- John is a shoe producer
in a far country of Los Zapatos.
He achieved a significant market position
in an honest manner, i.e.
through offering desirable products to customers,
introducing innovation,
and making sure to be up to date with current trends.
For many years,
he managed to correctly anticipate his clients' tastes
and this has led to huge success and handsome profits.
Unfortunately, success made John a little lazy.
He started to invest a little less in his business.
He was basing on good old bestsellers
rather than seeking for new trends as well.
He certainly didn't expand his business as before,
rather focusing on maintaining status quo.
The competition, however, had a different approach.
When John slowed down,
competitors rapidly expanded.
Both domestic and foreign competitors
increased their market shares
and lured John's clients away with their lower prices
and better quality.
John observed his tumbling sales records with great worry.
He still had a powerful market position,
but he knew something had to be done to maintain it.
He had two choices -
either he could increase his productivity,
once more, focusing on innovation, cut costs,
invest in better capital goods,
or he could simply start lobbying for some regulations
which would constrain his competition.
John chose option number two.
Why? Well, for one, because he could.
And second, because it was much easier
than option number one.
After he made his decision,
he had to think about what should be done
for his plan to be successful.
Oh, but he had so many potential tools to use.
He could, for example,
lobby that the government should grant him
an exclusive license to sell shoes in his country
or mandate people to buy
at least one pair of shoes a year from him.
He quickly realized that this would be excessive
and no one would go for that, not with shoes anyway.
He knew that he must be much more subtle with his demands.
The best option would be to present his demands
in a way that people would think that he cares
not for his profits, but rather about the common good,
about employees, or about customers.
He also knew that he wouldn't be able to be
a sole monopolist,
so he decided to join forces
with the other existing domestic producers
in order to constrain,
maybe even eliminate all foreign competition,
and also to make it almost impossible
for a new domestic competition to emerge.
He presented his ideas to his main domestic competitors,
and when they were on board,
together, they started a Shoe Producers Association
of the Great Nation of Los Zapatos.
John was elected a new President of the Association,
which quickly started working on bill proposals.
The point of the first bill proposal
was to impose a very high tariff on shoe imports.
The explanation was that the foreign competition was unfair
as they used price dumping.
The argument was made that the new tariff
would also save domestic jobs,
which were endangered by foreign competition.
John and other associates gave many TV and radio interviews
in which they were presenting arguments
in favor of the Bill's proposal.
They wrote articles, statements and declarations,
and tried to convince local politicians of their cause.
The clients were very much against this proposal,
as it would limit their possible choices
but their voice wasn't heard enough.
After all, it wasn't as if they were
in some kind of consumer association.
The shoe producers thus won, and the new bill was passed.
From now on, if a consumer wanted to buy shoes,
he had to go to a domestic producer
because the foreign competition's products
were too expensive due to tariffs.
So, that is one of John's problems solved.
There was one more problem, however.
John knew that the lack of foreign competition
would lead to higher profits for domestic producers
and higher profits would eventually lead
to new domestic competition.
Blocking new domestic competition
was harder than blocking foreign competition.
In the case of foreign competition,
the association could invoke job-saving
or unfair competitive advantage as an argument,
but it wouldn't make sense
in the case of new domestic competition.
John proposed a different approach
and said that bad shoes are a cause of various afflictions
which is not the case for quality shoes.
And because everyone should want to have good quality shoes,
shoemaking should be licensed
and shoes certified to make sure that client's feet
would be protected from bad producers
who produce low-quality shoes.
Licensing would not be free, of course, quite the opposite -
it would be very expensive. And if anyone wanted licensing,
they would have to fulfill some harsh requirements.
The requirements were to be set
by the Shoe Producers Association
of the Great Nation of Los Zapatos,
as they were clearly the experts on this matter.
The certificate would be granted
by the special commission
in which members of the association
would participate as well.
From now on, new shoe producers
would have to follow detailed instructions
during the production process
to have a chance to get a certificate,
and sales without the certificate would be forbidden,
for the good of the customer, of course.
The association once more created a bill proposal,
which quickly passed,
because who wouldn't want to protect the customers
from low quality shoes?
John and the other old producers
could afford to buy an expensive license,
but unfortunately, the cost was too big for the new players.
This effectively discourage potential competition.
Luckily, John and the old players
met every production requirement
that they themselves created,
so their shoes could be certified.
This was a smart move from John because he started small,
and although he always cared very much
about the quality of his product,
it took him years to meet all the high requirements
that the association now imposes on everyone.
Thus, he knew very well
that this would discourage potential competition even more.
Of course, John would never admit publicly
that his ideas had anything to do
with discouraging the competition.
He would always talk about the good of the customer
and his healthy feet.
And that's how John and the others created a monopoly,
or should we say oligopoly in Los Zapatos?
From now on,
someone who wanted to enter the shoe manufacturing market
would have to have a huge determination
and much higher financial means.
Entry barriers went up significantly.
Who gained and who lost?
The obvious benefactors of these monopoly privileges
are John and the old domestic producers.
They can rest easy that a new domestic or foreign competitor
is very unlikely to emerge.
They will be able to achieve monopoly price if their,
as Rothbard writes, "Demand curve is inelastic,
or sufficiently less elastic, above the free market price."
It is possible that John's employees would also benefit
as they would keep their jobs otherwise lost
if John would've lost his market position.
Who loses?
The foreign competition who are blocked by the high tariff.
Also, potential domestic competition
as the entry barrier is much, much higher,
and the customers who now have less choice
and pay higher prices due to the low shoe supply
and/or monopoly prices.
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