Studying economics is like playing a video game: you have to pass level after level. The very first boss fight you encounter is “monopoly.” If you can’t get past the monopoly boss, you’re never truly entering the realm of economics.

Today’s article is so incredibly long—almost half a book—dedicated solely to dismantling the countless misconceptions about monopolies in the market. If you don’t have enough time prepared, don’t even start reading.

Can Internet companies really make monopoly profits?

Thinking is always the starting point for seeking truth, and thinking originates from questions. So, let’s drop the theoretical baggage and dive right into some real-world business questions.

Over the past decade, we’ve often heard business gurus talk about a supposedly brilliant strategy: “First, get traffic by giving stuff away for free, then expand your market, and finally enter a profitable harvesting phase.” Behind this idea is actually the theory of monopoly—they believe that once they’ve cornered the market at a loss initially, they can later jack up prices and reap huge profits.

But does this really work? Let’s analyze it through a simple example.

Imagine opening an internet café aiming to monopolize an entire city’s market. You start by dropping prices drastically, undercutting all competitors until they’re forced out of business, and then later raise prices to make money. Sounds plausible, right? Isn’t this exactly what companies like Didi did?

But hold on—why don’t we see people doing this with internet cafés or countless other businesses? Why isn’t everyone copying this “perfect” strategy?

Suppose the going rate for internet cafés is currently $3/hour, and you slash it down to $1/hour. Would you really think competitors vanish instantly? If that’s your assumption, you’re probably not cut out for business. Customers choose based on many factors, price being only one.

Now imagine you own an internet café facing a competitor’s aggressive low pricing. What would you do? Personally, I’d upgrade my café—introduce gaming teams, promote social networking, and even raise prices by offering better services, targeting customers willing to pay more.

If the attacking business tries to copy and again cuts prices, another café could always adapt—like opening a “girls-only” café with cute décor, no smoking, and no men allowed.

What happens next? Endless new business models appear as the market evolves, forcing the aspiring monopolist to constantly adapt and follow these innovations, always cutting prices again.

Eventually, imagine all major competitors collapse, leaving you alone. Congratulations, now you have a real problem: Can you even make money?

You’ve spent a fortune upfront—say, a billion—to drive competitors out. How do you recoup it? If you raise your price to $5/hour, expecting to earn back quickly, you’ll swiftly lose half or more of your customers due to basic supply-demand economics. It’s like delivery companies simultaneously raising fees to $20 per order—people will just eat downstairs instead.

If you restore prices to the original $3/hour, you’ll retain existing customers but lose the extra customers who only came at $1/hour. Now you’re left with bigger stores, higher rent, and higher electricity bills, but the same revenue as before—meaning you’re actually losing money!

And that’s not your only headache. After a prolonged price war, customers now consider $1/hour the “reasonable” price. Raise it back to $3, and many original customers won’t return.

Moreover, original café owners weren’t killed—they simply exited temporarily. They’ll quickly re-enter the market, competing effectively because their costs are lower. Your elaborate management structure, numerous branches, and higher overhead put you at a disadvantage.

The smart move here? Slightly raise prices to maybe $1.50/hour and find alternative ways to make money—like beverage sales or promoting online games. Still, you likely won’t fully recover your investment, merely delaying bankruptcy.

See? A theory of monopoly that sounds powerful inevitably ends up in bankruptcy when applied practically. Don’t believe it? Give it a try!

But wait, some might argue this only fails because internet cafés have high marginal costs. Marginal cost is the cost of adding new customers—like renting larger spaces and buying more equipment.

Internet businesses are different, they say, with near-zero marginal costs. Take Didi (the ride-sharing app). It’s essentially software, connecting drivers and passengers. Scaling up merely requires more servers, cheaply accommodating millions.

However, even here, let’s critically analyze. After beating competitors like Uber, Didi spent over $20 billion securing market dominance. How can Didi recoup this massive investment? Raising ride prices or increasing driver commissions? Either move shrinks their market or drives away drivers, ultimately spiraling down to losses, not profits.

Despite huge market shares, Didi reported staggering losses—24 billion yuan in Q2 2021, 30 billion yuan in Q3. People wonder, “How could you lose money with millions of daily transactions and a hefty commission?”

Even giants like WeChat don’t charge annual fees, despite near-total market dominance. Imagine WeChat charging $15/year per user (for 1.2 billion users, that’s massive revenue!). Yet Tencent doesn’t do this. Why not? It risks driving users away to competitors who would quickly capitalize on any discontent.

WeChat tried diversifying—e-commerce, short videos—without success, despite enormous user bases. Similarly, Baidu, dominating search engines, can’t monetize effectively either, losing money even as the dominant player. Facebook, with billions of users globally, desperately chases metaverse dreams instead of simply raising prices—why?

Ironically, these companies are monopolists yet constantly worried about their survival. To fully understand this paradox, we must revisit monopoly theory itself, grounded firmly in real-world business thinking.

What Exactly Is a Monopoly Anyway?

Earlier, we raised a critical question from both practical business and economic theory perspectives: Why do supposed monopolies in real life not end up raising prices, and why do Internet companies stay free for so long? To figure this out, we first need to understand what a monopoly actually is.

Imagine a world with no kitchen knives. Now, some genius invents one—and he’s the only person with the unique skill to make knives, impossible for anyone else to copy. But instead of mass-producing, he chooses to make just one knife per day, because frankly, drinking and chasing girls is way more fun. People line up at his doorstep, bidding astronomical sums for that single knife. This scenario perfectly represents the traditional monopoly theory: intentionally reducing production rather than meeting consumer demand.

