Economically speaking, the problem is not the fact that producers make a profit in a monopoly through higher profits, it’s that they produce less in order to sell at a higher price.
You need a monopoly to build houses and hotels ;).
Regarding this theory that monopolies can spur innovation via “buyout incentive,” couldn’t that be determined by the market and demand for innovative products rather than the existence of a monopoly in that market? Namely, if the company with the monopoly is actually considering buying out an innovative startup, they must view them as a credible threat/potential competition, otherwise they wouldn’t bother buying them out. Thus, the innovate startup should be able to make lots of money even if they don’t get bought out. Wouldn’t they be able to do this even if there was no monopolistic company in the market?
I suppose some companies might try to come up with innovative products with no intention of actually developing and selling stuff themselves, and just hope to get bought out. But would this incentive to innovate exceed the incentive to innovate that exists in competitive markets?
In the tech world monopolies can be beneficial in fields where a competitor could come in quickly to steal market share. (E.g. if someone could come up with a search algorithm shown to be quantitatively better than Google’s then they would be an immediate competitor.) In this situation the company with the monopoly still has incentive to keep quality high and costs low (to give a potential competitor less room to operate). But since they have a monopoly they are flush with cash to spend on other things that don’t add to the bottom line.
For example, look at all the open source that Google has supported. No company has spent more money in theoretical research than Microsoft even though they get very little return on the investment (e.g. Microsoft was a leader in quantum computing).
IIRC, Microsoft’s software budget exceeds the GDP of some countries!
Nevertheless, there are some very very simple software functions (e.g. grep, ftp, or even split) which are standard on Linux but for which one must download shareware or payware under Windows.
Why is that? I think a big part of the explanation is the same reason that Mr. Gates insisted that IBM provide no reset switch on its early PC’s: An empowered computer user has less need to buy proprietary software.
Capitalism is designed to provide competition. Competition is what makes a company make better products and cut prices.
A monopoly has no reason to make product improvements. Why should they?
If there is only one provider, you have to take it or leave it. You can not go to someone else to get one. You can not tell them to make it better or you will not buy it.
If another company is innovating and selling the same product, the original company is not a monopoly. it has a competitor.
Monopolies, generally speaking, are a bad thing. Typically, the bad ones are the ones that manage only stay as a monopoly due to government power.
The good kind of monopoly, if that’s what you mean, is the one that has attained it’s monopolistic status via free market competition. If a firm ever gets to that position, then theoretically the only way it can maintain its position is to be perfectly competitive and that primarily means driving down prices, which is a good thing for the consumer. Monopolies of this sort rarely, if ever, maintain its position.
anyone with a monopoly is in the perfect position to constantly innovate and improve the product. if they do not then someone will step in with a better product and run them out of business.
take carburetters, had one company made every single one of the things they would be long dead in spite of the monopoly, because fuel injectors are simply that much better.
I am not saying that a monopoly WILL innovate and improve, just pointing out that any who dont are destined to fall.
I suggest you search the Open Source community. There are free programs (good ones too) which will grep, FTP and zip files. Legally free.
Indeed there is a whole Office suite of applications that are also completely free and quite good. There are programs for manipulating your photos in very advanced ways (about as good as older versions of Photoshop but I have to admit the new Photoshop is amazing…also bloody expensive…this is good enough for all but a professional or diehard hobbyist).
Want a Paint program that far surpasses Microsoft’s built in Paint? They have that too.
I frankly do not know why anyone would ever use Microsoft’s built in media player. VLC far surpasses it (plays pretty much anything…no muss, no fuss).
The open source community is large and produces good stuff.
There’s also Cygwin (www.cygwin.com) which gives the user a fairly robust linux-like environment.
The promise of Monopoly can inspire innovation, it seems. Isn’t that he whole point of patents?
Yeah. That was my point. Trivial, very useful software; yet a company whose GDP rivals entire countries doesn’t provide those enabling tools.
And while you know how to download Open Source (and I know how to just boot Linux 
), many users don’t. There are simple tasks needed by some of my own naive e-mail correspondents which I don’t even try to help them with (downloading code might be the first step), where I simply send a one-liner if they answer “Yes” to “By any chance are you running Linux?”
Thanks for helping me make my point.
I think Microsoft’s experience in the browser wars precludes them from offering these things except, perhaps, in the most basic (and near useless like MS-Paint) form.
Because they sell you the operating system they could leverage that to add in all the stuff you are talking about. The courts told them they could not do that when they did it with their browser and had to offer the browser as a separate product. So, Microsoft made the browser integral to the operating system and said they couldn’t unbundle it.
I seriously doubt they can get away with doing that with all this other stuff.
So, if Microsoft wants to offer these programs they have to offer them separately. And if they do that they can charge for it or give it away for free. Why would anyone buy it when free options for these basic things exist? Why would Microsoft expend resources developing something that is already available for free? Won’t help them sell more operating systems.
So, they don’t.
Patents are temporary to keep them from forming a real monopoly. They allow the inventor to have a 17 year period without having someone steal his ideas. But the fact that they are temporary tells you we discourage monopolies.
