How Does a Free Market Prevent a Monopoly

Topics: Free market, Market economy, Mixed economy Pages: 4 (1256 words) Published: July 29, 2012
'How Does a Free Market Prevent a Monopoly?'

We often listen to this statement that there are no monopolies in a free market or a free market prevents monopolies. Though there are some arguments about if the statement is completely true and, if a government plays a part in making or preventing a monopoly. To understand and to validate the statement first we need to understand few terms used in the statement and concepts of market.

Types of market economies
There are majorly four types of market economies namely:
* Free-Market Economy (or Liberal Market Economy)
An economic system comprised mainly of privately-owned enterprise (businesses), low levels of regulation and relies heavily on the free-price system to allocate resources. This is distinguished with a planned economy based on private enterprise.

* Social Market Economy
A free-market system that utilizes heavy taxation and regulation and recognizes organized labour at the national level, but relies on the free-price system rather than economic planning to allocate goods and services.

* Market Socialism and Socialist Market Economies
An economic system comprised of state-run or worker-run enterprises and either a free-price system or a directed and regulated market to allocate resources. This is distinguished with a socialist planned economy.

* Mutualism and Cooperative Markets
A form of participatory economics where enterprises are run as worker and consumer cooperatives (socially-owned) which compete with each other in a market economy. This is distinguished from participatory and cooperative planning.

To describe free market economy in a nutshell, it is the kind of economy in which the system of prices is a result of a vast number of voluntary transactions, rather than of political decrees as in a controlled market. The freer the market, the more prices will reflect consumer habits and demands, and the more valuable the information in these prices is to all players...
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