The theory of monopoly price has been generally superseded in the literature by the theories of “monopolistic” or “imperfect” competition.71 As against the older theory, the latter have the advantage of setting up identifiable criteria for their categories—such as a perfectly elastic demand curve for pure competition.

Perhaps the most important conclusion of the theory of monopolistic or imperfect competition is that the real world of monopolistic competition (where the demand curve to each firm is necessarily falling) is inferior to the ideal world of pure competition (where no firm can affect its price). This conclusion was expressed simply and effectively by comparing two final equilibrium states: under conditions of pure and monopolistic competition (Figure 70).

It might be asserted that labor unions, in exacting higher wage rates on the free market, are achieving identifiable monopoly prices. For here two identifiable contrasting situations exist: (a) where individuals sell their labor themselves; and (b) where they are members of labor unions which bargain on their labor for them. Furthermore, it is clear that while cartels, to be successful, must be economically more efficient in serving the consumer, no such justification can be found for unions.

A favorite reply of union advocates69 to the above analysis is this: “Oh, that is all very well, but you are overlooking the indeterminacy of wage rates.

It is often alleged that the buyers of labor—the employers—have some sort of monopoly and earn a monopoly gain, and that therefore there is room for unions to raise wage rates without injuring other laborers. However, such a “monopsony” for the purchase of labor would have to encompass all the entrepreneurs in the society. If it did not, then labor, a nonspecific factor, could move into other firms and other industries. And we have seen that one big cartel cannot exist on the market. Therefore, a “monopsony’‘ cannot exist.