Friedman’s view largely prevailed. This was both an intellectual and a policy error…

From The New York Review of Books:

Economists struggling to make sense of economic polarization are, increasingly, talking not about technology but about power. This may sound like straying off the reservation—aren’t economists supposed to focus only on the invisible hand of the market?—but there is actually a long tradition of economic concern about “market power,” aka the effect of monopoly. True, such concerns were deemphasized for several generations, but they’re making a comeback—and one way to read Robert Reich’s new book is in part as a popularization of the new view, just as The Work of Nations was in part a popularization of SBTC. There’s more to Reich’s thesis, as I’ll explain shortly. But let’s start with the material that economists will find easiest to agree with.

Market power has a precise definition: it’s what happens whenever individual economic actors are able to affect the prices they receive or pay, as opposed to facing prices determined anonymously by the invisible hand. Monopolists get to set the price of their product; monopsonists—sole purchasers in a market—get to set the price of things they buy. Oligopoly, where there are a few sellers, is more complicated than monopoly, but also involves substantial market power. And here’s the thing: it’s obvious to the naked eye that our economy consists much more of monopolies and oligopolists than it does of the atomistic, price-taking competitors economists often envision.

But how much does that matter? Milton Friedman, in a deeply influential 1953 essay, argued that monopoly mattered only to the extent that actual market behavior differed from the predictions of simple supply-and-demand analysis—and that in fact there was little evidence that monopoly had important effects. Friedman’s view largely prevailed within the economics profession, and de facto in the wider political discussion. While monopoly never vanished from the textbooks, and antitrust laws remained part of the policy arsenal, both have faded in influence since the 1950s.

It’s increasingly clear, however, that this was both an intellectual and a policy error. There’s growing evidence that market power does indeed have large implications for economic behavior—and that the failure to pursue antitrust regulation vigorously has been a major reason for the disturbing trends in the economy.

“Challenging the Oligarchy”, Paul Krugman, The New York Review of Books