

Monopoly, is it a problem? - mnemonicfx
http://www.capitalism.org/faq/monopolies.htm

======
_delirium
Seems somewhat backwards. This relies on a how-did-it-get-there argument: is a
monopoly the result of illicit activity, or did it get there by "winning" in
its market segment? For example, this passage, from the article:

    
    
      If such status is gained by competition in the free-market then the
      "monopoly" -- the successful business -- is good. If such status is gained 
      by using the government, or Mafia, to force one's competition out of 
      business, then the monopoly is evil.
    

But most antitrust theory isn't based on any sort of historical-deservingness
argument; rather, it's based on the fact that a monopolist does not operate
_in_ a market, but _is_ the market. Monopoly power is market-distorting, and
prevents the normal free-market mechanisms from working to allocate supply and
demand efficiently--- even if the monopolist did nothing "wrong" in getting to
be a monopoly. The main argument for anti-trust laws is that society is better
off when the "invisible hand" can work its magic, and use of monopoly power,
especially to influence other markets (e.g. Microsoft demanding that Dell not
ship any non-Windows computers), prevents the market from operating
efficiently.

Some more modern, mathematically-heavy theory phrases this as more or less an
issue of feedback behavior: in a properly functioning market, the market is
determined by something _outside_ the market mechanisms themselves (idealized
as "real" supply and demand), but in a malfunctioning market, the market
mechanisms themselves feed back into the market, so it's mostly determined,
self-referentially, by itself.

~~~
lionhearted
> Monopoly power is market-distorting, and prevents the normal free-market
> mechanisms from working to allocate supply and demand efficiently--- even if
> the monopolist did nothing "wrong" in getting to be a monopoly. The main
> argument for anti-trust laws is that society is better off when the
> "invisible hand" can work its magic, and use of monopoly power, especially
> to influence other markets (e.g. Microsoft demanding that Dell not ship any
> non-Windows computers), prevents the market from operating efficiently.

Having large market share lets a company generally get its way in many things
(favorable terms, high margins), but the company always has a tradeoff
consideration to make: If quality gets too bad, or prices get too high,
someone is going to come and try to eat their lunch.

Microsoft is a great example. They succeed in markets where they make products
that are good enough to great, and fail when they do not. The XBox and Windows
7 sell quite well. But when they put out poor products or fail to keep
innovating, they stagnate or lose - Hotmail, Windows Vista, Internet Explorer.

People get upset because a company with high market share can antagonize
customers and suppliers in the short term and there's not _immediate_
recourse. But there is recourse. Internet Explorer had a near monopoly
position, they got arrogant and stayed in IE6 forever, this left a hole that
Firefox and later others came through. Letting Windows stagnate and then
putting out Vista with its bloat and driver issues let Apple grow in power to
compete.

Microsoft has large market share, but if they abuse it and don't deliver
appropriately, they get bitten. The alternative - trust busting - has produced
some horrific corruption and lobbying. I present the following as one of the
most corrupt rulings in American legal history:

<http://en.wikipedia.org/wiki/United_States_v._Alcoa>

"Alcoa said that if it was in fact deemed a monopoly, it acquired that
position honestly, through out competing other companies through greater
efficiencies. Hand applied a rule concerning practices that are illegal per se
here, saying that it does not matter how Alcoa became a monopoly, since its
offense was simply to become one."

Alcoa was a great company that took a large market share by making a great
product, doing it efficiently, and ran their company well. They didn't
anything sleazy at all - but they were broken up under antitrust laws as a
political power play.

Giving governments the power to break companies based on the subjective
judgment that they're too powerful leads to bad places. The power tends to get
wielded rather arbitrarily. There's a natural check on companies with large
market share - if they overprice or produce low quality, it stimulates
competition and they lose that market share. People point to bad companies
abusing monopoly position, but there aren't many examples of companies that
holding a monopoly position with a bad product for very long at all. The only
way it happens is when it's the "official" provider as blessed by some kind of
government agency.

Letting political figures and bureaucrats break up a successful company just
by virtue of it being successful goes to bad places - in particular, a company
with a positive history of acquisitions having to run things by the Department
of Justice is a problem. Google should be allowed to acquire whatever the heck
they want - if they stop innovating or start gouging suppliers or clients,
then they'll enable competitors to rise up. But if they're providing good
services and winning because they meet people's needs, then they should be
allowed to win, not broken because a competitor started lobbying and donating
money to a powerful Senator.

~~~
rbanffy
> If quality gets too bad, or prices get too high, someone is going to come
> and try to eat their lunch.