Now, imagine his brother learns the craft too. They talk it over and say, “Why produce more? One knife each day is enough. Let’s set the same price and party every day!” Voilà—they’ve created a cartel.

If they go a step further and merge their businesses, making two knives a day together but keeping the fun alive, they form what’s known as a trust—a unified monopoly.

Suppose they don’t merge fully, but hire their dad to handle all purchasing and selling, leaving them free to party. That’s called a syndicate—two companies losing their commercial independence.

Then there’s a fancier form called a concern (Konzern), where the brothers merge not only their knife-making businesses but also suppliers of knife handles and racks—creating a full industry monopoly.

They even go ahead and patent their special knife-making process. Now, even if someone figures it out, they legally can’t produce knives without permission—a patent monopoly.

Eventually, these guys decide to expand production and capture 90% of the knife market, becoming known as “market share monopolists.”

They could also lobby the emperor to issue an exclusive knife-making license, imprisoning anyone else daring to compete—this is administrative monopoly or regulated market entry.

Finally, suppose the raw material to make knives exists only in the brothers’ private mine. Even if someone learned the technique, they’d have to buy materials from these brothers—a resource monopoly.

Confusing, right? With all these different definitions, “monopoly” gets really muddled. Let’s simplify by returning to the term’s origins.

Prof. Weiying Zhang once said that the original term “monopoly” meant government-granted exclusive rights, like Britain’s historic royal charters (think East India Company). His suggested go back to monopoly’s original meaning.

Nowadays, however, the meaning has shifted. A “monopoly” typically means a single seller dominating a market, free to adjust prices or output (but never both at once).

The distinction is significant. Initially, “monopoly” described a specific government-granted privilege—an action. Modern usage includes both the state of being the sole provider and the actions taken to maintain that dominance.

Think of your village having only one barber—that’s simply a description of circumstances. It doesn’t imply the barber did something wrong, nor did the village chief. Let’s look at the world’s first anti-monopoly law: the Sherman Act.

Passed in 1890 by Senator John Sherman, the Sherman Act outlawed trusts—agreements or conspiracies restraining trade. Essentially, two brothers independently making knives isn’t illegal, but if they merge to dominate the knife market, that’s illegal. The Sherman Act targeted market dominance itself as a crime.

Then, in 1914, the Clayton Act added further restrictions. Even actions that might potentially harm competition—like price discrimination, collusive pricing, commercial bribery, or predatory acquisitions—became illegal. Unlike the Sherman Act, the Clayton Act focused on preventing monopolistic behavior before it occurred.

All modern antitrust laws derive from these two American laws. Originally, monopoly meant government-granted privileges; now it refers broadly to market dominance.

Even Karl Marx defined monopoly as a few giant capitalist enterprises dominating production and markets. Clearly, since the 18th century, intellectuals have viewed monopoly simply as market dominance.

But confusion persists. Some argue “administrative monopoly” (government-controlled market entry) is the only harmful monopoly. For instance, telecom in China is dominated by three firms—not technically a monopoly, but still restricted by administrative measures.

Similarly, doctors licensed by the government aren’t monopolists individually—they don’t control the entire market.

Today, mainstream thinking defines monopoly as market dominance, not just government privileges. Thus, for clarity, we’ll also define monopoly as market dominance going forward.

But does genuine market dominance really exist?

Say your community has only one convenience store; to buy cigarettes, you must go there. Monopoly, right? Or your village has only one barber. Seems simple, but it’s actually complicated.

Microsoft faced endless antitrust lawsuits, but argued they never monopolized the broader market—sure, they dominated PC operating systems, but what about fax machines or office equipment? They were just a small player in a much larger market.

Similarly, Didi (Chinese: 滴滴) once dominated nearly 100% of China’s ride-sharing market after buying Uber. But expand the scope slightly—traditional taxis still compete. Broaden further, and competitors include public transport, bikes, or even walking!

And here’s the kicker: your biggest competitor might even be your customers themselves. If Didi becomes too expensive, customers buy cars or scooters, turning from consumers into competitors.

Imagine a karaoke brand owning every karaoke venue nationwide—still not a true monopoly if viewed as part of broader entertainment options like dancing, card games, or even foot massages!

The concept of absolute market dominance is almost impossible because defining the exact “market” is tricky. Thus, Western governments usually challenge monopolies based on their unfair tactics rather than mere market dominance.

Even that one village barber, seemingly dominant, can’t simply raise prices arbitrarily. Customers might just stop cutting hair, shave heads, or cut hair at home. In the U.S., many Chinese immigrants avoid expensive haircuts entirely, preferring DIY methods. Raise prices too much, and suddenly customers become competitors!

The same logic applies to ride-sharing. If fares triple from Guangzhou to Dongguan, thousands of office workers will suddenly become drivers, rapidly pushing prices back down. If Didi tries raising prices significantly, customers quickly turn to alternatives like metro or personal vehicles.

People often blame Didi’s price hikes on their dominance—but regulatory changes limiting drivers are the real culprit, reducing supply and increasing prices. Real-world substitutes almost always limit monopolies from exploiting prices.

WeChat is a perfect example. With nearly 100% market share in Chinese messaging, they still don’t charge annual fees—why? Because competition lurks constantly. Competitors like DingTalk(Chinese: 钉钉) would instantly pounce, offering free alternatives if WeChat charged fees. Users have minimal loyalty and would quickly switch platforms.

