Not sure if this a GQ or a GD. Feel free to move me, mods.
So I had a little rant in the Pit about Ticketmaster. My grasp on anti-trust is admittedly loose, but I don’t understand how Ticketmaster and SFX are not defined as monopolies. They give incentives to venues to sell the tickets directly to them, then they jack up the price before re-selling the goods to consumers. How is that NOT illegal? They have a 20% convience charge. That’s aside from shipping and handling, which is equally inflated.
I think the reason that Ticketmaster is not technically considered a monopoly is that you can usually still buy the tickets at the venue box office without going through Ticketmaster. Of course, as TM has increased its hold, the venue box offices have offered increasingly less service. So TM isn’t the only game in town, but it might as well be.
The question I always asked back in my concert-promoting days was why is TM legal in the first place? If I go to the Rupp Arena Box Office and buy a concert ticket for $40, and then turn around and sell it to someone for $40 plus a $7 “convenience charge”, I have broken the law in the state of Kentucky (where scalping is illegal). However, this is exactly what Ticketmaster does. Near as I can tell, TM is licensed with the venue and/or the promoter to re-sell tickets, and that makes it OK.
I don’t know enough about Ticketmaster’s business practices to comment but i can say this. Under Anti-Trust law a monopoly is OK. You violate the law if you use your monopoly power to restrict competition (restraint of trade).
Think of it this way. You just invented a Widget. Since no one has seen it before and you have a patent you are an instant monopoly manufacturer of Widgets. So far so good…government has no problems with you.
Now I come along and try to build a modified and improved Widget as well for a little less money. You call your distributors and tell then you will yank your account with them if they try and sell my Widgets as well. Or you lower your price to below your manufacturing cost. Since you’re well established by now and have deep pockets and I’m in debt up to my eyeballs trying to start my company you undercut me in price in the marketplace till I go out of business at which point you raise your prices again.
Guess what…now you are in trouble (although at the pace Anti-Trust cases go (years usually) the aggreived party frequently goes out of business anyway before anything is settled in court). Those are just two examples of how this stuff can go but I think you get the idea. As long as you play ‘fair’ you can be a monopoly all you want.
Wait a minute. You say that monopolies are ok if they don’t restrict competition, OK, I get that, but then you say that I couldn’t COMPETE with the new company and lower my prices? Why not? So what if it’s below my manufacturing cost. IMHO, If it’s against the law, it’s a stupid law.
If you lower your cost beneath manufacture cost, the other company may not be able to do the same. So you are restricting trade.
Let’s look at it this way. Let’s say it costs me 5 dollars to make my widget. But I can afford to sell it for 3 dollars. It costs you 6 dollars to make the new and improved widget, but you cannot clear a profit unless you charge 8 dollars. People will buy my cheap widget more than your expensive widget. You then are forced out of business, because of MY monopoly. Thus restricting trade.
Does all of that make sense?
It’s not a stupid law if you’re the guy trying to start a new business.
Let’s say gasoline costs a gas station $1.20 per gallon and they mark it up to $1.85 (just for illustration…I’m making those numbers up).
Now you open a gas station across the street. Been you’re life long dream and you flipped burgers at Wendy’s and saved every penny you had for the last 20 years to save for the downpayment. To be competitive you sell your gas for $1.83 (assume the gas costs you $1.20 as well).
The owner of the station across the street does NOT want the competition. He’s been there years and has built a nice little nest egg so he lowers his price to $1.00 a gallon.
There is NO way you can match that price and afford to stay in business for more than a month or two. You’re forced to close your doors and go out of business.
The reason the law exists is because it is BAD for the end-consumer. Let’s say in the example above that this is the only gas station in town. To recoup his loses from putting you out of business the owner jumps his price to $2.00. The locals have no choice but to pay the price.
You can COMPETE aggressively but not UNFAIRLY so. The case above is unfair because you attacked a newcomer in a fashion that he could not POSSIBLY compete with. It takes a court trial years to determine if the rather vague definition of unfair has been met.
A dollar a gallon would sure be nice around here! But seriously, what is the law? Is it the judge’s discretion? For instance, how would I as the “mean” station owner know how far I could lower my price so as NOT to make it unfair to the other guy? Do I call him up and ask him?
“Hey, this is they guy from across the street, I was just going to lower my prices and I wanted to run it by you first, would you be able to compete with 67 cents per gallon? No? oh, I see, how about 1.67? Sounds good to you? OK. Good. Thanks!”
Or, (not so much in the gasoline business, but) how would I as owner know how much my competition was paying for a product? Say I run a food place and the other guy gets hamburgers for 50 cents each and sells them for $1.00. Say I have a crappy supplier and get them for 80 cents each and sell them for 95. Now the other guy gets competitive and drops his price to 75 cents, which I can’t do. How does he know that I can’t do that and would that be unfair?
