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In the analysis of the costs of monopoly power, the usual experiment is to convert a competitive industry into a monopoly and observe the consequent change in consumer's surplus. Modern contributions have emphasized the deadweight cost of monopoly (Arnold Harberger, 1954) and the possibility of an associated rent-seeking cost of monopoly (Gordon Tullock, 1967). The Harberger cost, of course, refers to the lost consumer's surplus triangle; the Tullock cost concerns the role of competition for monopoly returns. Taken together and assuming that the competition for monopoly rents is perfect, the total cost of monopoly power is a trapezoid, the rectangle of monopoly profits plus the triangle of lost consumer's surplus (Richard Posner, 1975). In this paper we approach the monopoly problem in a different spirit. We compare three states of the world-competition, regulation, and deregulation. In this setting we ask, what happens if a monopoly is eliminated through deregulation? Our analysis suggests that because under most conditions Tullock costs cannot be recouped, the returns to deregulation are lower than previously thought. Rent-seeking expenditures in the past leave the economy permanently poorer even if competition is restored to the industry. In contrast, the returns to preventing monopoly in the first place are relatively high in our model. An insight afforded by the analysis is an explanation of the persistence of laws and regulations which appear to serve no interest. In this regard the example of railroad regulation in the United States comes to mind. The standard explanation for such regulation is either that voters and government decision makers are ignorant of basic economics or that a small interest group like railroad firms wins rents at the expense of uninformed or economically rational consumers of rail services who do not find it cost effective to seek deregulation. We offer another and perhaps more plausible explanation for the persistence of regulation and the apathy of consumers about the costs of regulation. Namely, the costs of such regulations are, for the most part, the original rent-seeking expenditures that lead to the regulation in the first place, and these costs are sunk. Abolishing so-called uneconomic laws does nothing to recover these losses. Hence, there is little political support from any quarter to return to the status quo ante. In fact, as we shall show, such a deregulatory program can easily impose more costs than it is worth. There are numerous examples of this point, including tariffs and quotas of all sorts, subsidies to farmers, the postal monopoly, organized labor's antitrust exemption, the licensing of doctors, and so forth. The traditional explanations of these monopoly rights, namely ignorance of economic common sense and special-interest groups, are neither sufficient nor necessary. Since the primary costs of these laws are rent-seeking expenditures which are made prior to their passage, there is simply little to be gained by changing them now. Gains would accrue in the form of reduced Harberger costs; costs would be borne in passing and implementing the deregulatory program. It is not that the potential gainers from deregulation are large in number, diffuse, heterogeneous, and face high organizational costs, rather, they do not exist to any degree. Interpreted in this light, efforts by political action groups, such as the Right-to-Work Foundation, stand to be a drain on society's resources. They cannot produce anything unless they prevent further monopolization through regulation. We do not, of course, *McCormick and Shughart: Clemson University, Clemson, SC 29631; Tollison: Center for the Study of Public Choice, George Mason University, Fairfax, VA 22030. Thanks go to James Buchanan, Rex Cottle, and Gordon Tullock for helpful comments. The usual caveat applies.
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