There are few things in economic and political discourse that people hate more than monopolies. Everyone loves a good monopoly slander. When we advocate for free markets, they respond with cries of “monopolies will take over and hike prices beyond reason”. And they bring up predatory pricing and other such myths wrongly associated with monopolies.
Does the free market truly breed monopolies?
The answer depends on who you ask. I would say no, but it’s hard to verify, because no truly free market exists in the world. A true free market is – as the name implies – free of all state intervention. No taxes, no regulations, no price controls, no state money, no subsidies, no government intervention whatsoever. In this kind of free market, I would dare say monopolies are impossible. This is because if there’s no government to impose regulations, barriers to entry, high taxes and other such requirements, then smaller companies can either take out loans, or merger with other small companies to compete with big business.
This is where the false “predatory pricing” argument is usually trotted out. Anti-free marketeers argue that monopolies can sell below market prices to drown out smaller competitors who will be forced to suffer losses when they do this. That sounds logical at first, till one realises there little stopping the smaller firms from ceasing their operations and buying from the monopoly that foolishly sells at a lower price, repackage and turn a profit. This “predatory pricing” of the monopoly becomes an advantage to smaller firms; and since the monopolies can’t take losses for too long, they will be forced to resume selling at the market price – at which point the smaller seller resume their production and continue to compete as they were doing before.
A hypothetical free market monopoly
For the sake of argument, let’s say that a monopoly was somehow able to exist on in a truly free market. It’s very unlikely, but not entirely impossible that one firm is so efficient at the production of a commodity, that their efficiency makes it so impossible for other competitors to rise. Let’s say they had a trade secret that greatly lowered their costs while maintaining excellent quality.
This advantage would help them sell at prices lower than potential competitors. Is this not good for the consumers? Is excellent quality at cheaper prices not what all consumers desire? Would this kind of monopoly – if it could exist – not be a blessing? Would anyone rather have more companies in the market, but with higher prices? Would that not be insanity? The point is, even if such a monopoly exists, it need not be exploitative.
I’ve already established why it would be unprofitable for this hypothetical monopoly to raise its prices, so no need to go over that again.
[Exploitative] monopolies – a creation of government
Contrary to what people think, monopolies – the kind that exploit consumers – aren’t the product of free markets. They are typically sustained by government intervention. In open competition, dominance is fragile. If a firm raises prices or lowers quality – as explained earlier – they create room for competitors to undercut it. Without protection, long-term monopoly power is difficult to maintain.
With state support, firms no longer need to win through better products or lower prices. They can reshape the rules instead. Why compete when regulation can secure your position more reliably?
Licensing is a clear example. Presented as consumer protection, it often functions as a barrier to entry. High fees, complex requirements, and long approval processes hit smaller firms hardest. Large firms absorb these costs. Smaller ones don’t survive them.
The same pattern appears in taxation and compliance. Layered costs – permits, reporting, inspections – don’t affect all firms equally. They scale in ways that favour size and connections. What looks neutral on paper becomes exclusionary in practice.
Even anti-trust enforcement can work this way. Preventing smaller firms from merging can block them from pooling resources to challenge bigger players, leaving them exempt.
When success depends on political access, firms shift effort from serving consumers to securing advantage.
Under these conditions, monopolies are direct policy outcomes, not “market failures”.
The state as the ultimate monopoly – and the selective outrage
Interestingly, those who rail against monopolies rarely apply the same standard to the one institution that holds coercive monopoly power by design: the state itself. It is, by definition, a compulsory monopoly over the use of force within a territory. No competitor may enter the field of law enforcement, taxation, or adjudication. There is no market discipline here, no exit option for the consumer, and no alternative provider to whom to turn.
Yet, the same voices that condemn fictional market dominance will defend this arrangement without hesitation. They demand “breaking up monopolies” in business while ignoring that the state already monopolises the most fundamental services: law enforcement, courts, currency issuance, national defence, and large portions of infrastructure provision such as roads. These are not minor sectors; they are the core functions of governance itself, held exclusively and enforced by law.
The problem is not merely theoretical. When a provider of any service is shielded from competition, the feedback mechanisms that normally correct inefficiency weaken. Costs can rise without the pressure of substitution. Quality can stagnate without the threat of exit. Innovation becomes slower when entry is prohibited rather than earned. Firms in competitive markets must justify their existence continuously. Monopolised institutions do not face that same requirement.
This is the hypocrisy in public discourse: monopoly is condemned in private enterprise but ignored or even extolled in public administration, even when the latter holds far broader and more consequential authority.
If monopoly power is inherently dangerous in markets, then its acceptance in the political sphere demands a far more serious justification than is usually offered.
Econ Bro (@EconBreau and @EconBreau2 on Twitter/X) is a Nigerian Austrolibertarian economist and an apprentice at the Mises Institute. Under the organisation name “The Freedom Institute” he teaches individual liberty, personal responsibility, private property rights, free markets, and sound money to mostly young people across Nigeria. Econ Bro is an Associate of the Free Market Foundation.