I see your point, but I don’t think that a single instance of this sort of behaviour would be enough to win an anti-trust suit. This pattern has to be habitual for the government even to get involved.
So what, in your mind, would be a valid justification for anti-trust action? How would you write the law? Or are you saying that any sort of competition should be allowed?
Part of the problem with anti-trust law is that it is capricious and ad-hoc. It can be damned near impossible for a business to determine if a particular action violates anti-trust laws until AFTER, when some regulator decides to come after you. Applied to individuals, this would be unconstitutional (post-facto law).
If a competitor comes to you and offers a deal to collaborate, you may be found guilty of restraint of trade if you refuse, and guilty of collusion if you agree. And it can be impossible to tell until after the fact when the ramifications of the choice become clear.
When a company like Microsoft becomes very big, the situation gets worse. If they give away their browser, it’s an anti-competitive act. If they charge for it, they can be accused of taking advantage of a monopoly position. Anti-Trust lawyers will subpoena documents, examine the ‘culture’ of the company (i.e. E-mails that say things like, “we need to crush XX company”), and then decide after the fact whether the act was illegal or not.
In some cases, executives have gone to jail for anti-trust violations, even though they had rooms full of lawyers advise them beforehand that their action was within the law. That simply should not happen.
Our anti-trust laws are the envy of the developed world. Through trial and effort, we have developed an effective series of law and precedent that works pretty well. (Perfect, no).
As to your claim that you can’t tell whether you’ve broken anti-trust law until after you’ve done it, untrue. (As for your claim CEO’s go to jail for anti-trust violations after they have consulted with attorneys, wildly untrue. Criminal convictions require intent to break the law). The simplest way to avoid problems is to read the law and the case law. Most corporate behavior has already been addressed by the courts. In fact, nothing Bill Gates was doing is new – the Standard Oil case of ninety years ago revolved around several of the same issues - just substitute “oil” for “software code”.
The place where anti-trust most often affects day to day life is in mergers. There, companies as a matter of course present their merger plans to the FTC or DOJ, and these agencies ether approve, or recommend changes (usually spin-offs of certain assets). The companies involved can ignore the recommendations, but then they know an anti-trust suit will follow.
The simplest (albeit incomplete) definition of anti-trust violations where the offending company doesn’t compete on the basis of the value and quality of its product, but instead on the basis of using its established position to prevent other companies from entering/surviving in the market.
When you look at it this way, the benefits to the economy and the consumer of anti-trust law is obvious. If quality and value are no longer the criteria on which goods are judged by the marketplace, than innovation suffers. For an example from a slightly different context, look how crappy American cars became after the market consolidated into the Big Three and before the trade roadblocks to Japanese cars were lifted. Different historical basis (low gas prices, etc.), but the same result - crappier, more expensive products.
I think the trick on pricing is Predatory Pricing. Basically if a court finds you’ve priced your product in a fashion that is unprofitable to you they figure your only other motivation for that pricing would be to squeeze out your competition. That’s illegal. If you have a lower price because you have a better manufacturing system (or other cost saving infrastructure) then tough-tooties to your competition. They either adapt or go out of business.
Collusion, otherwise known as price fixing, is also a no-no. Basically the two gas stations in my example get together and say, “Competeing with each other is hurting both of us. Let’s agree to set our price at X and we’ll both make more money.” You also can’t divide up territories. SFX says to Ticketmaster, “I promise not to open shop in Chicago if you promise to stay away from Ohio.”
I agree with Sam the definitions are vague and easy (especially for a monopoly) to stumble over. A monopoly really has to watch their step. Not fair perhaps but then again they have the benefit of a monopoly too so it helps to keep them honest.
Perhaps the worse case of all are people bringing suit just to harass you. Anti-trust cases are LONG and EXPENSIVE. Let’s say Microsoft has been an ideal corporate citizen (for the sake of argument…this would demand another thread in its own right). A bunch of small fry gang-up and BAM. Microsoft is in court for years, has to second guess every decision and is effectively hobbled to the whole thing is cleared up.
Suing is also an unfortunately effective way of keeping newcomers out. Screw lowering prices and possibly becoming subject to a court case levelled at you. Sue the new guy regardless if the case has no merit. You can force them to stop making Widgets till your patent infringement case is settled. This can effectively put you out of business on the spot and this tactic IS used frequently (see my post in The Pit on Rambus).
Sorry this has been a bit OT.
I think Ticketmaster SUCKS as well! (See what happens when there is NO competition?)
That’s not true, how would the engineering department be affected by some on-going court case? Large companies are almost always in court for one thing or another and have a legal department to help take care of it. Yes, it costs money to run that department but that is one of the reasons why you’re paying $50 dollars for a copy for a cheesy word processor.
Small companies that don’t have well funded legal departments are the ones at risk in this scenario, if a big company kept your start-up in court you better be able to keep your lawyers farting through silk jammies if you want to stay in business. You kinda get to this point but its an effective strategy without the injucture to stop widget production.