Even if WeChat users remained loyal despite fees, competition still looms. Apps like TikTok compete differently, capturing user attention and advertising dollars by monopolizing user time. Users spending hours on TikTok means less attention for WeChat’s ecosystem, threatening its dominance indirectly.

Thus, monopolistic Internet companies constantly anticipate where competition might emerge. Rather than resting on user bases, they continuously innovate, anticipating threats from unforeseen angles.

Returning to our original question: is “monopolizing the market” a viable business strategy? Not really, because pure monopolies essentially don’t exist. Saying “companies aim for monopoly” is meaningless if market dominance itself is impossible.

So, how can Internet startups compete against giants like Alibaba or Tencent?

Think about it: Who are these giants’ real customers? Not consumers—they pay nothing—but businesses, advertisers, and service providers. New competitors don’t have to replicate Tencent’s ecosystem; they just need to divert advertisers away. ByteDance’s TikTok, for example, steals ad revenue previously destined for Alibaba and Tencent.

Just as unexpected mediums like elevator advertising screens once disrupted traditional media, new challengers disrupt established giants by changing the rules, not replicating dominance.

Some friends argue government monopolies, like salt or iron monopolies, can set prices at will and rake in massive profits. Is that true? Actually, no. Government monopolies also struggle to profit sustainably, which we’ll explore next.

Government Monopolies Don’t Generate Huge Profits

Many critics of monopolies point out that government-controlled monopolies—like electricity, oil, or tobacco—can supposedly do whatever they want: jack up prices at will and make outrageous profits.

Let me make it crystal clear first: I’m absolutely not defending state-owned monopolies. In fact, I strongly oppose them. But here’s the thing—criticizing government monopolies for making massive profits simply misses the mark. The real harm of these monopolies isn’t necessarily huge profits.

If you genuinely believe that state-run monopolies rake in endless cash, then why aren’t you buying their stocks? Shouldn’t their performance be skyrocketing?

For many Chinese investors, November 5, 2007, is a day they’ll never forget. On that infamous day, PetroChina—touted as “Asia’s most profitable company”—made a spectacular entrance onto the A-share market at a peak price of ￥48.6 per share, instantly becoming the world’s most valuable company by market cap. But, just like a fireworks show, it quickly fizzled out, tumbling to around ￥5–10 today, burying countless investors in the wreckage.

See? The belief that government monopolies automatically equal profits has cost investors dearly. Messing up basic economics in the stock market can cost you your shirt.

Government monopolies are essentially a mix of two problems: state ownership plus government-granted exclusivity. These compound issues deserve separate attention, but let’s start by focusing on government-granted exclusivity (administrative monopolies).

Government monopolies usually take a few common forms:

1. Licensing: Governments grant special licenses allowing only one or a few companies to operate in certain markets. Think taxi licenses, telecom providers, payment processors, or even small convenience stores (with food licenses).
2. Patents: Exclusive production rights in exchange for disclosing technological details publicly. Suppose one company owned all cellphone-related patents—voilà, instant monopoly!
3. Professional Licensing: Similar to business licenses, but for individuals. Want to be a doctor, barber, or even electrician? Better have that license, or else face legal trouble.

But do government monopolies automatically mean higher profits? Not necessarily. Let’s break it down.

The most famous historical government monopoly was salt and iron, originating back in ancient China. From the state-controlled salt and iron monopolies started by Guan Zhong in the Spring and Autumn period, to the harsh enforcement under Qin and Han dynasties, this practice lasted for centuries.

The Qing dynasty relied heavily on “salt certificates” (licenses) sold to merchants. Merchants would pay the government upfront, then resell salt to consumers. Sounds profitable for the government, right?

Well, here’s the catch: salt was so expensive under this system that many people simply went months without salt, enduring tasteless food rather than paying inflated prices. This demonstrates a core misunderstanding—critics think salt is an absolute necessity with zero elasticity (meaning demand won’t decrease when prices rise). But reality showed otherwise: people drastically cut consumption.

Imagine if water prices jumped to $1,000 per ton—you’d suddenly find ways to reuse every drop. The same happened with salt: sky-high prices meant far fewer buyers.

Salt monopolies weren’t about the government directly controlling every step; they were essentially licensing systems—just disguised taxes. Eventually, Qing officials recognized this inefficiency. They simplified the system, reduced taxes, and opened the salt trade to more merchants. The result? Lower prices, increased sales, and ironically, more tax revenue.

Thus, ancient salt monopolies weren’t state-run businesses aiming for maximum profit—they were crude taxation tools, nothing more. Confusing ancient salt monopolies with modern government monopolies is a longstanding mistake by scholars. It’s like comparing apples and oranges.

Even if a government imposes insane import tariffs (say, 10,000% on cars), the result isn’t more tax revenue; it’s no revenue. Nobody will import cars at that price. Economics 101: higher prices always change consumer behavior.

Today, many believe government monopolies like China Tobacco, Sinopec, or China Mobile rake in obscene profits because they lack competition. But that’s simply wrong.

Take Sinopec: In 2020, it had a whopping ￥2.11 trillion in revenue, yet net profits were only ￥33.1 billion —a pathetic profit margin under 2%. With total assets of ￥1.8 trillion and massive debts, the returns were actually worse than just parking the money in a savings account!

