November 2015        

Monopoly capitalism and the Irish economy

Kieran Crilly

Introductory orthodox economics is dominated by the concept of what is called “perfect competition.” This is based on four assumptions. (1) The industry or sector has a large number of small firms that cannot affect the price of the goods if they increase or decrease production. (2) All firms produce the exact same product. (3) It is easy to enter or leave the industry. (4) There is full knowledge of the prices and profits of all firms.
     The reality is different.
     The modern economy is dominated by large firms—monopolies and near-monopolies; and they set the prices for their products.
     All goods in a modern economy are different in the eyes of the consumer, because of advertising and promotion.
     In nearly all industries nowadays there are barriers to entry, so it is difficult for new firms to enter.
     In some instances it is difficult to find out the price being charged: for example the tariffs of gas and electricity companies are so complicated that there are even comparison sites on the internet. The same applies to insurance and to mobile phones. And supermarkets change some of their prices by the day.
     Most students study economics for one year and come away with the idea that the consumer has some say in the economy. We get consumers being urged to “shop around,” even though under a monopoly there is only one firm, and with oligopoly (a small number of firms dominating a sector) firms do not compete on price: they either collude (setting an agreed profit-maximising price) or follow the price set by the leading firm. Computers have made the setting of price to maximise profits easier. Firms (shareholders, through the profits they make) are the main beneficiaries of the economic system.
     Students are taught that price is determined by supply and demand. But only demand exists while price is set by the monopolists and the firms in oligopoly to maximise profit. So supply is not relevant.
     “Perfect competition” is Alice in Wonderland economics, used to hide the real structure of the economy. It is merely pro-capitalism ideology.

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