I believe that one of the excuses Ticketmaster used to avoid being punished for anti-trust violations is that the venues it has exclusive deals with all entered into the arrangements willingly. I don’t know how the Justice Department managed to swallow that, since it means that there are many cities where no ticket company other than Ticketmaster is allowed to operate. Sounds like a monopoly to me.
I was hoping to go see Pearl Jam this summer, but with Ticketmaster fees their $26 tickets shoot up to over $40. Considering that I’d have to drive five hours and skip class to get to the venue in the first place that’s just a little too pricey.
An old friend of mine sells “Ticketmonster” tee-shirts over the Internet, if anyone is interested check out http://www.clubved.com/ticketmonster.htm.
I don’t pretend to come close to knowing the law in all of this antitrust stuff, and I have never been to a concert or whatever, let alone buy tickets from Ticketmaster. But concerning the Microsoft debacle I’ll be the first to admit that I haven’t followed it completely. However it seems to me that just because Microsoft bundles IE into Windows should not be illegal or crooked. It may or may not be free, depending on how you look at it. (what would the price of Windows be if it wasn’t included?) But let’s assume that it is, in fact, free. How is that illegal? Netscape is also free. I don’t know where it says that I HAVE to use IE. I have Netscape and IE5 on my computer. I am free to use whichever browser I want to use. IMHO, what it boils down to is that Netscape is mad because they have an inferior product, they know it, and in order to even THINK about staying in business, they had to come up with something. Hence, the antitrust debacle. Now, they are owned by AOL. If they are concerned with staying in business, why sell to AOL? AOL has a browser made by Microsoft. Sort of a watered down version of IE. (Or so I’m told.) I’m not pro-Microsoft by any means. Don’t get me wrong. I’m just really stupid when it come to the FINER points of the law in this area. But like I said, I have both on my computer. NOBODY is twisting my arm, telling me which browser I have to use.
Yes but the problem is he was using windows to shut down people in things besides the OS through the OS. Thats why they are forcing Windows to become one company while everything else is another.
To put it diffrently lets say theres only one gas station in your town and the reason why there arent any others is because of some buisness is collaborating with them. Sure you can go somewhere else to avoid high prices on gas…
Although I get the idea… I’m still not sure. Periodically some country accuses another country of ‘dumping’: China or Korea or whoever is selling Steel and ships at less than it costs them to make them! we have to stop that!
And I am thinking… if those guys, in spite of paying their workers pitiful wages, sell us that stuff below their cost… isn’t it the time to buy and hope they keep doing the same thing for a long time?
The argument is that domestic industry is harmed and it may be true but only to a certain point. I mean, they can lose money for a while and duke it out and see who lasts more. If they cannot afford to lose money then they are not too healthy. So they close down. And you say, now the others raise their prices… OK, so it is time for domestic production again.
I mean this happens with oil etc. Price of oil goes down, national drilling stops… price of oil goes up, national drilling resumes.
Me, every time I am offered something below cost, I think I’m getting a terrific deal. I am that simple.
In almost any industry there is a thing called ‘Barrier to Entry’. These barriers can take a wide variety of forms but the upshot is that it is MUCH more difficult to start from the ground up than to maintain and keep going.
When China (or whoever) dumps ludicrously low priced steel on out market that’s great for consumers in the short run. Just because US Steel goes out of business as a result is not necessarily a sign of weakness on their part. Many foreign companies get government subsidies and while US Steel may be a more efficient producer they cannot not hold out forever and they will eventually go out of business. NOW the Chinese company can raise prices as it sees fit. Suggesting that US Steel can then jump right back in is wrong. Companies like that are HUGE and simply can’t be started overnight and more likely take years to get going. Now, not only do consumers pay higher prices than they once did you have the damage caused by loss of jobs, those people collecting welfare, loss of a huge tax base from the manufacturer and so on. These are VERY high stakes and no one is playing nice.
Another example of this was Flat Panel Displays (the displays used for laptops). Although it seemed almost certain that Japanese/Korean companies were dumping it was hard to prove. In cases like these Japan and Korea have very tightly knit companies (Keiretsu and ???) that have their fingers in everything. In this case the comany’s other interests can subsidise this dumping. American companies are more frequently small (fewer conglomerates). While this allows them to be more nimble and cause fewer waves if they fail they can’t hope to stand up to the deep deep pockets of the foreign competition.
I don’t remember how this all ended for the American companies but I believe they went out of business. Remember, there’s tons of politics in this as well. The US might slap tariffs on Flat Panel Displays n retaliation but then Japan retaliates by not opening their market to our car manufacturers. You can bet the Big Three had lobbists telling congress not to piss Japan off this way. Given that the Big Three represent a far larger company the US Flat Panel manufactuers get sold down the river.