But monopolies absolutely do not inspire innovation. Innovation is a product of competition. you have to find a way to make your product better or more appealing to increase sales. You can compete by price cutting. But without competition a company will just pay the bosses more. There is no incentive to pour money into product improvement and research. Why should they?
The Unix split command can be implemented by a novice programmer in about 30 minutes. Microsoft’s OS’s have come with dozens of more complex utilities since the beginning. Yet, split, simple as it is, can be very useful. I remember needing to take a large file home from an Internet shop in pre-flashdrive floppy-disk days, and not knowing how to do it without Googling for a shareware split-equivalent and downloading that first.
split is not an isolated example. tr is an even simpler program which can also be very useful, and also is absent from MS’s repertoire.
With thousands of expert programmers, why doesn’t Microsoft provide such utilities, which would be child’s-play for even a single novice to write? I cannot think of any explanation except they do not want to empower their users. An unempowered user may find a need to buy more and more shrink-wrapped tools. An empowered user will learn to do simple tasks with simple building blocks.
They are in a perfect position to not put money in their product. they’re in a perfect position to let the infrastructure go while rewarding the bosses with huge bonuses and kicking money to the stockholders.
Microsoft is enormously wealthy. they develop new window programs on a steady basis in order to make their old one obsolete. Then they stop providing support for the old one to force you to pony up for the new one.
You guys keep saying a new company will step in to compete. How?
A monopoly is a company that controls the whole market. You guys make up a story about a new company coming in to force them to innovate. Once that happens, they are no longer a monopoly. They have a competitor.
But even hat does not happen. If you came up with a new and exciting idea in computers, Microsoft would steal it and sic a staff of powerful lawyers on your ass.
Monopolies are not inherently bad, and can in fact be beneficial. The best example I can think of is fire fighting. Competitive firefighting was a disaster. Of course firefighting is government controlled in most cases as well as a monopoly.
Monopolies are bad and stifle innovation only when they misbehave. Remember being a monopoly is not illegal in and of itself. If Microsoft creates the best OS ever and no one can compete on any level, even 100% of the market is not a problem as long as they just sell the OS. The problem comes in when they use the fact that they have that monopoly to stifle competition or to price gouge. Say they institute code that slows down all photo editors except those produced by MS. That would be illegal. Or they start charging hardware companies to allow their drivers to install in Windows. Or they start their own hardware division and all competing hardware stops working.
But you could make an excellent case for monopolies in things that are more for the public good or that are life and death: police, firefighters, health care, tax collection, national defense. At one time all of these were competitive. Now we consider a government monopoly to be essential for most of them.
No, it doesn’t. It doesn’t say what has already been tried, and failed, to convince you. It also doesn’t say what your default position is (that is, are you starting from a point of antipathy to monopolies, or indifference to them?).
And it doesn’t say what you think should be the requirements for improving your property (houses and hotels) should monopolies be disallowed.
Of the many issues to worry about in regards to capitalism and economics, monopolies are at the bottom of the list for myself. I read extensively on them during the Microsoft trial and while I did not like their practices and that they did have a de facto monopoly on too much software, it was much ado about nothing. As long as capitalism or any other economic system allows innovation (which includes granting temporary monopolies through patents) and the consumer has real choices for alternatives and substitutes, free market monopolies cannot hold their position for long. Microsoft certainly made it difficult for competing browsers and other software, but viable alternatives were available.
While they should not be encouraged and broken up if they grow too powerful such as with Standard Oil, if it had not been, consumers (businesses and households) would have focused on other means of energy.
That is the blind spot of most monopolies - control of one aspect of the market does not mean control of the entire market, their prices still have to competitive in regards to substitution goods. Price of trains too high? Use trucks and airplanes. And the tighter the control, the faster innovative entrepreneurs will develop alternatives.
Cartels on the other hand can be a serious disruption especially if they engage in regulatory capture. Thus Big Oil, Big Banks and Big Insurance cause serious harm even in no one firm has a monopoly, and regulatory capture can often be used to stifle innovation by inflating entry costs.
Banks , oil companies and big retailers are oligarchies. There are a few companies that dominate the market. They tend to carve up the areas and have the same prices ,like cable. They only compete in advertising. But they decide on a price structure that will give them huge profits.
We have no innovation in those markets. Our cable and internet is way behind other countries. The government does not regulate them. They have no incentive to create newer and better internets. We are slower and more expensive than other industrial countries.
Banks are all jacikng up the ATM fees and credit card fees. Why ,because they can. They will gouge you to make up for the profits they lost by their destruction of the economy. You don’t see a bank offering cheaper ATM fees. Where is the competition?
Big enough monopolies can (and did) also engage in regulator capture. The only difference between a monopoly and a cartel is the the number of players. Would OPEC have less power if it was one company/country instead of a bunch (hint: the oil embargo of the 70s was ended because Mexico broke ranks).
Unrestrained monopolies can also feed off their own success. If MS had not been under the threat of government regulation they could have pressured processor makers to lock out other OSes or lose the ability to run Windows. How long would Intel last if they lost ability to run any MS product? How long would Linux last if you could not run anything newer than a PentiumII system with it?