China’s State Grid(SGCC) tells a similar story—nearly ￥2.66 trillion in revenue, yet less than 2% profit margin. Even China Tobacco, despite huge revenues, lumps taxes and profits together, obscuring true profitability. Meanwhile, the China Railway Corporation and many state-run highways constantly lose money.

Are these companies intentionally sacrificing profits for public welfare? Not exactly. If so, why would anyone buy their stock? Of course they want profits, but why can’t they earn more?

It’s simple: customers always have alternatives. Even with zero apparent competition, customers adjust behavior when prices get too high.

Imagine gasoline prices suddenly hitting $100 per liter. What would happen? You’d quickly abandon your car, switch to public transport, or simply stop driving altogether. Suddenly, the gas monopoly’s profits would evaporate.

Even tobacco monopolies face substitutes: if cigarette prices skyrocketed, people would shift to homemade tobacco pipes or quit altogether. Price too high? Quit smoking overnight—problem solved.

Some worry about monopolies on essential goods, claiming people have no substitutes. But seriously—no toilet paper available? Humans have been creative for centuries: leaves, sticks, textbooks…just ask people in India who famously rely on their hands. “Essential”? Don’t make me laugh LMAO!

Same with electricity: if power prices skyrocketed, people would drastically reduce usage—candles would become popular again. Thus, monopolies cannot endlessly increase prices because consumers adapt and limit demand.

The real harm isn’t prices—it’s that licensing restricts consumer choice. Under a free market, businesses succeed because consumers freely choose the best service or product. But under a license system, the government—not the market—decides who supplies goods and services. Consumers lose opportunities to express diverse preferences.

Imagine if the U.S. government had chosen Microsoft as the only allowed operating system provider. Consumers wouldn’t necessarily pay more, but we’d miss innovations from Apple or Google. Licensing stifles variety—no small gasoline delivery trucks pulling up to your house, no premium car services outside of regular taxis.

In short, the biggest loss under government monopoly isn’t necessarily high prices, but the disappearance of diverse consumer choices and innovations. Licensing doesn’t restrict quantity supplied, only the number of suppliers, and as long as companies seek greater market share, they’ll continue supplying more, reducing prices.

Companies like Sinopec or China Tobacco suffer from two separate problems: government licensing and state ownership. These must be understood independently. Mixing them together leads to muddled thinking and poor economic understanding.

Bottom line? Government monopolies rarely produce the immense profits people imagine. Their damage isn’t just financial—it’s the loss of variety, innovation, and consumer freedom.

Patent Monopoly and the Innovation Paradox

Now, we’ve tackled whether internet firms can truly profit from monopolies, examined the blurry concept of market dominance, and debunked the myth that government monopolies rake in huge profits. Now let’s dig into patent monopolies.

Whenever we discuss patent monopolies, there’s one famous company we can’t skip: Alcoa (Aluminum Company of America), a landmark in antitrust history.

Humans discovered aluminum in 1807, but it took decades to figure out how to produce pure aluminum cheaply. Finally, in 1886, Charles Hall invented the electrolytic aluminum production process, obtaining a patent by 1889. With this patent, he founded Alcoa and instantly became the sole player in the aluminum market.

Now, imagine you’re the boss. Would you jack up prices to enjoy huge margins, or lower them continuously to expand your market? Let’s look at some figures. Alcoa’s daily aluminum output was just 50 pounds in 1889. By 1937, nearly 50 years later, that number surged to a million pounds daily. Prices plummeted from $8 per pound in 1887 down to just 15 cents by 1941.

Wait, isn’t a monopolist supposed to reduce production, raise prices, limit innovation, and shrink consumer choices? But Alcoa did exactly the opposite—expanding output, lowering prices, and promoting aluminum usage everywhere.

Why on earth did Alcoa behave like this? Remember our earlier profit calculation? Let’s crunch the numbers again.

In 1889, at about $10 per pound (rounding up), daily revenue was just $500. By 1941, even at just 15 cents per pound, daily revenue skyrocketed to $150,000 (1 million pounds x $0.15). Even if profits were only 10%, that’s $15,000 daily—way better than squeezing profits from limited production at high prices. Any smart businessman would choose $15,000 daily over just $500, right?

So, Alcoa—a company operating under government-backed patent protection—didn’t raise prices when competition was absent. Instead, driven by the desire for greater profits and bigger markets, it voluntarily lowered prices and expanded production. Had they stubbornly stuck to $10 a pound, could they have earned $15,000 daily? Nope. Price increases inevitably shrink demand—basic economics 101.

Eventually, the U.S. government broke up Alcoa. After enacting the Sherman Antitrust Act, the government sued Alcoa in 1937. Over four exhausting years, 155 witnesses testified, 1,803 pieces of evidence were collected, and more than 58,000 pages of legal documents piled up. The goal? To accuse Alcoa of illegal monopoly.

Initially, the district court ruled in Alcoa’s favor, declaring them innocent. Unsatisfied, the U.S. government appealed, and the Supreme Court eventually accepted the case.

The core issue? Whether having overwhelming market dominance alone constitutes an illegal monopoly. Judge Learned Hand famously declared: “Yes. Possessing such strong market power itself violates the law.”

He bizarrely added, “Sure, Alcoa created demand and discovered new uses for aluminum—showing us endless possibilities for this metal—but they never stopped expanding production to meet that very demand they created. You taught us aluminum could be used this way, and then dared to supply all our needs. That’s your crime!”

