Monopolies allowed in the US

Although there are laws set up to prevent, or break up monopolies, there are plenty of monopolies that are allowed.

For example, in most places if you want cable TV, there’s only one company. Likewise, most places only have one garbage company and generally residential consumers only have one power company they can buy power from. And I’m sure that there are other examples as well.

So, here in the US, what conditions make it OK for a company to be a monopoly? The only thing I can think of is is size. The allowed monopolies that I mentioned seem to only be a monopoly for a city or smaller area. Do companies only run afoul of monopoly laws if they grow to a certain size?

Utility monopolies are allowed to exist because their prices are regulated by a government body (usually a state commission of some sort) that covers their territory. Generally, these arrangements come about like this:

Gummint: You are an abusive monopoly. We are going to prosecute you and cause a divestiture
Cable company: But think of all the poor TV viewers! And how will we divide up our last-mile infrastructure, anyway? It’s impractical, you silly bureaucrat.
Gummint: OK, how about we regulate your prices instead of dismantling your company and depriving the masses of their [del]brainwashing[/del] TV? In exchange, we’ll make it illegal for other cable companies to exist in you territory.
Cable company: OK.

And so now the country is full of wonderful corporate citizens like Cablevision.

Things like public utilities and railroads are monopolies simply because it’s often not practical for other companies to spend the large amount of money on infrastructure to compete in smaller markets. In these cases, they are usually regulated by various government commissions (there’s usually a Public Utility Commission) that they have to run any rate or service changes by. Usually the trade off for this is that the government guarantees them a monopoly and doesn’t let any other companies enter the market.

An example of this is that in my town for some reason the taxi service is regulated by the public service commission. We had only one company in town (with notoriously poor service) but nobody’s ever been able to open a competitor because the PSC guaranteed them a monopoly. But just recently a new company came in with the hook of being a “green” taxi company (that runs Priuses) and the PSC eventually let them open up because being a “green” taxi company is apparently a different service than being a normal taxi company. Go figure.

Oops, too late to edit, but I’d also add that historically, in the case of utilities, often the government HAD to give these companies a guaranteed monopoly because otherwise they would deem building infrastructure in smaller communities too risky or not profitable enough.

Well, the McCarran–Ferguson Act “exempts insurance companies from the federal anti-trust legislation that applies to most businesses.”
This helps explain why many states have only a single large health insurance provider.

OK, I think I’ve got it. If a state or local government has tight control over your finances, you can be a monopoly.

No industry started out as a monopoly in America. A city might have service from a half dozen railroads serving a half dozen separate stations with no means of transferring between them. A half dozen electric companies would put up separate poles and lines along a street to serve their customers. If you go back far enough you find competing private fire companies so intent on beating the others to get the fees for putting out a fire that they would each sabotage the rest en route and let the building burn.

This was madness. States began chartering companies to provide certain services, from running turnpikes to building canals to supplying water, with exclusivity built into the charter. Later, cities found the corruption so overwhelming that - sometimes to try to guarantee some semblance of efficient service, sometimes to bring the corruption in house - they established their own departments: police, fire, water, sewer, streetcars, electricity, gas, and others. Others, like telephone and telegraph services and later cable and mobile phones, were given franchises that guaranteed them a set return although they had to provide service to everyone who wanted it regardless of the cost to do so. Only a few monopolies were created at the federal level, mail service, radio and television most prominently. As said above, all monopolies exist under regulation, either from the state’s Public Utilities Commission or equivalent or a Federal Independent Agency, like the FCC. Theoretically, the regulators ensure that the monopolies get back just enough in profit to keep the companies going. The pay scale for executives at a utility company, for example, runs a tiny fraction of those in the private sector. And competition, once the monopoly has been opened up as also true in much of the utility industry, shows that the imagined savings from opening an industry to competition is often illusory.

The same problems exist today as they did when monopolies were formed in the 1900s. It simply makes no sense for multitudes of cable companies to run lines to the various homes on a street. That’s duplicating all the costs with only the hope of a fraction of the return. Dividing a city in separate areas makes much more sense. Dividing electric generation makes sense only if every firm can use the same lines for delivery. That’s been a pattern now in many states. The commonality is always about delivery of service, not about size or type of service. Giving customers one integrated system is the ideal. Whether the government runs that system, charters the systems, franchises the system, or regulates private firms doing the system will vary with local particulars, since there is no one way that is the right way. Often there are many ways that are the wrong way, though. When that happens monopolies don’t look so bad.

It’s also worth noting that in the US, the mere possession of monopoly power isn’t illegal. The government will not break up your business simply because you’ve been too successful and have too large a portion of the market. It’s using your monopoly power to suppress competition that’s illegal. It’s in the Sherman Act, the anti-trust legislation that was used to break up some monopolies in the past. Google “mere possession of monopoly power is not illegal;” that’s the relevant piece of legalese that permits non-abusive monopolies.

So now I wonder if something I heard is true or not.

