Economic Myths: "Monopoly profits are passed on to the consumer as higher prices"

1. It must be blindingly obvious and a matter of general application that if there are barriers to entry into any particular industry, the industry is smaller but faces less competition and can thus charge higher prices (moving leftwards and upwards on the demand curve) than if there were full, free and fair competition.

2. Some barriers to entry are practical, if you want to be a mini-cab driver, you need to own a minimum of one car (OK, two or three drivers could share and work shifts, gloss over that), or in a small village, there might only be demand for one taxi driver, if there already is one, no new entrant will ever break into the market (unless he engages in a price war and drives the other out of business), but most are down to insider lobbying or government regulations.

3. So if there is demand for two taxi drivers in a slightly larger village and the parish council only issues one permit, the incumbent can rake in extra profits (and half of potential passengers have to walk). The grey market price of the permit is thus the NPV of that extra future income. If our newcomer wants to be a taxi driver, he has to pay a high entry charge to the previous incumbent. That permit is to all intents and purposes the same as "land" where supply of usable land is limited (whether for natural, economic or regulatory reasons).

4. Our new incumbent might apologetically say to his passengers, "I'm sorry that my fares are so much higher than in the other village, but I am paying off a £10,000 loan which I took out to buy the permit and I add that the minimum price I have to charge" and his passengers might even accept that. But what if the parish council then abandons the permit system, or introduces an excellent bus service..?

5. Allister Heath in City AM gave an example a couple of days ago Daft planning rules are pushing up the price of food in shops, in brief: if the number of available sites for shops is restricted, then there are fewer shops, who can thus sell more goods per sq ft retail space and/or charge higher prices; this pushes up the rental value of the restricted number of such sites. That is the chain of cause and effect.

More recent estimates cited by the authors suggest that the cost of land for UK supermarkets is at least five to ten times greater than in similar Continental European countries. No wonder food and other retail goods are cheaper in those countries; excessive land prices are being passed on to the consumer, as ever.

6. Nope, here he gets it all wrong again, this is putting the cart before the horse. Restrictions lead to higher prices lead to higher rental values for the favoured plots. It is idiotic to say that higher rental values lead to higher prices. The customer is not paying extra because rents are higher*, he is paying extra because there is limited competition.

* Actually, with physical goods, this effect is barely measurable across the UK. Retail prices for similar goods are pretty much the same everywhere, despite there being a wild disparity in retail rents between a glitzy shopping centre in Westminster and a run down high street in Anytown. It is only with goods and services consumed at or very near the point of purchase where there are noticable variations, so there is "embedded rent" in cups of coffee, hotels, pints of beer, cinema tickets and so on, but not in 500 sheets of 80 gsm printer paper.