Isn’t that just absurdly mind-blowing? Thanks to this bizarre ruling, Alcoa was split into smaller companies. Even stranger, Alcoa’s market dominance was largely due to the very patent system the government itself created, granting exclusivity. Yet the punishment fell squarely on the company.

Imagine being Alcoa—working tirelessly to boost production, lower prices, and satisfy consumers, only to be told: “Sorry, your success is illegal.” Every action individually seemed normal, yet together became criminal. Where exactly did they cross the line? Cheap prices and high market acceptance made them guilty? Where’s the logic in that?

Patent monopolies still incentivize price reductions and prevent massive profits, not because of competition but purely because businesses chase profits. Many mistakenly think competition alone pushes companies to innovate and expand. Wrong. Profit-seeking is the only genuine driver—sales revenue depends solely on pleasing customers. Consumers always hold ultimate power; no seller truly controls prices. People vote with their wallets.

Businesses aiming for profits naturally chase maximum market share and customer base. Patent systems globally rely on governments granting exclusivity in exchange for publicly disclosing technical secrets.

Let’s look at forceps, the life-saving obstetrical invention. Before antibiotics or safe cesarean sections, forceps saved countless lives. Initially, in the early 17th century, the Chamberlen family secretly invented forceps and concealed them for over a century. Eventually, the patent system emerged—allowing inventors to safely disclose secrets, guaranteeing temporary monopoly profits. Initially, patent durations were just five years, after which anyone could use the technology. Patents didn’t originate from intellectual “rights,” but as a simple exchange tool.

Ironically, most people today cheer patents, believing monopolies reward innovation, while simultaneously condemning monopolies. Isn’t that contradictory?

Think about it: the government tells you, “We’ll protect your exclusive production rights—anyone copying your tech goes to jail. But if your exclusive rights accidentally create market dominance, you’re also guilty.” Patent monopolies aren’t market outcomes; they’re state-imposed administrative monopolies enforced by courts and governments.

Why do people passionately support patents? Well, who glorifies the media as society’s conscience and defenders of justice? The media itself! Who says teachers should receive lifelong respect akin to fathers? Teachers! Who proclaims God’s supremacy and justice? Priests! And who constantly claims patents drive innovation? Patent-holders and patent lawyers, naturally.

People are easily fooled. When Copernicus stated the sun was the universe’s center, crowds mocked him. Churches slaughtered innocents, yet crowds revered them. Teachers simply perform a job but somehow get compared to devoted parents. Even elementary students instinctively think patents spur innovation—but do ordinary people truly benefit from patents? Hardly!

I’ve repeatedly stressed this: profit, not patents, motivates innovation and cost reduction. Without patents, would people abandon research and innovation altogether? Of course not.

The ancient forceps story merely reflects pre-industrial limitations—no mass production or easy monetization. Nowadays, companies swiftly mass-produce millions of products. Trade secrecy contracts sufficiently protect first-mover advantages. Companies openly share inventions when early large-scale production yields higher profits than secrecy.

It’s absurd to claim innovation dies without monopoly protections. Did shared bikes vanish without patents? Did Alipay’s innovative mobile payments require patent monopolies? Obviously not! Profit incentives alone ensure continuous innovation—not monopolistic exclusivity.

Take Amazon’s patented “one-click buy” button: users easily purchase without re-entering details, earning Amazon billions annually. Want that feature? Pay royalties or prepare for costly lawsuits. Apple paid Amazon precisely for this convenience. Amazon even successfully patented this globally.

But without patent protection, would companies still develop user-friendly features? Absolutely! Enhancing user experience naturally boosts revenues. Imagine if shared bikes had been patented—only one company could offer them. Would innovation have flourished then?

Some people absurdly claim steam engines languished unused until patents appeared, spurring productivity. Seriously? People knowingly ignored steam engines’ benefits for generations, waiting obediently for patent laws to arrive first? Ridiculous.

In truth, after Watt patented the steam engine, innovation stalled for decades. All improvements became patent infringements. Watt’s main focus? Lawsuits and royalties. Only after patents expired did steam engine technology advance again. Clearly, patents obstruct innovation!

Major corporations exploit patents ruthlessly. They often buy numerous patents solely to prevent competitors’ research—establishing formidable patent barriers. Smaller firms struggle immensely to bypass these barricades. Big companies frequently purchase and bury promising patents, squashing disruptive threats.

Consider Meizu smartphones’ beloved “tap-to-go-back” feature—far superior to Apple, Samsung, or Huawei. Meizu patented it, locking competitors out. Despite users’ pleas, Apple can’t use it.

Apple itself has patented everything imaginable: loading bars, slide-to-unlock, rounded corners, home buttons, even store displays. They have entire legal departments purely for patent lawsuits—because endless patent litigation equals true corporate prestige.

Patents aren’t natural rights—they’re artificially created powers, administrative monopolies choking innovation. Yet strangely, patents still enjoy widespread praise as innovation’s savior.

America aggressively champions global patent protection due to strong corporate lobbying, legal interests, and huge monopolistic gains. Ironically, America also pioneered antitrust laws, frequently dismantling monopolistic corporations. America simultaneously promotes administrative patent monopolies while combating market-driven monopolies—a hilarious contradiction.

Still, the logic remains clear: Who benefits most from patents globally? America. American corporations vigorously push global patent enforcement for obvious self-interest. That’s understandable. What’s baffling is why global consumers still cheerfully accept these contradictions.

