The Real Monopoly Is in the Boardroom

We have always thought of the problem of monopoly as a problem of size or of markets. We say that Facebook is a monopoly because it is too big, or because it is in the nature of networked markets to reward scale.

But what if the problem of monopoly were really a problem of firm governance?

We don’t hate monopolies in themselves; we hate them for what they do. They charge us higher prices or deliver us lower-quality products. They pay us less or make our jobs harder.

But what a monopolist does is determined not by its size or market position, for these things are just enablers, but rather by how the firm is governed.

The reason a monopolist chooses to charge a monopoly price, rather than the competitive price that it could still charge notwithstanding its monopoly power, has to do with monopoly of a different kind—not of markets, but of the boardroom. For a monopolist to exploit us, the firm’s board must be dominated by an interest or interests that are antagonistic to our own.

That is because, as I argue in a forthcoming book chapter, if all of a monopolist’s potential victims were to have a say in the firm’s governance—thereby breaking the monopoly in governance—then the monopolist would charge competitive prices notwithstanding its power to do otherwise.