Ludwig von Mises, Monopoly Prices (1998)

Ludwig von Mises’s Monopoly Prices develops a theory of profitable supply restriction and examines its consequences for consumer choice and economic policy. Its central distinction separates exclusive control over a good from the ability to obtain monopoly gains. Neither a unique product nor a dominant market position establishes that withholding output will be profitable.

It is customary to distinguish between competition and monopoly. This distinction suggests the idea that in the case of monopoly there is no competition at all.

Mises challenges this implication by emphasizing competition from substitutes and alternative uses of consumers’ purchasing power. Even an exclusive supplier remains constrained by demand. Monopoly pricing requires circumstances in which restricting supply increases net receipts, together with obstacles preventing other producers from offsetting that restriction.

If someone else is free to increase output, an individual can increase his profits only by increasing output, not by restricting it.

The analytical question is therefore not simply how many sellers exist, but whether competitive expansion can defeat a restrictive pricing policy. Transport barriers, specialized resources, legal privileges, and temporary obstacles to entry matter insofar as they establish this condition. Oligopoly and duopoly enter the analysis as possible arrangements for securing monopoly prices, not independent explanations of price formation.

Mises’s numerical examples distinguish feasible monopoly prices from the most advantageous price, accounting for costs and incomplete control over supply. These calculations illustrate relationships without implying that sellers know demand in advance. Monopolists must anticipate buyers’ reactions and revise their decisions through experience.

We see therefore many abortive attempts to embark upon a monopolistic price policy which the reaction of the public frustrates.

This uncertainty qualifies the apparent power of exclusive suppliers. It also reinforces Mises’s distinction between entrepreneurial profit and monopoly gain. Entrepreneurial profit rewards successful anticipation and the direction of scarce resources toward more urgent demands; monopoly gain depends on a restriction that competitors cannot undo. Prices above costs, product differentiation, and unused capacity do not by themselves demonstrate monopoly pricing. Increasing a particular output may consume resources that buyers value more highly elsewhere.

This distinction informs Mises’s criticism of imperfect-competition theory, especially Joan Robinson’s. Static equilibrium can clarify theoretical relationships, but he rejects its elevation into a normative standard for changing markets. Entrepreneurial profit disappears in a stationary model, whereas monopoly gain can persist. Actual competition includes differences in quality, location, variety, and service, not merely price reductions for identical products. Price discrimination likewise requires separate analysis: it can occur competitively and may serve buyers excluded by a uniform price.

Mises nevertheless identifies a substantive injury in monopoly pricing. His benchmark is the allocation of resources according to consumers’ valuations.

Under the profit motive, the consumers, on a competitive market, decide how much raw material and labor should be used for the production of copper or shoes and how much for the production of some other merchandise.

Profitable restriction weakens this direction of production by consumer demand. Mises distinguishes the productive advantages of large-scale enterprise from gains obtained through cartel restraint. Competition can reward efficient scale, while cartels may preserve costly plants through proportional output reductions. His discussion of resource conservation adds a qualification: those who favor reduced extraction for future generations cannot consistently oppose every restriction of mineral output.

The institutional argument attributes the broad extension of monopoly pricing principally to policies that protect restrictive arrangements, including tariffs, licensing restrictions, exclusive franchises, and intergovernmental commodity agreements. Mises differentiates these mechanisms: competence requirements need not restrict entry, trademarks can assist consumer judgment, and patents and copyright raise further policy questions. He also acknowledges monopoly pricing without governmental support, particularly where transport costs or concentrated natural resources obstruct competition.

The work combines a narrowly specified economic mechanism with a wider critique of intervention. Its central contribution is to make profitable restriction, demand conditions, and barriers to competitive expansion decisive—not size, uniqueness, or profit alone. Its political conclusion directs criticism toward institutions that sustain restraint while governments publicly condemn monopoly.