Most members of the general public seem to believe that, regardless of how consumer-friendly firms' origins might have been, as firms grow large in size, eventually they will exercise the strength that comes from their bigness to hold back output, raise prices, and waste society's scarce resources. That is, in economic terms the general public fears the monopoly power of large firms. As such, accounts of conspiracies to raise prices such as those noted in the introduction to this chapter come as no surprise. In this chapter, we addressed the issue of fearing bigness in the business world from a systematic, analytical perspective. One of the most important conclusions from this analysis is that bigness, by itself, is not a good predictor of the types of behavior one might expect from monopolies. Specifically, it was determined that for a firm to have and exercise monopoly power, it need not be large in absolute terms. Rather, monopoly power exists when a firm is large relative to the total output of the industry in which it operates. Thus, an enormous firm like the Ford Motor Company may have rather little monopoly power since it is surrounded by numerous equally large rivals. At the same time, your local cable company, although only a tiny fraction of the size of Ford, enjoys the position of being nearly a pure monopolist. Consequently, the question we addressed is whether the public is correct in fearing the monopoly power of firms, regardless of their absolute size.
        From a theoretical perspective, there is little to commend with respect to monopoly power. Monopoly power induces firms to produce smaller outputs and charge higher prices than would be the case if the markets in which they operate were competitive. Further, firms with monopoly power are frequently able to restrict entry into their industries, thus compounding the output restriction and higher-price problem and inhibiting movement of resources from less valuable to more valuable uses. Finally, they may also engage in nonprice competition that results in the waste of some of the economy's scarce resources.
        Empirically, there is evidence that monopolistic elements within the U.S. economy have imposed, and continue to impose, an economic cost on society in terms of reduced social welfare. Much of the loss in well-being may come from rather small firms. Estimates of the deadweight welfare loss due to monopoly place it at about 1 percent of GDP per year. In terms of 2006 GDP, this implies that monopolistic elements within the economy were responsible for a $13.25 billion reduction in GDP during that year. Consequently, it is important to keep a close watch on existing and potential monopoly problems. The more competition the market economy can sustain, the better the price mechanism will operate in allocating the economy's scarce resources among their many uses. The primary pro-competition tools at government's disposal are the existing antitrust laws. Of particular importance are the Sherman Act and the Clayton Act, which effectively outlaw both monopoly and anticompetitive behaviors deemed injurious to public well-being.
        In the unusual case of natural monopoly, however, the impact of monopoly on social well-being is mixed. This circumstance and the problems caused by poorly defined property rights and consumers having deficient information about products can lead to calls for government regulation of private business. Care must be taken prior to entering into regulation to ensure that the benefit of the regulation is at least as great as its cost. Further, even in those cases where regulation seems cost-effective, the regulatory process must be closely monitored to avoid the problems associated with the capture theory of regulation.