≡ Menu

An Entrepreneurial Idea Is an Asset, Not a Source of Monopoly Power

Here’s a letter to the Wall Street Journal; save for my quibble with his use of the word “monopoly,” Richard’s op-ed is truly excellent:


Richard McKenzie is absolutely correct that, were real-world markets what economists call “perfectly competitive,” the instantaneous market entry that is a key feature of this model guarantees that consumers would be poorly served (“Lina Khan Needs to See ‘Shark Tank’,” July 27). If imitators can immediately compete away the profits earned by entrepreneurs who innovatively introduce attractive new products or lower-cost means of production, entrepreneurial innovation would cease. Economic growth would give way to decline.

But it’s unhelpful to call any such temporary competitive advantage won by an entrepreneur a “monopoly.” After all, a true monopoly, which exists when entry into an industry is restricted by government, does indeed harm consumers and slows economic growth. Instead, what Mr. McKenzie (following the unfortunate practice even of many market-oriented economists) calls a “monopoly” is, in reality, a non-durable asset. The entrepreneurial idea for a better mousetrap, or for how to produce existing mousetraps at lower cost, is a spark of entrepreneurial creation unique to the entrepreneur who has it, and for which the entrepreneur receives a just reward not only for having this idea but also for being the first to put it into practice. Because the entrepreneur’s profit doesn’t spring from special privilege, to say that it results from “monopoly” is to unduly smear it.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

Next post:

Previous post: