Question

Please read D. Armentano's article, "A Critique of Neoclassical and Austrian Monopoly Theory," and respond to the following prompts. In the article, the author brings up a few important issues with the way economists treat monopoly. Compare and contrast the four different treatments of monopoly presented (Neoclassical, Mises, Kirzner, and Rothbard).

Is it appropriate to consider barriers to entry that are due to consumer preferences?

Answer 1

A monopolist in Neoclassical analysis takes into consideration the entire demand of the commodity in the market.It tries to maximize its profit by producing an output where the marginal revenue from the last unit sold is equal to the marginal cost of producing that final unit.The price charged for the output is higher than marginal revenue and marginal cost as indicated by the demand function which slopes downward.

For Ludwig Von Mises ,when the supply of a commodity is controlled by a single seller or a group of sellers , monopoly exist.In this condition , the monopoly or the cartel can control the supply so that the market price rises,but other sellers cannot interfere in this.He holds that monopoly prices will not arise until control of supply leads to rise in prices which in turn increases the net proceeds of the monopolist.

Kirzner's theory of monopoly stems from his theory of competitive process.In the market process, sellers are continuously trying to move ahead of their rivals by giving more attractive options to the buyers.He regards this as inherently competitive as the most important factor in this  process which is entrepreneurship ,cannot be monopolized.

According to Rothbard there are 3 definitions of monopoly,single seller of a good,special privilege offered by the state,and achieving monopoly price by a person.Rothbard prefers the second definition of monopoly which is giving privilege by the state and  which in turn controls competitive production or sale of the product.This is monopoly as entry is restricted by the state.

Barriers to entry are stumbling block which comes in the way of new companies entering the market. Different factors act as barriers to entry and brand preference of consumers ie loyalty of consumers towards a product or consumers preference of the product,discourages new firms from entering the market  and so is appropriate.