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Monopoly


A monopoly owns its market, so it can set its own pricing. Since it has no competition, it produces at the quantity and price combination that maximizes its profit.

Unethical Monopolies: In a static world, a monopolist creates artificial scarcity (political patronage, secures a license from the state, etc.) and becomes a rent collector.

Creative Monopolies: An ethical monopoly is one with Competitive Differentiation, i.e., its so good at what it does that no other firm can offer a close substitute. For example, Google has not competed in search since the year 2000 until OpenAI launched ChatGPT in 2022.

  • The world we live in is dynamic: it’s possible to invent new and better things. Creative monopolists give customers more choice by adding entirely new categories of abundance to the world.
  • Apple’s monopoly profits from designing, producing, and marketing the iPhone were the reward for creating greater abundance, not artificial scarcity: customers were happy to finally have the choice of paying high prices to get a smartphone that actually works.
  • The government knows this and hence we have the patent system.

Footnotes:

  • Zero to One
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