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A Critique of Mises's Theory of Monopoly Prices

  • The Quarterly Journal of Austrian Economics

Tags Monopoly and Competition


Volume 6, No. 3 (Fall 2003)

 

The goal of our inquiry here is to add weight to the Rothbardian critique of Mises’s theory of monopoly prices. We do so by highlighting the inconsistencies of the latter’s treatment of monopoly prices and by arguing that it is incompatible with his own general framework of praxeological analysis. In the first part, “Welfare Arguments Based on Value Theory,” we discuss the implicit interpersonal comparisons of utility Mises uses in order to claim that consumers are hurt by monopolistic restriction of production. We argue in the second part, “Propertarian Monopoly Theory,” that monetary revenues can not convey information about comparative consumers’ welfare and that the correct approach to deal with welfare statements is to point out the framework of property rights under which actions are undertaken. Section three, "Monopoly Prices and Information,” is devoted to the proper context of a possible identification of monopoly prices. We focus on this goal by questioning the compatibility between two of the Misesian conditions for the emergence of monopoly price. The final section, “Restriction of Production and Reservation Demand,” examines in what sense the restriction of production allegedly used by the monopolist to extract more money than otherwise from consumers could be the element which allows us to differentiate between competitive prices and monopoly prices. We will argue there that Mises changes the framework of discussion from the real market to an equilibrium construct in order to arrive at a meaningful distinction between market prices and “monopoly” prices.

 

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Costea, Diana. " A Critique of Mises's Theory of Monopoly Prices" The Quarterly Journal of Austrian Economics 6, No. 3 (Fall 2003): 47–62