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GUEST EDITORIAL

The market should handle monopolies, not government

Buy up all the chewing gum companies and you will briefly have a monopoly on chewing gum. Your mighty company will control shelf space in stores, have the muscle to prevent new competitors from getting retail distribution and your control of the industry will allow for large jumps in price per pack.

For a brief while you will become "Big Chewy," having total control of the gum market and being able to offer lousy service, poor value and an inferior product. Sure, you will lose all sorts of casual chewers as customers, but those who simply love gum will be forced to put up with pretty much anything you do if they want to indulge their habit.

Of course, if you push enough customers away and abuse enough who stay, soon you will find that you no longer have a monopoly. Tiny local gum companies, specialty chew manufacturers and other competitors will develop because of your abuse of power.

You will not only lose customers to these new businesses, but you will find former gum chewers trying lollipops, jelly beans and anything else that might provide a similar experience to gum chewing. Treat your customers badly enough and they will actively explore ways to avoid, replace or resist your product.

Breaking your monopoly did not require government intervention. It happened due to free market conditions that occur when one company controls an industry and mistreats its customers.

Competition always emerges from bad service, poor products and lack of choice. Though it takes time, monopolies always fall victim to the free market. They can hasten their own demise by doing a lousy job, but even monopolies that treat their customers well and offer a superior product usually end up with competitors.

No monopoly can control air, shelter, food or any of the other basic life necessities, so government regulation is simply not required. There's no product or service that could be monopolized that the public could not ultimately do without.

Breaking a monopoly by free market evolution does not even require massive customer boycotts. New companies emerge in industries where customer dissatisfaction becomes high even if those customers have not abandoned the original monopoly company.

We've seen this in the cable industry where satellite companies now provide a clear alternative. We're also beginning to see this in the telephone industry where cable companies and Internet-based services compete with traditional phone companies by offering cheaper and more cost-certain products.

A few years ago the idea of paying Under $30 for unlimited phone calls anywhere in the country through a system that works exactly like a regular phone seemed absurd. Now, at least two services, Vonage and Skype, offer exactly that, forcing the former monopoly to lower prices and offer more services.

The lack of consumer choice in any particular area creates an opportunity for entrepreneurs. As soon as one company gains control of a sector, other businesses begin to pop up, which slowly erode that control.

Holding a monopoly has been rendered impossible by technology. No matter what one company owns and how much of an area they control, consumers can simply turn elsewhere and if elsewhere doesn't exist yet, the existence of a monopoly creates it soon enough.

Government regulation of monopolies makes no sense in a truly free market. If a company can gain a monopoly and manage it well enough that no competition springs up, than that company deserves our praise, not an endless series of Congressional hearings.

Daniel B. Kline's book, "50 Things Every Guy Should Know How to Do," is available in bookstores everywhere. He can be reached at dan@notastep.com.

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