Does Capitalism Eventually Kill competition?

Great Debates
101

BTW, guys, sorry to forget this thread. I’ve been working and not posting much. And when my time is limited, I usually stick to Cafe and Game Room over GD. As late and uninteresting as it is:

This shows the huge swings in wealth share, and it’s almost entirely due to investment-based wealth, which is a major part of “1%” wealth. I got my share, too, since I saw a big opportunity when the market crashed. You can see numerous occaisions even in that top-level chart where wealth for the most wealthy crashed suddenly and for years, and likewise you would note that a high percent of wealth being owned by the wealthiest is correlated to a high instability of that wealth.

Judging by the responses so far, I submit that you’re looking at the same data I am, and taking an unwarrantedly aggressive view of it. I don’t much case how wealthy the wealthiest are, as long as I get my share. Noting it comes with its own problems is just more reason to shrug.

Microsoft didn’t beat them because it was a monopoly. It became a monopoly because it beat out other competitors. likewise, it didn’t win the Office Suite wars by doing it cheaper than the other guy, but by giving people what they wanted. And while completely free alternatives with similar functionality exist for both, most people aren’t leaving in droves, which indicates MS offers something they want badly. Even if you believe that Windows is now a monopoly position, that doesn’t explain Office, which most definitely ain’t free.

The big problem with most supposed monopolies is that they must be able to maintain their pricing in the face of competition. In practice, monopolies usually can’t just “cut prices below cost” to fight off some new upstart, because competition is not always, or even principally, about price, and because it then must somehow recoup the costs incurred even if it does. However, if it was a monopoly, it was already charging the optimum price before (from its point of view) and therefore can’t raise prices.

This doesn’t mean it can’t happen, but what often occurs is that the supposed monopolist finds himself in serious trouble even if they win a price war. Witness airlines, which (sometimes) manage to drive out low cost competitors, and yet still find themselves deep in debt and hammered by market forces. And they have almost every adventage a monopolist can hope for: implicit or explicit government assistance, limited resources they can buy up and deny others, and the advantages that a cartel-like agreement must bring*.

*Airlines are not exactly a cartel, but by neccessity they act like one. You can see the safety dance they perform over prices. Whether anyone likes it or not, it’s unavoidable.

102

I’m not sure how the power of market share is being dismissed as a factor when speaking of Microsoft and Office. This power of market share has to do with monopolistic qualities, not to do with ‘offering folks what they want’. I suppose it could be described as a small class of ‘what they want’ when business asks for ‘accepted market choice’ as a standard.

I’m resurrecting this thread as I’ve been having discussions about monopolies with friends. It seems pretty clear to me that the power of centralization, streamlining, automation, outsourcing all come with large market share. This large market share builds on itself to offer lower price, which becomes a barrier to new players in the marketplace who do not have the resources to compete.

I see arguments against monopolies focused on governmental intervention as the ‘problem’ but I see it as a symptom of the problem: Ccorporations will seek whatever advantage available to maximize profits as well as minimize costs and competition. Lobbying for governmental intervention is one of many methods a corporation will use.

103

Since I didn’t respond back in April …
One might make an argument that MS-DOS and Windows won by being superior in some sense. But that is a harder argument to make for Office and especially IE, which even MS admitted internally was inferior. And MS-DOS won not because it beat out the competition in the wider marketplace, but because it beat out the competition in being packaged into the first IBM PC.
Another case of this is the microprocessor. At one time the Intel Museum had an exhibit about the most important sales call ever - when they convinced IBM to go with them and not the technically superior Motorola processor. Before this, they were losing in the marketplace, even though they were first in getting one out.

104

Here’s a question for you. This is a list of the companies that received TARP bailout funds. IOW, banks that were “too big to fail”:

Citigroup
Bank of America
AIG (American International Group)
JPMorgan Chase
Wells Fargo
GMAC Financial Services (Ally)
General Motors
Goldman Sachs
Morgan Stanley
PNC Financial Services Group
U.S. Bancorp
Chrysler
Capital One Financial
Regions Financial Corporation
American Express
Bank of New York Mellon Corp
State Street Corporation
Discover Financial
Would the economy be better off if these banks were allowed to fail and hundreds of thousands of people lost their jobs? Or do you consider anyone who is an employee of a bank or financial institution to be part of the “1% moneyed elite”? Does it matter that most of the money has been paid back?

105

Better is a subjective term. Microsoft did not, and could not, have become huge except by offering something better for the person ultimately laying out the money. That meant the customer. And customers did indeed get something: quite often a simple, usable system that did more or less what they wanted to, and was likely to be interoperable with everyone else’s system. The italicized may seem like a small factor, but in fact it’s absolutely huge. Bill Gates expertly provided the customer with the one thing they valued more than any other: universality. He understood that network effects in the computer biz were huge.

