Ka:

Nferyn, I'm following your debate with interest - but could you explain what a 'coercive monopoly or oligopoly is, just so that I'm clear?

I was actually asking Seun to provide me the context, as the term he used wasn't exactly crystal clear.

Basically, a monopoly that is free of competition or potential competition:

http://en.wikipedia.org/wiki/Coercive_monopoly says,
"a coercive monopoly is a form of monopoly where a firm is able to make pricing and production decisions independent of competitive forces because all potential competition is effectively barred from entering the market. Almost all those who employ the term to label such a state of affairs maintain that it can only be achieved by government intervention, though some note that a merchant can itself engage in coercion to secure a monopoly position. Some use the alternative definition that a coercive monopoly is any monopoly maintained by coercion."

A coercive monopoly is not merely a sole supplier of a particular kind of good or service (a monopoly), but it is a monopoly where there is no opportunity to compete through means such as price competition, technological or product innovation, or marketing; entry into the field is closed. As a coercive monopoly is securely shielded from possibility of competition, it is able to make pricing and production decisions with the assurance that no competition will arise.

In other words, a monopoly that cannot be challenged by competition in the free market. A monopoly that doesn't have to constantly be on its toes to outperform the competition by satisfying customers better.

Could you tell me what in a completely free market prohibits the formation of coercive monopolies or oligopolies? Do I have to accept that on faith alone, maybe?

Can you tell me what in a free democracy prevents the masses from legalizing murder? In both cases, it's theoretically possible for those outcomes to materialize but for some reason they just don't happen. Without government intervention or the use of force, monopolies simply are unable to escape competition. Even if you own all the oil fields in the world, someone else will figure out how to generate ethanol from sugar and power cars with it - if it's legal.

nferyn: No it doesn't. This does not protect people's investments in case of an outright market crash. I know for certain that my money on a Belgian bank is safe, which is not the case for e.g. the US or (probably) Nigeria.

How are your investments in Belgium protected from an outright market crash? Deposit Insurance? We have deposit insurance in Nigeria too - to the tune of 50,000 naira. What if you have more than 50,000 naira - or whatever the bank insurer in your country guarantees - in your account? Then you lose a lot of money!

But do you know that federal deposit insurers don't actually keeps enough funds in reserve to pay off everyone in the case of a market crash? They can only achieve that if a small bank crashes; if a large bank is at risk of crashing the central bank simply creates and lends them enough money to survive. That is usually cheaper than allowing the bank to fail and then attempting to pay everybody off.

The deposit insurance is there just to make you feel that your money is safe. The modern banking system works because people think their money is safe in 'insured' banks. It's a self-fulfilling prophecy. Any modern bank will fail if enough people lose confidence in it.

If a particular bank can't pay off it's debts, the next step is to get a stronger bank to acquire the bank's customers, assets, and liabilities. Perhaps that's what Soludo was trying to achieve indirectly by imposing the new minimum capitalization requirement, but he could have achieved that by threatening to liquidate heavily indebted banks, instead of eliminating all small banks. That is like trying to fight 419 scammers by forbidding all Nigerians from using the Internet. (a government official that doesn't use the Internet might actually consider such a law)

(I think we ought to put this banking discussion on a different thread)

<sacarsm>
I think we need to legalize murder and rape. Any suggestion on how this can work?

_{Now this is a question for the class:}

In what type of government can this be achievable?
</sacarsm>

<sacarsm>
I think we need to legalize murder and rape. Any suggestion on how this can work?

Now this is a question for the class:

In what type of government can this be achievable?
</sacarsm>

My point is that even though it's theoretically possible for that to happen, it never happens in real life. In the same way coercive monopolies and oligopolies are theoretically possible in a free market, but in real life the government always has a hand in their creation. Without the government's help, nobody has succeeded in escaping competition.

Come on Seun, of course I know you don't mean it would happen . But theoretically, it could happen in any of the different forms of government.

Murder happens in US legally. When the executioner turns on the charge on an electric chair on a convict sentensed to death.

Theoretically, it could also happen in a democratic system where about 90% of the citizens have a twisted mentality.

So, what are we saying here? No form of government is better than the other. It all depends on the people being governed. (again, I stand to be corrected)

I don't know how you came to that conclusion [ ] but you have done nothing to prove it. The whole essence of having proper organization is to reward those who bring more benefits to others with more power and influence.

The free market rewards the most efficient producers with more influence through profit, and brings prosperity.

Interventionist governments make cartels and monopolies powerful enough to subvert this wonderful mechanism.

That remains a problem. The less the government intervenes, the more we'll have competition in markets leading to rapid development. Democracy rewards the most popular people, not necessarily the most effective.