Government-granted Monopoly - Criticism

Criticism

Opponents of government-granted monopoly often point out that such a firm is able to set its pricing and production policies without fear of breeding potential competition. They argue that this causes inefficiencies in the market place, such as unnecessarily high prices to consumers for the good or service being supplied (government-imposed price caps might avert this problem, however, it is still possible that competition would supply the good or service at a lower price). One historical example of this is the government-granted monopoly in steamboat traffic operated by Robert Fulton. The New York legislature granted Fulton the privilege to be the sole provider of all steamboat traffic for thirty years. Competition was forbidden by law. Thomas Gibbons, a steamboat entrepreneur, hired Cornelius Vanderbilt to ferry passengers for a cheaper fare in defiance of the law in an attempt to compete with Fulton for about six months. In 1824, in Gibbons v. Ogden, the Supreme Court struck down Fulton's government-granted monopoly ruling that states cannot legally regulate interstate commerce. Steamboat fares almost immediately dropped from seven to three dollars after the decision and traffic increased dramatically. Fulton was unable to successfully compete with the low fares offered by Gibbons and Vanderbilt, which resulted in his bankruptcy. (The Myth of the Robber Barrons, by Burton W. Folsom Jr.)