While Microsoft isn’t always at the bleeding edge of the technical world, it works hard to build and maintain networks that multiply the utility of its products. And yes, being available is the first, hugest step in being better than the competition, because customers will always go for a solution that can have against one they can’t. And universality and availability are huge, and often created by their own perceptions - witness what happens with consoles; if they don’t quickly create the perception that the console will be a success with lots of games, then nobody buys it, and nobody wants to make games for it because it lacks a customer base, etc. Look at the Xbox. Microsoft went in an kicked butt in a market they had no experience with, and in which some argued they had an inferior product. So they built advantages the competition lacked, offered a lot of developer support the competition sneered at, and focused on market segments the competition wasn’t. By the second generation of competition they went from being the underdog to being the top dog, at least for the more hardcore crowd they targeted.

The problem with arguing that MS, and companies like MS, are big because they’re monopolies, or are monopolies because they are big, is that it assumes its own conclusion and hence loses its explanatory power. Wal-Mart didn’t start as a big company, and even today it uses the size advantages to improve its competitive edge with lower priced items, but not as the basic competitive edge itself.

Geeks like myself are often big on technical issues and fairly minute differences, but what really makes a company viable lies in the question of how it appeals strongly to a sufficient market segment to be worthwhile and viable. If it does so, then the leadership has done its job well. Maybe things will change and the company will either change with it, find a new segment, or wither. Maybe its appeal is broad and powerful enough to continue for many years to come - Wal-Mart seems to embrace more change than most. But Apple almost entirely left the computer market entirely. Microsoft is focusing more on support services and what used to be side business. K-Mart is a pale shadow of its former days when it was much bigger than Wal-Mart. Things change, and size is no protection. Either you give the customers a better deal on what they actually want, or you die.

For an example of a company that I particularly dislike, we can consider Electronic Arts, which is often considered to be one fo the big villains of the gaming world. EA does its job very poorly, but they do enough things very well to make themselves nearly unassailable. Yet they aren’t a monopoly and likely will slowly get ground down. But EA isn’t big because it’s a monopoly, even though it owns a couple of monopolies. They had a specific strategy and used it to get big, although that strategy is now showing its limitations. Their finances are so-so at best, and they’re reliant on a few annual titles. They’ve repeatedly made experensive acquisitions which turn out to be strategic errors, as they run each company into the ground within a few years.

106

ISTM they should be a whole lot easier to govern than a hard-to-keep-track-of proliferation of little-banks like we used to have.

107

Oh, please. MS-DOS was interoperable only because the early PC makers copied IBM’s open specs to make equipment which was pretty much identical to the IBM PCs - they were called clones at the time. Microsoft didn’t really have to do anything to make them interoperable. There were lots of other computers out there then, and MS-DOS ran on none of them. IBM at the time was of course so dominant that people naturally copied.

Kicked butt? This shows that PS3 and Xbox 360 sales are almost identical. MS lost lots of money on the Xbox, but of course they could afford it. I have no opinion on which console is superior because I don’t do gaming. Not since the 2600 anyhow.
It is hardly the case that technically superior solutions always win anyhow. Look at VHS versus Beta.
Another for instance - no matter whether Intel processors are superior to AMD ones, Intel will always be dominant (in that market) because even if Intel vanished, AMD does not have the fab capacity to meet demand.

We can look at what happens when they move into an area where they don’t have a monopolistic advantage. How are they doing in the phone market? The tablet market? Not very good, right? In any case, you did not respond to my explanation of how they got to be a monopoly. And no one is disputing how they outsmarted IBM - the early MS was as nimble compared to IBM as Google is as compared to MS.

If you were around when the first PCs came out, you’d know that no one bought them for the OS. It was laughingly primitive compared to UNIX. Which, by the way is far more portable than Windows will ever be. I’ve used it on PDP 11/70s, AT&T internal machines, Vaxen, mainframes, min-supercomputers, Sun Motorola based workstations and Sun Sparc workstations. Anyhow, based on their stock price, MS is dying also. The PC market is going to keep them going for a while, but they are increasing irrelevant. Not a sign of a company somehow bigger than their monopoly.

108

It is easier to govern a bunch of marmosets than a few six hundred pound gorillas.

109

Not to mention, the sex is fantastic.
I’m sorry, what were we talking about ?

[QUOTE=msmith537]
Would the economy be better off if these banks were allowed to fail and hundreds of thousands of people lost their jobs?
[/QUOTE]

The problem with this emotional line of reasoning is that, if followed, and once a given corporation reaches a certain size/commands the magic number of employees that makes it “too big to fail”, the corporation can do more or less anything it goddamn pleases without fear of consequences (at least from the government). Particularly large banking institutions, upon which many other corporations are dependent.
“Sure, we videotaped ourselves shitting on laws & regulations, laundered Mafia money, sold drugs and weapons and State secrets, and we took naked pictures of your mother… but are you *really *going to close us down and cost hundreds of thousands of people their jobs ? Hmmmm ?”

At some point you have to be able to say “Let the shit be cut, though the Heavens fall”. And it’s better for everyone if that point is “the first time they try and play silly buggers”.

