Why are monopolies said to "distort" a market or make it non-free?

Question

Suppose I am the legitimate owner of the only Widgets in the world. Regardless of the price I ask for them, buyers are still completely free in their choice of whether not to buy a Widget. I am not holding them at gunpoint to make them buy. If they don't like the price, they can simply walk - and if everyone walks, then I will have to ask less.

In what sense, then, is the monopoly as such "distorting" the market or making it non-free?

Does it not count as a monopoly if I am simply the only owner/producer of widgets? Wikipedia and other sources say that it is a monopoly if there is only one producer/seller. If that is the case, then how could it be said that monopolies as such distort the market (as distinct from using violence, patents, litigation etc. to prevent other people from producing the good?)

Like I said, nobody is "forced" to buy Widgets. Do you need Widgets to survive? I don't. So let's not talk about anybody being forced or not having a choice, they can just take their money and buy $x of rice, mall merchandise or real estate if that is their desire. Likewise, let's not assume that nobody has any desire for Widgets - perhaps they are worthwhile, just not essential for survival.

In this case I still have a monopoly (unless this is the improper definition of monopoly?) - but I cannot see any "distortion" in the market in this case. So it is monopoly or something else which distorts markets?

For those who say that a monopoly must be on something which is a 'need,' I will accept that answer just in case there is an objective method for determining whether or not something is a 'need.' (It seems purely subjective to me to say that we 'need' a part used in making cellular phones, or numerous other things which have greater value to us than plastic vomit.)

How can a non-monopoly on Widgets make for higher Widget production? If the point is just that lower-priced Widgets allow greater production of other objects (hence greater total welfare), then doesn't the same argument say that total welfare would be greatest if everybody sold everything exactly at cost? That doesn't sound like a free market to me!

Answer 1

Given your scenario, you are correct, only you would suffer from not selling your Widgets.

The concept is a bit different in that a monopoly buys the Widgets sold by many makers, and by controlling the available market of Widgets, sets a price that if the makers were selling separately would be less, due to competition.

Answer 2

You said, "and if everyone walks, then I will have to ask less."

That's why.

Everyone isn't going to coordinate their efforts to stop buying (or needing) widgets at the same time. Widget buyers may be all different types of people and organizations, and widgets may be vital to our way of life. We might need widgets to run our cars, or our computers, or our phones.

Standard Oil, Bell telephone, and Microsoft were/are monopolies because their products are so vital that we we can't just stop buying.

That's why the government would never force the breakup of the only plastic dog vomit maker in the world. We don't need plastic dog vomit. So if the plastic dog vomit maker charges too much, no one will buy, and your scenario works.

Answer 3

Monopolies and conglomerates are what caused the 1928 stock market crash and the depression that followed. During the 1920's 200 businesses did 80% of national business - and the economy could not stand to expand that fast without balance - so as many steps were taken to avoid a crash it was unavoidable - and the consequences were devastating. During the 1930's the United States probably came as close to falling apart as it ever has.
The economy of the U.S. always expands and contracts - it is an ongoing cycle. There is great danger economically if a few businesses have too much of the market share - as the 1920's and 30's illustrate.
Could it happen again? It could but current conditions are more balanced with many more large companies, and that is much more healthy economically - although small business should be much more prevalent than it currently is - but that is another story!
Responsible big business has to keep the market balanced.

Answer 4

The theory is that you wil not allow competitors to make and sell the Widget. Each time a competitor hits the market, you lower your price or do other anti-competitive things to defeat them. By doing this, you can keep your price artificially high and make large profits.

I'm not defending either side, just explaining the theory.

Answer 5

Total welfare is lost. Since price is really just a transfer from buyer to seller, it really doesn't have a welfare effect, however total output does have a welfare effect. A "free market" produces more widgets, so more people are made happy.

Answer 6

Monopolies only work if the product they distribute, can't very well be done without, like electricity, phone service water, food.
If a product is optional then the market place will adjust the price by customers either buying or ignoring the product

Answer 7

the real question here is, what happens when there becomes 2 widgets, and then 3, nd then 4 etc.

Answer 8

I disagree. There is no competition or alternative in this scenario. The only choice is whether to buy or not to buy, not where else to buy for cheaper. If there is not choice between supply then it is non-free.

Answer 9

rgt