A “coercive monopoly” is a business concern that can set its prices and
production policies independent of the market, with immunity from competition,
from the law of supply and demand. An economy dominated by such monopolies
would be rigid and stagnant.
The necessary precondition of a coercive monopoly is closed entry—the barring
of all competing producers from a given field. This can be accomplished only by
an act of government intervention, in the form of special regulations,
subsidies, or franchises. Without government assistance, it is impossible for a
would-be monopolist to set and maintain his prices and production policies
independent of the rest of the economy. For if he attempted to set his prices
and production at a level that would yield profits to new entrants
significantly above those available in other fields, competitors would be sure
to invade his industry.