110

Voyager, I will try to respond later. However, you’re (a) personalizing something which isn’t personal, (b) missing the balatantly obvious which I stated multiple times, and (c) you’re confusing universality with portability. In short, you haven’t actually made a response that argues anything, in part because you don’t seem to understand how I undercut your argument.

Regulatory capture, as well. I’m sure, being on opposite sides of the aisle, that we have different perspectives on what causes the fundamental problem, and at least some solutions. But I agree on the issue being stated.

111

That’s an example of moral hazard.

Each bailout leads to the next, once it’s internalized that the consequences for reckless behavior will be passed on to the taxpayer.

112

Or to put it more bluntly, since we KNOW some of these banks blatantly broke the law, we have left the crooks who were running them in charge. What could POSSIBLY go wrong?

113

“No. We are going to throw you - you personally and everyone else involved - in prison for a very long time. And take your money as well. Welcome to poverty Mr Smith.”

Just because an organization is too critical to be permitted to fail doesn’t mean the people in it are irreplaceable. Corporations aren’t run by people who are going to sacrifice their freedom and personal wealth For The Glory Of Capitalism like some financial suicide bomber in a suit; if they know breaking the law for profit will get them seriously punished and lose them those profits, they won’t. In fact the truth is the exact opposite of what you are saying; a threat to utterly destroy the corporation has little or no power if the people in charge think they will personally be left untouched, because the people who will be ruined be wrecking the corporation have no decision making power. In fact the odds are quite good that they planned to destroy the corporation themselves at some point when doing so seemed most profitable.

114

If actions are divorced from their consequences, the sole barriers to wrongdoing are internal ones. Those barriers cannot be relied on by society.

One thing that leftists and libertarians seem to be able to agree on is that the federal government’s response to the financial crisis was a poor one.

I personally saw the Emergency Economic Stabilization Act as a betrayal of Republican principles; it hastened my departure from the party.

115

That would indeed be another way, possibly even a more efficient way of letting the shit be cut, yes. Not really seeing that happen either, however.

Hell, HSBC was actually indictedfor knowingly laundering multiple digit billions (with a b) of drug and terrorist money - and was fined over it. Aaaand… that’s about it, really. No criminal charges whatsoever, nobody fired either. If Stuart Gulliver personally lost a cent over the whole affair, I’ll eat my hat.

Besides, “everyone else involved” can amount to shutting the bank down - I recall Jim Cramer’s extended interview on the Daily Show coupled with excerpts of an older, very incriminating videotape of his where he was describing textbook market manipulation and hedge fund fuckery, and was essentially saying to his interviewer “oh yeah, that’s completely illegal - but come on, everyone knows and everyone’s doing it because it’s so easy and the SEC doesn’t get it”.

So what do you do when the shenanigans aren’t just committed by the Chairman of the Board, or the Board of Directors, or even by senior management as a whole ; but by every last Tom, Dick and Harry with a phone and a credit line in the whole fricking shop ? Well, the obvious answer would be “at the very least don’t let these people work anywhere near the financial sector ever again”, but that’s not what’s happening.

116

Yes. But that’s not a “we *can’t *do it” problem; that’s a “we refuse to do it” problem.

117

Well, I’m glad you want arbitrary government authority crushing all beneath it, but most people live, and want to continue to live, in the United States of America. And in that particular location, we have a small document, without which the government does not exist, which defines explicitly that it can’t do something like that without actual proof and “due process of law”.

And as I’m sure you may imagine, proving rot in the courts is a lot harder than proving it in public. Especially as the people you hate happen to be best friends of the all the right peopl - the people you cherish and love.

118

When you respond please explain the difference. Yes, in one sense an OS running on the same processor and on motherboards built to the same standards doesn’t have to be ported, strictly speaking. Yet I’m sure running Windows on a new motherboard design is something that doesn’t work the first time. I’m familiar with board bring-up for non-Windows servers, and getting UNIX up is a major milestone.
And as I said the “universality” of the early PC was a function of IBM’s influence, not Microsoft’s.
My personalization is because I already had a PhD in computer architecture and was working in the IC and board design business when the PC came out, and so read a lot of trade journals about it. I also had a very early PC.

So I admit I don’t understand how you undercut my argument. You seem to be saying that MS got its monopoly from technical expertise on their part, rather than be handed it by an admittedly clueless IBM.

119

Three years later and my questions still reverberate.

There are entrenched stances on both sides with Libertarians repeating the chestnut that Theoretical Free Markets Don’t Create Monopolies, and the Socialists shouting that Regulation and Social Considerations are necessary checks to the Evils of Corporate Oligarchies.

I’ll try to simplify the question:

Does Capitalism in the Wild (not in theory) naturally lead to Monopolies?

120

Three years later and my questions still reverberate.

There are entrenched stances on both sides with Libertarians repeating the chestnut that Theoretical Free Markets Don’t Create Monopolies, and the Socialists shouting that Regulation and Social Considerations are necessary checks to the Evils of Corporate Oligarchies.

I’ll try to simplify the question:

Does Capitalism in the Wild (not in theory) naturally lead to Monopolies?