years. The necessary adjustments, when they occur, are violent instead of
gradual. By stabilizing price, the monopolist unstabilizes the whole economy.
Eighth, monopoly impedes the raising of the general plane of living. Because it does not compel the reduction of prices, because it fails to penalize inefficiency, because it is not conducive to economic progress, because it prevents full utilization of productive capacity, and because it creates industrial instability, it makes the total output of goods and services smaller than it otherwise would be.
Ninth, monopoly contributes to inequality in the distribution of income. The monopolist is under no compulsion to pass on to labor in higher wages or to consumers in lower prices the gains resulting from improvements in technology. As a purchaser of labor and materials, he may be in a position to depress their prices and thus reduce his costs. As a seller of goods and services, he sets his own price at the point that is calculated to yield him the largest obtainable net return. The monopolist's price will almost always be above the one that he would charge if he were under the necessity of meeting competition. His freedom from competitive or regulatory restraints enables him to obtain a profit much larger than that required to enlist his services in the administration of industrial activity. Enterprises which monopolize important fields are almost invariably corporate in form. Their net income, insofar as it is not reinvested in plant and equipment, declared as dividends on preferred shares, or diverted to insiders, goes to the holders of their common stock. Declaration of dividends on common stock thus represents a distribution of the profits of monopoly. If this stock were widely held, monopoly would still operate to impair the general standard of living, but it would not accentuate inequality. But the ownership of all corporate stock is concentrated and corporate dividends go mainly to the rich. In 1929, more than 83 percent of all the dividends paid to individuals went to the 3.28 percent of the population who filed income-tax returns; 78 percent of them went to the richest three tenths of one percent. Concentration in the distribution of dividends derived from monopoly is at least as great. Monopoly thus makes for economic inequality. The laborers whose incomes may be limited by the monopolist's failure to pay wages equal to their productivity are numerous. The producers of materials whose incomes are depressed by the low prices that the monopolist sometimes pays may also be numerous. The consumers whose real incomes are reduced by the high prices that the monopolist charges are likewise numerous. The stockholders who share the unnecessarily high profits that the monopolist thus obtains are few in number. A more nearly perfect mechanism for making the poor poorer and the rich richer could scarcely be devised.