Competition and Monopoly 1

COMPETITION AND MONOPOLY 1. Competition defined. 2. Naturalness of competition. f 3. Con flicting interests of competition. Nature of monopoly. 11 5. Mo nopoly not merely scarcity. Monopoly not merely superior economic power. 1 7. Partial competition coexisting with monopoly. 1 8. Abso lute and relative monopoly. 1 9. Motives and germs of monopoly. 1 10. Types of monopoly-price: receipts vs. profits. Uniform monopoly price. 1 12. Uniform monopoly-price: inelastic demand. 1 13. Uniform monopoly-price: elastic demand. f 14. Discriminatory monopolistic price.

§ 1. Competition defined.

The word competition is fre quently heard and with various implications. Literally it means "seeking-together," with the suggestion of rivalry, of mutual exclusion of the seekers. As applied to trade, compe tition means the attempt of two or more persons to get the same thing, each being guided by his own valuation and not restrained by any outside force. Thus there is an element of competition in the simplest case of barter, for whatever ratio is more favorable to one is less favorable to the other party and gives to one what the other fails to get. But the idea of competition more frequently is applied to a group of traders buying or selling the same class of goods. All the members of the group are thought of as being on one side of the trade, either the buyer's or the seller's side. If in such case there is on the other side but one trader (or some agreement or lim itation of competition) there is one-sided competition. When there are two groups of competitive traders, one of buyers and one of sellers, there is two-sided competition.

§ 2. Naturalness of competition. Competition has been 73 implied in previous chapters in such words as rivalry, emula tion, bidding, least eager buyer, or seller, price-adjustment, etc.

Competition is spoken of as a force raising or lowering prices, as a motive acting upon the traders, etc., but competition is not a different force, or a separate motive, apart from the desires of the traders. (Some minor exceptions occur where the motive is the mere wish to outdo for the fun of the game.) Rather competition ordinarily is but an expression for the sit uation where each trader is exercising his choice in a market without restraint from others of the same group. For unless

there is introduced a new personal factor of collusion, con spiracy, agreement not to bid against each other, the market price will be competitive, and a condition of competition exist. Such agreements, being dependent always on the good faith of the parties, often also on secrecy, and being provocative of jealousies in the division of the gains, are dependent on per sonal factors, and create a more artificial state of price than is found in competitive price, which has a more impersonal character. Hence competitive prices have, since the days of Adam Smith, commonly been spoken of as "natural" prices. The word natural must, however, be used with caution. It can not be said that the choice any trader makes in entering into an agreement not to compete, when he sees that he can gain by so doing is, in one sense, any less "natural" than his choice of the thing when he competes. The choice might be called natural but the situation and the price resulting are not so, viewed from our present standpoint; they are artificial in the sense that they result from an agreement to abstain from the competition which otherwise would take place.

§ 3. Conflicting interests of competition. The buyers have the common interest of low prices; the sellers, the com mon interest of high prices; and buyers' interest as a group is opposed to sellers' interest as a group. The competition of interests is thus in two dimensions, but competition is applied particularly to the rivalry within the group on either side.

If there are more would-be buyers than sellers (or vice versa), some on the buyers' side will be forced out by the com petition of the others ; and even if the numbers are equal in each group, and all succeed in trading, it will probably be at a ratio altered by the competition. The presence of competing buyers, having different valuations, raises the price at which some sellers will be able to sell and, vice versa, the presence of competing sellers lowers the price which some buyers must pay.