Title says it all.
When I have a monopoly I’m freed from price competition, so I can make more money.
In some cases a monopoly is good.
For instance the phone system.
If you had ten companies laying lines they may be incompatible (so perhaps you cannot call someone on another system) or if you want to go to another company they need to pull their lines to your house making a mess of phone lines running everywhere and so on.
Monopolies are usually not a good thing. But a monopoly that still benefits from economies-of-scale and that completes in an industry with low barriers-to-entry must keep prices low enough to ward off competition. In this type of example, the consumer ends up paying less for the product than if the industry had multiple competitors.
Infrastructure-based services in general, such as roads, electricity, and internet.
Of course in my opinion these should be heavily government-regulated if not government-owned.
Also, I’m not used to posting opinions in GQ, so forgive me if it’s out of place.
This question is better suited to GD than GQ.
General Questions Moderator
Innovation: if I’m going to work day and night to make something that people need and no one else has made, then I want to get full credit for what I did, preferably in the form of large chunks of money. Otherwise, I’ll sleep in on Saturdays.
Quasi-public goods: this may be arguable in our modern, deregulated word, but decades ago there were lots of people for whom it wasn’t profitable to deliver electricity or phone service and the costs of entry were high enough to discourage competition. I think that the rationale was that if only one company was going to provide a service like electricity, phone service or natural gas, then the government would recognize that reality and then control rates and require that the utility provide service to all (within reasonable limits.)
What else is there.
Wait, are we talking about government-backed / regulated monopolies or monopolies that are the result of free market activities? The former aren’t really monopolies, because the government regulates pricing. My answer was for the latter.
Those that are the result of free market activities.
Ok, are we talking about monopoly power due to technological innovation, due to business innovation or due to actions that keep others from doing business, andhow can you easily tell them apart? It was easier a century ago, when John Rockefeller would buy up all the oil barrels or train capacity around an oilfield to keep his competitors from getting their oil to market. It seemed less clear when Microsoft tried to keep other browsers from working with Windows–they built it, so to what extent did they have to facilitate their competition?*
*Note: I don’t really care about this issue. Hopefully, I have described the issue well enough for the sake of this post.
Monopolies, once established, can extract greater-than-market prices from the consumers, theoretically driving down their standard of living. In today’s world, though, I’d be hard pressed to think of a monopoly that will exist for any length of time and affects those on this board. We had a similar snippet of conversation like this in The Pit recently.
Technological innovation and the great disintermediation that follows means that barriers to entry are getting fewer and far between; so any company charging monopolistic pricing soon sees competition, by definition ending their monopoly. Even industries once thought invulnerable - air travel between certain routes (upstart bargain airlines), telecom (internet and cell phones), cable (satellite) - they all spawn other ways to kill the cat, after awhile.
Even certain industries that, as a cartel or cabal, had some monopoly power, are facing upstarts - real estate brokers with their MLS now see competition from the Zillow’s of the world, travel reservation agencies, stock brokerages - emerging technology can now knock down virtually all. Once we can safely deliver power to the home wirelessly, look out!
About the only monopolies that I can think of are in areas that really don’t directly affect the readers of this board - manufacturers of carriers and subs, for example… unless someone here wants to form a startup to challenge Ingalls and Electric Boat with some whizbang idea, in which case, give me a shout.
They aren’t a good thing, and I doubt there are many people who think they are (unless they are the ones trying to build them).
In Looking Backward (1888), Edward Bellamy described a state-socialist (or, as Bellamy termed his philosophy, “nationalist”) American utopia that did not result from any messy revolution. Economic forces gradually caused every field of industry and commerce to be completely dominated by a single trust. Then the state simply stepped in and took over the trusts. Easy, due to their concentration. (No bloodshed or resistance is mentioned, to the best of my recollection.)
That’s something a monopoly might be good for.
I am hard put to think of one at the moment, but some companies manage to drive the competition under or a least marginalize them by a combination of quality and low price. They are good. Eventually many get greedy and open themselves to competition.
I was fortunate to have the noted Doctor Hans Sennholtz, http:%2F%2Fen.wikipedia.org%2Fwiki%2FHans_Sennholz, for Economics 102. He loved to talk about how monopolies will do themselves in or be bypassed if they are greedy. When the major oil companies and pipelines conspired to ruin Sun Oil, Sun Oil started moving their oil to their refineries by tanker. When I escaped the clutches of the government protected local phone company by going VOIP, I shared it with some of his former students.
When a monopoly is hurting the public, somebody else is going to get rich getting around them.
Theoretically they can use economies of scale and lack of redundant overhead to drive down prices.
