Classical political economy
In the classical economists’ works there are many descriptions of the ways firms compete, of the obstacles they encounter in competing, and of the sources of their monopoly power (Backhouse 1990).
A brief review of the classical ideas on these topics starts in 1776 with Adam Smith, who regarded competition as a race among rivals. He showed that if the number of entrepreneurs is small this facilitates coalitions, and highlighted their propensity to contrive to raise prices; he also suggested that secrets and collusion could be used to compete and to obtain market power. In particular, he saw imperfect factor mobility and inelastic input supply as sources of monopoly power that cannot be removed (Salvadori and Signorino 2013). In 1803 Jean-Baptiste Say brought the primacy of the entrepreneur’s role both as a risk taker and as a manager into focus. In 1815 Thomas Robert Malthus introduced the expression “natural monopoly”, applied to cases where natural inputs are in limited supply, while Samuel Bailey (in 1825) defined “monopolies” as the markets with restricted entry and one or more competing sellers; he also identified the markets in which the incumbents have a cost advantage over the new entrants, and highlighted the role of potential competition. In 1836 Nassau W. Senior saw the introduction of innovations as a way of competing, and considered the unavailability of information on profits as a source of market power. Although the literature insistently recalls that in classical thinking the restraints on competition not created by the government had importance only in the short run, John Stuart Mill believed that certain obstacles would last longer: in 1848 he identified situations of natural monopoly in the modern meaning, agreed with Smith that the small number facilitates collusion, and described many restraints on competition in practice, the best known of which are customs. However, he was confident that a certain amount of competition would take place even among a few producers, and saw innovation as due to the entrepreneur’s effort to survive. In 1867 Karl Marx foresaw that in capitalism competition would lead to an increasing concentration and centralization of capital, forming large firms with growing monopoly power, while John Elliot Cairnes (in 1874) was interested specifically in cases of “non-competing groups”, that is, producer groups within which there could be competition, but between which competition was impossible.To sum up, classical economists had singled out a series of strategies for competing, as well as some obstacles to the competitive process. As they believed in the ability of markets in conditions of free competition to self-regulate, they usually considered the monopoly power resulting from firm’s strategies as threatened by competition, both actual and potential. Competition was considered a very widespread phenomenon, as long as the market was free from legal restraints. This conception is further confirmed by the fact that in their writings comparatively little room is devoted to the specific subject of monopoly as such.