In the article, "The Economists and the Problem of Monopoly", George Stigler clearly adds insight as to why monopolies are a problem in public policy. It seems to me that he believes that the Sherman Act antitrust laws were legislated at a time when there was no real need to have such a law but since it was enacted, the number of economists associated with monopoly regulation and enforcement has grown dramatically even though there is no empirical evidence to prove its efficiency.
Adam Smith, one of the great economists of the time pretty much paid no attention to monopolies and if he did he said they were due to special rules granted by the state. His main argument is that it was market forces that ensured the production of the right goods and services. He thinks that his would happen because producers would want to make profits by providing them. Smith agrees that without government intervention, it will form into a laissez-faire environment, and public well-being would increase from competition organizing production to benefit the public. This was eventually proven wrong in the 19th century when railroads and utilities benefited from economies of scale and became private monopolies. He also felt there was nothing one could do to stop monopolies if they were to occur since no one could stop businessmen from meeting in private and deciding what they would do to improve their business. Smith quotes, "Nothing can be done about the instances of monopoly and collusion of small numbers of rivals".
Even John Stuart Mill noted that when there is a small group of producers (restricted supply) they always end up agreeing not to compete. He knew that Competition would mean producers trying to outsell each other and this would bring prices down to their lowest possible levels (making minimal profit). If there was not enough competition, this would mean that producers would make more profit.