Occupational Monopoly and the Praised Super-Profit

Previously, we’ve analyzed various types of monopolies: internet monopolies can’t sustainably earn extraordinary profits; the concept of monopoly itself is confusing; government monopolies don’t really make huge profits long-term; and patent monopolies, despite claiming to encourage innovation, actually end up obstructing it.

Now, let’s talk about another form of monopoly that people not only accept but actually celebrate worldwide—occupational monopolies.

What exactly is occupational licensing? It’s one of the oldest monopolistic systems, dating back to medieval European guilds. A guild was essentially a club of skilled artisans who banded together to protect their own interests. Within each guild, masters would take on apprentices, who later became journeymen, and eventually—after much time and effort—could themselves become masters, with permission from the guild.

Every artisan in the same industry in a city had to join their guild. These guilds had strict rules: setting product standards, prices, working hours, apprentice training, and even wages. Everything was carefully regulated to keep out competition and maintain stable profits. Eventually, these guilds secured government backing, giving rise to the very first administrative monopolies. Even modern patents trace their origins back to these guild systems.

Actually, ancient China had similar practices. For instance, the “Qingbang” (Green Gang) monopolized canal shipping and enjoyed government protection. Initially, they operated illegally, but eventually, the Qing dynasty legitimized them. Once official, no matter how aggressive they became, authorities would never label them as violent gangs. This was an early form of occupational licensing.

Today, occupational licensing is the most widespread form of administrative monopoly globally because it affects the most people. Look at recent American port congestion: dockworkers took their sweet time because they hold occupational licenses. President Biden commanded port workers to operate 24/7, but they basically ignored him. Instead, the workers even threatened to bankrupt port operators unless they got a permanent raise. When’s a better time to squeeze more money, right?

This kind of administrative monopoly genuinely increases members’ income. America has countless guild-like unions: actors, autoworkers, doctors—all hold governmental administrative power. Doctors control the number of medical professionals through licensing exams and certifications, making medicine one of America’s highest-paying jobs. Lower supply naturally raises prices.

Even becoming a barber in the U.S. is ridiculously hard: 1,500 hours of approved training, two years of low-paid internship, and costly exams every two years. Training alone can cost up to $10,000. Imagine spending thousands of dollars, studying for a year, slaving through internships, just to cut hair! The result? Barbers charge you $20 for a five-minute buzz-cut. Easy money, minimal effort. Americans—even wealthier Chinese Americans—often resort to cutting hair at home, because who wants to pay that much?

Even becoming a painter in America requires 3,000 hours of training. Painting a wall isn’t rocket science—why so long? To artificially limit competition. If too many people try to enter, just make training longer, ensuring fewer painters and higher paychecks.

Now you see why certain blue-collar jobs in America pay extremely well. They’re privileged monopolies. But why does occupational licensing generate big profits, while patents or other licenses typically don’t?

The answer lies in simple economics:

First, individual labor hours are limited. Each person has only 24 hours daily. A doctor can’t lower prices and serve 100 times more patients; they’re physically limited by time.

Second, occupational licensing mostly applies to local services, geographically restricted. If you have acute appendicitis, you can’t shop globally for doctors—you need immediate local treatment. Unlike car production (which can easily relocate overseas), local medical services remain geographically fixed, allowing monopolistic profits. This explains why Detroit’s auto workers lost their high wages once factories relocated elsewhere.

Third, occupational licensing still reduces overall customer demand. Americans’ obsession with fitness isn’t just vanity—it’s survival. Medical care is insanely expensive, so Americans try desperately to avoid doctors. Similarly, China’s famous public square dancing became popular when government healthcare was inadequate. Most American families don’t go to doctors for minor illnesses—they either suffer quietly or seek affordable overseas treatment. Yet acute emergencies trap them, creating a system where Americans spend 20% of GDP on healthcare, while millions still go bankrupt every year from medical bills.

While occupational licensing isn’t the only reason U.S. healthcare is a mess, it’s undoubtedly one of the largest factors because healthcare is fundamentally a service industry. Doctors’ numbers and working hours directly limit supply.

Most American households own extensive toolboxes for DIY plumbing, electrical, or carpentry tasks. It’s not that Americans naturally love DIY—it’s because hiring licensed workers is incredibly expensive. Some praise Americans’ impressive handyman skills, but the reality is simpler: they’re just forced into it.

Ironically, many who passionately condemn large corporate monopolies enthusiastically support occupational monopolies. Dreaming about easy, high-paying jobs like American doctors or dockworkers is common worldwide. People even risk illegal immigration to pursue these protected jobs because local supplies are artificially limited.

Dockworkers in America work about four hours a day, two or three days a week, yet earn seven times the national average with better benefits than Congress members. But ordinary folks can’t just become dockworkers. The guild’s entire purpose is controlling entry. Many Chinese immigrants, like infamous celebrity Fengjie, must secretly work without licenses in jobs like nail salons—because licenses cost thousands of dollars and require hundreds of hours of training. Want to wax hair or massage clients? Separate licenses required.

Chinese taxi drivers deeply understand this. Want higher income? Report and remove competition from rideshare drivers. Almost every Chinese city has witnessed taxi drivers opposing additional licenses and ridesharing—everyone loves special privileges and hates competition.

America paradoxically founded antitrust laws—splitting massive corporations like Microsoft, Google, and Facebook—yet simultaneously inherited Europe’s guild monopolies. Both coexist, which is absurdly contradictory.

