Say that we had monopolies that had scale economies. Instead of preventing them from forming via antitrust policy, why do we not just tax those monopolies and return those taxes as benefits to society, so that we get the benefit of scale economies?


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One issue of monopolies is that they produce less than the optimal amount, because they artificially restrict supply to keep prices above marginal cost and make more profit.

Taxing them can reduce that supply even further, depending on the type of tax. However, even a lump sum tax that would not reduce production, still does not solve the under-production problem.

In fact, optimal tax theory would suggest subsidizing monopolies in order to increase their production and solve this problem. But that is of course very controversial and has otherwise problems.


Because economic growth depends partly upon innovation. The spender of taxes, that is the government, is viewed as a non-diversified source of innovation if at all innovative. Government funded basic research is considered to be potentially innovative but diversification might still be lacking. If there are multiple traders in an industry we have diversified sources of innovation. Since innovation is risky, in other words, there are more attempts than successes, it is better for the economy if it is diversified.

There are other problems. Usually it's just a matter of opinion whether a particular industry is monopolized because the boundaries of a product industry or service industry are not defined in law. For example, if company A is a "hamburger restaurant monopoly" a person can argue that it is not a monopoly because people can choose to eat sandwiches that are not burgers or they can choose to buy burgers from a food truck or ghost kitchen that is not considered to be a restaurant. In other words, the person claiming a monopoly exists has defined their industry definition narrowly. If we allow extremely narrow definitions then almost every company is a monopoly.

Another problem... If we have case-by-case legal results that indicate what is a monopoly, there would be the problem of an appropriate monopoly tax rate for a particular company. Usually governments don't create company specific tax rates so they're not set up to do this and if they were, if the range of possible tax rates is wide enough it would be a high stakes decision in each case, which raises the question of whether the government should have that responsibility and whether it can manage to get good outcomes like the size of markets reflecting consumer preferences.


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