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"Natural monopolies" are impermanent. They fluctuate between states of monopoly and states of competitiveness. While there will be times when a single firm se

"Natural monopolies" are impermanent. They fluctuate between states of monopoly and states of competitiveness. While there will be times when a single firm serves the market unchallenged, there will also be times when the market is not served by any firm, and times when multiple firms are competing to be the sole survivor. The de jure monopoly is therefore instituted to prevent the former, at the expense of the latter. According to microeconomic theory, a natural unprotected monopoly has to operate at a different price point than a legally protected monopoly, because attempting to operate at that point invites new firms to enter and attempt to unseat the incumbent. It therefore follows that every natural monopolist will attempt to seek legal protection for their monopoly, and would be willing to pay up to the marginal amount of profit between the price points of natural and protected monopoly in order to acquire or retain that protection. Where the legal framework is not available, the monopolist firm can just hire a brute squad to take out upstart competitors. So because there is a real economic difference between protected monopoly and natural competitive monopoly, the mere possibility of protected monopoly is a source of political corruption. And once corruption has taken root, every natural monopoly can then invest in its own protection, even where such protection might not be needed, because protected monopolies can charge higher prices, which is all (economic) profit.

FloatingVertex 8y ago
If the cost to enter the market is very high a monoply can portect itself simply by there being implicit knowldege that a competitor entering the market will result in the monopoly lowering their prices temorairly. With a high cost to enter + high risk of failure + low returns even if the monopoly is broken, a monopoly can protect itself effectively without the help of a state.
- logfromblammo 8y ago
  The entry of a new competitor could also cause both the incumbent monopolist and the challenger to fail, if the monopolist hasn't kept a deep enough war chest filled, for weathering such challenges. But why keep a war chest, when you could use the same funds to greater effect by buying political protection and distributing the remainder to the owners? While it is possible to effectively protect a monopoly without help, appropriating the machinery of the state where possible is much more efficient. As I mentioned previously, where the state cannot be used, the company could hire a gang to burn down competitor capital more cheaply than trying to duke it out in a fair fight on the open market. If you're DeBeers, and someone opens a diamond mine that threatens your cartel in a place with little law enforcement, your carrot is a buyout offer, and your stick is murdering key personnel and destroying vital equipment using "security contractors". You don't need to lower prices, if you can make the new guy go bankrupt without ever bringing anything to market.

FloatingVertex 8y ago

If the cost to enter the market is very high a monoply can portect itself simply by there being implicit knowldege that a competitor entering the market will result in the monopoly lowering their prices temorairly. With a high cost to enter + high risk of failure + low returns even if the monopoly is broken, a monopoly can protect itself effectively without the help of a state.

logfromblammo 8y ago
The entry of a new competitor could also cause both the incumbent monopolist and the challenger to fail, if the monopolist hasn't kept a deep enough war chest filled, for weathering such challenges. But why keep a war chest, when you could use the same funds to greater effect by buying political protection and distributing the remainder to the owners? While it is possible to effectively protect a monopoly without help, appropriating the machinery of the state where possible is much more efficient. As I mentioned previously, where the state cannot be used, the company could hire a gang to burn down competitor capital more cheaply than trying to duke it out in a fair fight on the open market. If you're DeBeers, and someone opens a diamond mine that threatens your cartel in a place with little law enforcement, your carrot is a buyout offer, and your stick is murdering key personnel and destroying vital equipment using "security contractors". You don't need to lower prices, if you can make the new guy go bankrupt without ever bringing anything to market.