When I was taking college classes, one of my instructors would sometimes talk about his days at Intel. One time he mentioned that Intel really didn’t want AMD to go away because if they did then Intel would be a monopoly and the government would probably step in. I wonder if that would really be the case.

Baseball also has an antitrust exemption.

It would definitely be a concern - much as with Microsoft and Apple. The U.S. govenrment might not complain or intervene. But even if it didn’t, they’d have to worry about various nations of Europe or the EU itself, or Japan, or whatnot. It could become a huge mess. And even if nobody did now, who’se to say what they’d do down the line.

Note that in many, many (and an increasing number so that it might not be most) areas, only basic utilities (water and power) are granted monopolies. Others, such as garbage pickup and cable or telephones, are no longer public monopolies.

The reason for this is simply efficiency. There is heavy competition and expanding service in these fields, and this is driving prices down well below the government-sponsored rates while also increasing innovation.

See, the basic problem of the public monopoly is that it almost totally kills onnovation. Neither the government nor the utilities have any reason to offer good service or new products, and it does hurt in the long run. They’ll often squeeze costs (because they tend to get back in pay what they save), but at the consumer’s expense.

I heard that the baby Bells are slowly merging back together again. If that’s true, and if we have another Ma Bell, I wonder if the presence of Vonage or other non-Bell companies would keep the feds from breaking up Bell again.

In some states the government has a monoploly on the sale of liquor. Pennsylvania is one of them. This would not be allowed for any other product, but the 21st Amendment exempts alcohol from the Interstate Commerce clause.

While that is often true, especially in cities, that’s not always the case. As I mentioned above, often especially in rural areas and smaller communities it would only be practical for one utility or other service to enter a market. Other times, something like a power or gas utility might say that if they’re going to go through the expense of building a pipeline or transmission line out to some podunk town that they’ll be given a monopoly for X years so they have a chance to recover their investment before someone else can build another line from the other direction.

Another increasingly common situation is that you’ll have a utility which was originally built as a public-owned utility that has been privatized, in which case the resulting company usually has a monopoly and has to stick to some terms in the privatization agreement, including being regulated by the government (although the political conditions which lead to privatization often do not lead to particularly stringent oversight by the Utility Board).

That’s been happening for well over a decade. The phone industry has changed dramatically since the days of Ma Bell and while the number of major players in the game is not huge, there is competition. There’s no need to break up a company in a highly competitive market. Think cell phones.

Except AT&T, during the period when it was pretty near a monopoly in the phone business, was quite innovative. Both the transistor (foundation of most modern computer hardware) and Unix (foundation of most modern operating systems) came out of Bell Telephone Laboratories (BTL) (not technically part of AT&T, but shared between it and Western Electric) prior to the divestiture in the 1980s.

In fact, Unix benefited immensely from a consent decree BTL was operating under: Since BTL was unable to profit from it, Unix was distributed in source form for a nominal fee. This lead to Unix being widely ported to hardware beyond its native PDP-11* and widely studied as an example of a modern, real-world operating system. As a result, Unix permeated the computer culture starting in the early 1970s and by the 1980s, it or its lineal descendants formed one of the most common class of OSes in use. Even MS-DOS grew features picked up from Unix, which subsequently made it into Windows, such as hierarchical directories.

*(ObNitpicker: Unics ran on the PDP-7, and it was very different from what Unix eventually became.)

Also, Claude Shannon developed information theory at BTL around the same time the transistor was being invented there. Information theory is instrumental in making audio-video networks, encoding and compression schemes, and, really, doing much of anything with analog data.

The AMA report linked from that page blames mergers and consolidation, not McCarran-Ferguson, for health insurance industry concentration.

There term is “effective monopoly” as the poster noted, it applies to things like Google or eBay, whereas anyone can come along and start up a competition but eBay and Google are so far ahead with such a huge market share that it makes any “effective” competiton slim.

In the past when things like this happen and a small up shoot company does take on an effective monopoly, and has a better product or service, the bigger company just buys them out.

This is best seen with cable TV. In a few parts of the USA there are cable companies where people can pick and choose which cable company to use. Competiton drives the price down in those areas.

I worked for a city government for over a decade so I’m quite familiar with the drive toward privatization of former government-run monopolies. That same experience also tells me that the notion that private enterprise is more efficient and can always provide better service at lower prices is mere ideology with no practical resemblance to the truth.

Sometimes private companies provide better service. Sometimes they provide cheaper service. Sometimes governments provide better service. Sometimes they provide cheaper service. The variables are enormous. Heck, the definitions of “better” and “cheaper” are so hard to pin down and standardize that trying to do comparisons is almost impossible and can lead to conclusions on opposite sides.

True, but except for scale this is no different from the situation in a large city. Having one company place pipe in New York City is not different from having one company put pipe into Hicksville (a real place in New York, albeit not terribly rural).

A small town might subsidize a doctor to set up a practice if they can’t get one to relocate willingly. But economic clout is a different aspect of the situation.