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Alan Greenspan on monopoly and antitrust policy in 1961 – Publications – AEI

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AEI Alan Greenspan on monopoly and antitrust policy in 1961 From a paper presented by Alan Greenspan at the Antitrust Seminar of the National Association of Business Economists in Cleveland on September 25, 1961: A “coercive monopoly” is a business concern that can set its prices and production policies independent of the market, with immunity from competition, from the law of supply and demand. An economy dominated by such monopolies would be rigid and stagnant. The necessary precondition of a coercive monopoly is closed entry — the barring of all competing producers from a given field. This can be accomplished only by an act of government intervention, in the form of special regulations, subsidies, or franchises. Without government assistance, it is impossible for a would-be monopolist

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AEI
Alan Greenspan on monopoly and antitrust policy in 1961

From a paper presented by Alan Greenspan at the Antitrust Seminar of the National Association of Business Economists in Cleveland on September 25, 1961:

A “coercive monopoly” is a business concern that can set its prices and production policies independent of the market, with immunity from competition, from the law of supply and demand. An economy dominated by such monopolies would be rigid and stagnant. The necessary precondition of a coercive monopoly is closed entry — the barring of all competing producers from a given field. This can be accomplished only by an act of government intervention, in the form of special regulations, subsidies, or franchises. Without government assistance, it is impossible for a would-be monopolist to set and maintain his prices and production policies independent of the rest of the economy. For if he attempted to set his prices and production at a level that would yield profits to new entrants significantly above those available in other fields, competitors would be sure to invade his industry.

The ultimate regulator of competition in a free economy is the capital market. So long as capital is free to flow, it will tend to seek those areas which offer the maximum rate of return. The potential investor of capital does not merely consider the actual rate of return earned by companies within a specific industry. His decision concerning where to invest depends on what he himself could earn in that particular line. The existing profit rates within an industry are calculated in terms of existing costs. He has to consider the fact that a new entrant might not be able to achieve at once as low a cost structure as that of experienced producers.

Therefore, the existence of a free capital market does not guarantee that a monopolist who enjoys high profits will necessarily and immediately find himself confronted by competition. What it does guarantee is that a monopolist whose high profits are caused by high prices, rather than low costs, will soon meet competition originated by the capital market.

The capital market acts as a regulator of prices, not necessarily of profits. It leaves an individual producer free to earn as much as he can by lowering his costs and by increasing his efficiency relative to others. Thus, it constitutes the mechanism that generates greater incentives to increased productivity and leads, as a consequence, to a rising standard of living.

Alan Greenspan on monopoly and antitrust policy in 1961
Mark Perry

Mark Perry
Mark J. Perry is concurrently a scholar at AEI and a professor of economics and finance at the University of Michigan’s Flint campus. He is best known as the creator and editor of the popular economics blog Carpe Diem. At AEI, Perry writes about economic and financial issues for American.com and the AEIdeas blog.

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