he same sort of argument can be made—and even more obviously—with respect to scale economies. Consumers do not regret the economies nor the consequent reduction in competition. Consumers could "increase competition" any time they choose to by indicating their willingness to pay higher prices to cover the higher costs of the smaller firms. That they do not usually do this indicates the resources are correctly allocated so far as they are concerned. Again, it is the economist's vision of the purely competitive wonderland that is upset by the large, efficient firm, and not allocative efficiency from a consumer perspective.
The final absurdity in this area is to observe where such incorrect theories of competition are likely to lead. If product differentiation limits competition, i.e., limits the number of competitors, then more competition can be obtained by limiting product differentiation—by law. If efficient techniques of production or scale economies limit competition, i.e., the number of competitors, then more competition can be obtained by raising either costs or prices for the efficient companies—by law. Thus, to take the barriers-to-entry theory seriously is to end up proposing as rational public policy—in the name of consumer welfare—the very procedures that consumers would likely find most harmful. The only thing sadder than all of this is that such ideas have actually been taken seriously in some antitrust circles and by the courts, and we have had some real world legal decisions that reflect such theoretical nonsense.5
As should be quite clear from the above review and critique, there is much dissatisfaction with the traditional notions of monopoly and competition, and with the simplistic antitrust policies (anti-merger policy, for instance) founded on such assumptions. But if the neoclassical approach to monopoly and competition is defective, what is the correct approach in this area? Indeed, is there a logical and rational theory of monopoly and, accordingly, an appropriate public policy to complement that theoretical approach? In the sections below we will turn to a critical examination of Austrian monopoly theory in an attempt to answer these questions. The views of von Mises, Kirzner, and Rothbard will be taken as representative of various Austrian positions concerning monopoly.
MISES'S MONOPOLY THEORY
Monopoly exists for Ludwig von Mises when "…the whole supply of the commodity is controlled by a single seller or a group of sellers acting in concert."6 This condition puts the monopolist (or cartel) in the position of being able to restrict supply in order to raise market price without having to "fear that his plans will be frustrated by interference on the part of the other sellers of the same commodity."7 Mises holds, however, that monopoly prices do not result unless the restriction in supply produces prices that actually increase the monopolist's "total net proceeds." Only if the demand for the product is inelastic in the price range under discussion could "monopoly prices emerge as differentiated from competitive prices." Hence, it is not "monopoly" as such that is catallactically relevant for Mises, but only the "configuration" of the demand function and the emergence of monopoly prices.8
Importantly if such monopoly prices do exist, then they are an "infringement of the supremacy of the consumers and the democracy of the market."9 Mises even goes further:
Monopoly prices are consequential only because they are the outcome of a conduct of business defying the supremacy of the consumers and substituting the private interests of the monopolist for those of the public. They are the only instance in the operation of a market economy in which the distinction between production for profit and production for use could to some extent be made…10
The characteristic feature of monopoly prices is the monopolist's defiance of the wishes of the consumers.11
Mises also argues that although most monopolies and monopoly prices are made possible by government intervention in the free market (tariffs, licenses, etc.), t