The problem is that in monopoly, things have to be really, really bad and
prices must be really outrageous before anything changes. Healthy markets are
the opposite - even a minor decrease in value creates a niche that is filled
by a competitor.

~~~
yummyfajitas
That really depends on the market.

In a market with strong network effects (e.g., operating systems), you are
correct. It costs money to switch from windows to linux, and this may preclude
a switch for a small cost gain.

In a market for commodity goods, this is not true. It costs nothing to switch
from Alcoa aluminum to little guy aluminum.

~~~
rbanffy
And that's precisely why monopolies rarely form (not impossible, but really
difficult) in commodity markets.

Anyway, it's not as important as when the monopoly is established. Any
competition would have to bootstrap itself. Until competition is
reestablished, market distortions ensue. They can be as large as the barriers
that prevent competitors from entering the market.

------
scotty79
> As all political intervention (initiation of force) in the marketplace is
> outlawed under capitalism, a harmful monopoly under capitalism is
> impossible.

That's at least a bit naive.

If declaring something outlawed made it impossible we would live in completely
different world right now. We could manufacture teleportation device powered
by only clever lawmaking.

This kind of statements seem like sticking fingers in ones ears and repeating
a mantra.

------
stretchwithme
As long as there is no coercion involved, I'm okay with monopolies. All a
monopoly is a cornering of the market for a particular thing and you could
even see entertainers as having a monopoly on their own unique offerings.

Most of the things people consider monopolies actually have competition. Its
just not quite exactly the same, as cheap or as good.

If you had a monopoly on the automobile, there would still be the bicycle, the
train, the horse and buggy, and of course, walking. These all compete with
people just moving closer to work. Or living near a navigable body of water or
getting a helicopter.

And lets not forget that the government is handing monopolies in exchange for
sharing ideas (also known as patents). When such a deal makes sense for
society, the monopoly is a good deal. When it isn't, we shouldn't be granting
them.

------
jsz0
_"If any business attempts to charge prices higher than the market will bear,
he will lose all his business to his competition, since he cannot force his
competition out of business."_

This seems dated in our modern world.

Of course you can force your competition out of business if you're big enough.
It's even easier if you're willing to use some dirty tricks. It's also
sometimes impossible to compete in some modern industries like software. I
can't simply sell a cheaper version of Windows -- only Microsoft can sell
Windows. It's not as simple as going to the shoppe to pick from different
brands of top hat. They're basically the same thing so they can compete
against each other directly. Capitalism is great for soft drinks and tennis
shoes but I'm not convinced it's the best choice for everything.

------
jheriko
I think the author completely fails to understand the problem caused by
monopolies and why the underlying capitalist philosophy implies the problem -
namely that they can jack up prices without competition and its always in
their best interest to do so.

Really the problem with monopolies is how we implement capitalism with so few
checks and balances - in an "idealised" setting you want monopolies to get the
most efficient use of resources globally - its capitalism that messes it up by
driving the monopoly to do "evil" things like jack up prices. The incentive to
be greedy and selfish needs to be removed - this is a LOT easier said than
done, but it is something that governments are most certainly capable of.

------
scotty79
Market draws it's power from being multiagent and dynamic. All monopolies are
evil not because they exploit workers and consumers (which they may o may not
actually do) but because they harm things that power market. They reduce
number of actors, narrow choices and lower the speed at which market adapts to
situation.

------
ErrantX
Bleh, this started off sounding like an interesting piece - but it devolves
into stating that the only "evil" monopolies are governments.

Which might not be a completely incorrect conclusion, it just reads like a
political piece more than anything.

------
ugh
What?! The problem with monopolies is nicely illustrated in this little
diagram that everyone who ever had econ 101 has seen far too many times:
[http://upload.wikimedia.org/wikipedia/commons/thumb/e/ef/Mon...](http://upload.wikimedia.org/wikipedia/commons/thumb/e/ef/Monopoly-
surpluses.svg/500px-Monopoly-surpluses.svg.png)

Of course monopolies are not intrinsically evil. I can’t really see what that
has to do with the question as to whether states should prevent companies from
becoming monopolists, though.

~~~
praptak
"the question as to whether states should prevent companies from becoming
monopolists"

I believe the general agreement about this question is a resounding "No." The
anti-monopoly regulations prevent companies from _abusing_ their monopoly
power and most of the anti-monopoly law discussion revolves around the extent
of this.

------
vegai
1) If the monopoly is used specifically to upkeep the monopoly, it's evil.

2) Any successful monopoly will grow to be a large corporation.

3) Corporations _will_ try to upkeep any monopoly they've attained.

------
p0ppe
Seems like a fairly theoretical look at monopolies, right out of Econ 101. The
argument does, however, seem to ignore the barriers of entry that are very
real in the real world.

