The great thing about competitive markets is not that marginal utility sets prices, but that rivalry among sellers drives prices below the level that approximates many people’s marginal utility. This produces a consumer surplus. (How far below is governed by producers’ subjective opportunity costs, including workers’ preference for leisure.) We all have bought things at a price below that which we were prepared to pay. . . . In a manner of speaking, competition socializes consumer surplus.
On the other hand, in the absence of competition a coercive monopolist is able to charge more than in a freed market, capturing some of the surplus that would have gone to consumers. That’s a form of exploitation via government privilege.
Read the rest of TGIF here.