Thus, among administrative monopolies, patents and occupational licenses are often public favorites. People cheer them while fiercely attacking market-leading corporations. Is it hypocrisy? Some say your position depends on your interest. Maybe. But dismantling corporations like Google or Facebook usually hurts consumers, while occupational monopolies might superficially boost wages for certain professions. Yet, it’s ultimately a zero-sum game. Dockworkers gain special rights but get fleeced by doctors, reducing actual benefits.

American doctors earn huge salaries, but med school debts haunt them for decades, and malpractice insurance consumes 20-30% of their incomes. Many doctors retire early, move to lawsuit-free areas, risk uninsured practice, or avoid risky procedures entirely.

In short, every administrative monopoly is harmful. The key is logical consistency. You can’t logically support occupational and patent monopolies while condemning license monopolies elsewhere. If you accept government-granted privileges for one group, you must accept them for all.

Yet strangely, many support various administrative monopolies but condemn market-driven monopolies—firms successful purely by consumer choice without government aid.

Are these people genuinely against monopoly? Clearly not. They love monopolies passionately, hoping some powerful force will eliminate competition. Yet, paradoxically, they attack market-leading corporations—companies that never used administrative power—as monopolists blocking competition. Isn’t that schizophrenia?

Why Antitrust Law Makes Zero Legal Sense

If we want to demolish the Sherman Act, simple legal logic does the job neatly.

If no specific action is infringing, how can the cumulative result magically become infringement? Without infringing actions, who decides where the line is drawn? You’d never know if your next innocent move would suddenly become illegal.

Real infringement must involve clearly identifiable victims and actions that directly violate someone’s rights.

Imagine a company sells products. Selling once is fine, twice is fine, even selling non-stop all day is perfectly legal. But suddenly, when they hit 90% market share—boom—they’ve infringed? Isn’t this utterly absurd?

The company’s only action was literally selling stuff. Exactly which transaction violated anyone’s rights? None individually, yet collectively they become illegal? That’s as absurd as saying: kissing someone once is romantic, but kissing multiple times suddenly makes it prostitution!

A company should freely decide with whom it cooperates. Small businesses can legally make exclusive deals, yet when large companies do the same, they’re accused of abusing market dominance.

Signing contracts—fine. Exclusive deals—also fine. Selling lots of products—totally fine. Combine these three innocent acts, and suddenly you’re a villain forcing partners to “choose one from two.” Ridiculous!

Thus, from a basic legal perspective—that infringement must involve specific harmful actions and identifiable victims—the very idea of antitrust law is fundamentally flawed.

Remember the infamous “3Q battle”? The silly company Qihoo 360 sued Tencent for market dominance. Thankfully, Guangdong courts had a judge with real common sense:

“Most people don’t rely solely on one communication method. Between close friends or family members, besides QQ, there are mobile phones, landlines, emails, even direct messages on platforms like Weibo. This clearly demonstrates QQ does not possess market dominance.”

What a brilliant judge—a rare gem!

The truth is, market dominance never truly exists; it’s merely an illusion. So, if there’s no real monopoly, why even have antitrust laws?

Ironically, monopolies (or market leaders) are actually great at lowering prices.

Contrary to popular belief, falling prices aren’t driven by fierce competition among many small businesses, but rather by efficiency improvements achieved through large-scale operations—often by the so-called monopolists themselves.

People imagine a breakfast shop selling buns for $2 and another selling for $1. Consumers naturally choose the cheaper one, forcing higher-priced sellers to cut prices, supposedly proving competition lowers prices. Sounds intuitive, right? Nope. It’s actually misleading.

If numerous dispersed producers inevitably lower prices through competition, how come small-scale farming (with countless small farmers) never consistently drives down food prices?

In reality, significant price drops in agriculture happened only after large-scale farms emerged, centralizing production. Prices drop because efficiency improves, not because companies voluntarily cut profits to compete.

How exactly does efficiency increase? Enter the Austrian School’s famous “roundabout production” theory.

In 1889, Böhm-Bawerk introduced the concept: producing consumer goods indirectly, by first creating capital goods (machinery and tools), dramatically boosts productivity. The more capital investment in production tools, the higher the efficiency—and thus, lower prices.

Businesses primarily aim to maximize sales, and increased sales depend heavily on productivity. Successful companies aren’t generous souls—they’re masters at capital accumulation, investing heavily upstream in capital equipment, which lowers production costs, boosts productivity, and grabs market share.

Even without rivals, firms continuously improve efficiency because greater productivity means lower prices, higher sales, and bigger profits. Viewed from the outside, “monopolies” actively push prices downward.

Take the IT industry—Intel once dominated 90% of the chip market, yet its computing cost per unit has dropped astonishingly. Similarly, TSMC produces chips at dramatically lower unit costs year after year, achieving thousandfold price reductions. Is this due to competition or threat thereof? Absolutely not.

It’s solely because these massive companies have enormous capital to invest in R&D and advanced production facilities. Forty years ago, chip manufacturers served mainly large corporations or military purposes. Now, with massive market concentration, households casually own dozens of microchips.

In other words, today’s affordable tech products result directly from large companies aggressively pursuing higher profits by scaling up and driving efficiency—not from competition alone.

The Nature and Misconceptions of Monopoly

After carefully dissecting various monopolies and myths surrounding them, we can finally summarize a few critical conclusions:

First, genuine market dominance practically doesn’t exist. Almost every product has substitutes. Even when something looks monopolistic, consumers can easily respond by cutting consumption, finding alternatives, or becoming self-sufficient.