But they carry negative risks too which probably outweigh the benefits. They can charge higher than the real value for goods/services with no competition. They can become ‘too big to fail’ and that makes them want to act risky. They can stifle competition or innovation that would compete with them. They can also use their clout to influence political machines to force people to buy their products (which is arguably what health insurance industries did in health reform, used their financial clout to make the federal government force individuals to buy their product).
On the subject of ‘too big to fail’ I recently saw a documentary called ‘inside job’ (one of the best documentaries I’ve seen) about the financial crisis. An economist who I think was VP to a major bank (that or head economist) said banks want to become too big to fail because once that happens you lose moral hazard and can count on a bailout if things fail. So the rewards of risk are privatized, the losses are passed onto the public sector if you are too big to fail. So if you are the only game in town then the incentives are to do high risk, high reward behavior since someone will bail you out if you fail.
No such thing. They buy up the competition until they control the market. Then there is no price competition and no reason to make better products. There is no reason for innovation. Monopolies are antithetical to the free market. They are about controlling a market to get “all the traffic will bear”.
Well, the US sort of allows monopolies as a spur to innovation.
If you are the first guy to invent a widget you get a patent and only you can make the widget. This encourages people to put up the investment capital to design new products. If they make something good that people want they will be the only game in town for awhile and can reap the rewards and recoup their initial investment.
Of course the patent eventually expires and other people can come in or people can invent something that does what a widget does without being a widget. That happened with Sony when they invented the Betamax video recorder. They refused to license it out to anyone else so they were the only game in town. Other companies invented VHS which, while not as good, was good enough and did the same thing for a lot less money. Bye-bye Betamax.
This also has unfortunate side effects. Drug companies get exclusive rights to sell a new drug. Considering the cost and time it takes to get a new drug to market this seems only fair. Unfortunately they then tend to rape the market for all it is worth while they can. Once the patent expires I read somewhere (will look for a cite) that the patent holder will sue generic drug makers who will try to make the same drug. There is no good reason to sue but it puts an injunction on the generic drug maker till the case is settled. The patent owner then gets five (or whatever) more years to gouge.
Gets worse with drug makers. Some now will pay off the generic makers to not produce a drug leaving them the only game in town. There was very, very recently a court case on this and the court said that was just peachy. (cite)
Worse (and downright appalling) a drug used to prevent premature birth used to be made to order by pharmacies for about $10-20. The FDA decided to allow a drug company to brand the product so now people have to buy that. The new price? $1,500/dose (kidjanot).
Google “start-up costs.”
With, say, three suppliers in a large global economy each will be very large and enjoy huge “economy of scale” already.
I’m at a loss why you consider it hard to compare Standard Oil and Microsoft. Rockefeller made deals with the railroads. Gates made deals with computer vendors.
IMHO, the biggest difference is that Rockefeller’s monopoly was followed by the trustbusting politics of Teddy Roosevelt. Gates’ monopoly, OTOH, benefited from the Greed is God mentality of post-rational Republican politics.
There is a difference here.
I worked in the computer industry through all of the Microsoft rise to power.
Rockefeller made his money in oil. Thing is oil is oil (roughly…I know there are different types). Any schmo who could dig a well could produce oil and Rockefeller would edge them out.
Microsoft is more akin to an infrastructure we talked about early in this thread. Thing is no one saw it that way. The problem was (and I saw it happen personally) was what I described up-thread if you had multiple, incompatible phone providers.
Companies I worked for had Novell servers, had Microsoft desktops, had Apple desktops and had mainframes. It was hugely expensive to maintain people specialized in supporting each system. The companies naturally wanted to gravitate to a single system. Why have 20 guys supporting multiple systems when three would do.
And that is what happened. Microsoft won that war. Not that I am happy about it (I was a Novell server guy to begin with and had to re-learn and re-test to be a MS guy).
But the government never saw this as “infrastructure” which it really was. Indeed when they told MS they had to allow other browsers and not bundle theirs MS made their browser an integral part of their OS and sidestepped the issue. Anyone remember Netscape here?
So, we now have MS who has what…90% of all installed operating systems in the world? And they are not a monopoly?
I will say that I think MS knows they need to not roll over and go to sleep. There are a lot of people craving to carve out a slice of that market and if MS overpriced or stopped innovating it would not take long for someone else to usurp their place.
So maybe here is a monopoly (or near enough) who still has enough fear of competition to play (semi) nice with its consumers.
How does a monopoly inhibit innovation? You say they simply buy companies that innovate, but that coupled with a previous post seems to favor innovation to me. If the worst-case-scenario is being purchased for what would probably be an obscene amount of money, why not innovate? It seems that if another company wants into a monopolized market, they are forced to innovate. This strikes me as promoting innovation, even if it is rather indirect.