Second, companies seeking market dominance aren’t simply waiting to jack up prices and exploit consumers. Their real goal is maximum profit, and more often than not, lowering prices and increasing sales volume leads to greater total profits. This explains American Aluminum’s historic strategy and why many internet giants actually keep prices low.

Third, the only monopolies truly deserving suspicion are administrative monopolies—those explicitly protected by governments. Yet even here, not all administrative monopolies earn extraordinary profits. Companies operating under licenses or patents still face pressures to expand sales and potential competition.

Fourth, occupational licensing stands out as a special administrative monopoly that consistently generates high profits. This happens because individual labor hours are limited, professional services are geographically restricted, and substitutes are difficult. Yet occupational monopolies inevitably create shortages and drive service prices excessively high.

Fifth, public understanding of monopolies is hopelessly muddled. Many paradoxically support patent and occupational monopolies yet attack successful companies with high market share. They criticize state-owned monopolies while ignoring how market leaders naturally emerge by serving consumers well. They passionately oppose monopolies yet secretly desire to join guilds or unions to obtain monopoly privileges themselves. This contradictory attitude betrays profound confusion about monopolies’ true nature.

Ultimately, businesses expand production and lower prices to satisfy consumers, driven primarily by the pursuit of profit—not competition alone.

The real issue with monopolistic state-owned enterprises isn’t greed, but ironically their lack of profit-seeking focus, causing inefficiencies and poor service quality.

A genuinely healthy market should reward businesses for meeting consumer needs better than anyone else—not those protected by artificial barriers or government privileges.

Only when we clearly understand monopolies’ nature can we design sensible policies that protect innovation and investment incentives, while effectively preventing harmful administrative monopolies.

Consumer choice itself remains the strongest guarantee against monopoly power. As countless examples demonstrate, even seemingly unbeatable monopolists inevitably yield to market forces and consumer decisions.

In today’s internet age, competition takes increasingly diverse forms. Take WeChat—it shows that having a massive user base doesn’t automatically ensure dominance in other fields. TikTok attacked traditional giants from an entirely unexpected angle—competing for users’ attention and time. This reminds us competition is multidimensional, and true business wisdom lies in predicting future competition, not clinging desperately to current advantages.

Regulators should focus primarily on monopolies sustained by government intervention, not naturally dominant firms emerging from honest market competition.

The real harm of monopolies is choking diversity and innovation, not just price hikes. When assessing monopolies, we must look beyond narrow market share metrics and instead investigate if a company blocks competitors through government privileges or deliberately reduces output to inflate prices artificially.

Crucially, we need a clear, logically consistent definition of monopoly—one uniformly applied across sectors. Internet giants, state-owned enterprises, patent holders, or professional guilds should all face identical standards when evaluating potentially harmful monopolistic behavior. Only then can we establish genuinely fair, efficient, and innovative markets.

References

Beauty Schools Directory. (2025). How much does barber school cost? Barber Schools Directory. https://www.barber-schools.org/blog/barber-school-cost

Bureau of Labor Statistics. (n.d.). Occupational employment and wage statistics: May 2020. U.S. Department of Labor. https://www.bls.gov/oes/2020/may/oes_nat.htm

DiDi Global Inc. (2023). Form 20-F annual report for the fiscal year ended December 31, 2022. U.S. Securities and Exchange Commission. https://www.sec.gov/Archives/edgar/data/1764757/000110465923053304/didi-20221231x20f.htm

FreightWaves. (2023, September 14). West Coast dockworkers making $200K demand higher pay. FreightWaves. https://www.freightwaves.com/news/west-coast-dockworkers-making-200k-demand-higher-pay

MacroTrends. (n.d.). Baidu net income 2010-2024. MacroTrends. https://www.macrotrends.net/stocks/charts/BIDU/baidu/net-income

National Archives. (n.d.). Sherman Anti-Trust Act of 1890. National Archives Milestone Documents. https://www.archives.gov/milestone-documents/sherman-anti-trust-act

National Bureau of Economic Research. (n.d.). Wholesale price of aluminum for New York, NY. FRED Economic Data. https://fred.stlouisfed.org/series/M0479BUS000NYM267NNBR

Next Insurance. (2024). How to get a painting contractor license. Next Insurance. https://www.nextinsurance.com/blog/painting-contractor-license/

United States v. Alcoa, 148 F.2d 416 (2d Cir. 1945). https://law.justia.com/cases/federal/appellate-courts/F2/148/416/1503668/

Wikipedia. (n.d.). Clayton Antitrust Act of 1914. In Wikipedia. Retrieved May 30, 2025, from https://en.wikipedia.org/wiki/Clayton_Antitrust_Act

Wikipedia. (n.d.). History of aluminium. In Wikipedia. Retrieved May 30, 2025, from https://en.wikipedia.org/wiki/History_of_aluminium

Wikipedia. (n.d.). History of patent law. In Wikipedia. Retrieved May 30, 2025, from https://en.wikipedia.org/wiki/History_of_patent_law

Wikipedia. (n.d.). James Watt. In Wikipedia. Retrieved May 30, 2025, from https://en.wikipedia.org/wiki/James_Watt

Zhang, W. (2024, January 13). Zhang Weiying: The government creates true monopoly through market entry restrictions. Tencent News. https://news.qq.com/rain/a/20240113A0258200