Antitrust: Is there really a point?

[The Don]

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1) Firms can gain monopoly status without the aid of government

I am not one to claim that it is impossible for firms to attain a monopoly status which is detrimental to consumers. I will claim, however, that this is impossible without the aid of government. Take Microsoft for example; the prices of their software would be significantly lower if it were not for the state-imposed intellectual property laws. Simply put, these laws prevent other firms from entering the market -- not the efficiency of Microsoft’s production. It is ironic that the government went after Microsoft for their monopoly via antitrust, seeing how it is the entity which caused it.

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I don't think you know your Microsoft history very well. In every product that they sell except maybe Flight Simulator they were not the leading vendor. Ever hear of Ashton-Tate, Lotus, Word Perfect, Netscape and Digital Research? Maybe you've heard of IBM or Apple? Anyway Microsoft didn't reach it's position of market dominance due to intellectual property laws. The notion that they did is pure nonesense. The truth of the matter is that software is more or less not that protected by IP laws.

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Link me to a place where I can buy another firm's version of Windows XP for a price which is actually related to its cost of production.

Think about it, without intellectual property laws wouldn't some Microsoft programmer (or anyone with the ability) start up a competing software company which sold something very similar to Windows, for much lower cost. There is a reason this hasn't happened, and it has nothing to do with Microsoft's efficiency and low prices.

[The Don]

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I'm really not well-versed enough in economic theory to debate this one at a sufficient level.

But...I would like to make a point of contention regarding your IP assertions. Are you contending that the ideas people have are free domain...ergo...nobody creates anything or makes anything they can call their own? Isn't that the point of competition? Doing things differently than the competitor, and drawing a client base who prefers your style over another?

Look...I'm most likely in agreement with you, given my libertarianism, and I don't usually like laws, but...intellectual property is indeed property, with all the same rights and privileges as a TV or a car. Otherwise, why bother creating anything, if you can't profit from your creation?

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Who said that you can't profit from your creation without IP laws? I am just saying that it is unjust to use governmental force as a means of shielding firms from competitors. People have every right to keep their ideas private. If they choose to enter the market with them, however, they should be prepared for competition.

Also, there are numerous advantages to coming up with the idea. Providing the best product, being the first to enter the market, etc... It is called entrepreneurship. You see profit opportunity, acquire capital, produce and profit.

[The Don]

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Power is power is power. The primary reason why microsoft was able to acquire and then maintain its dominance was that it was able to leverage it's power in the pc industry. But, more to the point, if a person or business has an emerging monopoly (the standard oil example that has been discussed) that business has the power of politics and the power to become more exploitative, so the two things, the power of dominant business and the government power are usually walking in lockstep and are therefore, not entirely distinguishable.

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I have no problem with “power,” so long as it is gained without the aid of government.

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I think predatory pricing is profitable for business in the short run. That may be what you meant to say... I was anticipating the statement that predatory pricing is profitable in the short run but not the long run. But, as far as it not being profitable in the long run, capital is pretty fluid, and once the party is over it can easily be moved elsewhere, and usually is. But, depending on how much power is wielded by the monopoly, it may not matter how predatory the prices are if no one can do anything about it, for example, no one is really able to contest microsoft windows as the dominant OS (the extreme, imaginary example is the company that provided air on mars in Total Recall, it took a revolution and the ruins of alien technology to free the people from its control.)

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Ha, well it depends on how short of a run. I was referring to the period where the business sells at below cost to drive out competitors. If you are talking about the period afterward, where they inflate prices far above costs, then I also don’t think this is profitable because of the losses suffered in the previous period. This also won’t last long because competitors will see a profit opportunity and seek to enter the market.

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Because they are uncertain about the future of the market, it is unsafe for them to lower prices to the level which is very likely to put other firms out of business.

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This is exactly what they do. And uncertainty has never been a reason not to grab power.

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I was referring to them lowering prices below costs. Historically, this is very rare. If firms do choose to do this, however, I am not against it as I will benefit from the low prices. The firm is essentially shooting itself in the foot... this is why you don't see predatory pricing, not antitrust.


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This seems to me to be a reason why monopolies are usually quite unstable, but not why they won't happen. The type of industry (which, in a sense means the quantity of power wielded) has a big impact on how possible it is for a monoply to be stable. When there was only one company in the country that could provide telephone service and the notion of putting up a parallel infrastructure was all but unthinkable, that was quite stable, anti-competitive and very exploitable. When a company is the only one able to supply a region with coal(the robber barons) and that was the only way for people to survive a winter, the people had to concede and had to allow themselves to be exploited, and there was nothing anyone or competitive buisiness could do about it, at least for the short term.

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Again, I have no problem with “monopolies.” If they are providing goods/services at low prices then I am happy. The point is that monopolies typically don’t “exploit” people because they realize that it is bad for business. Theoretically, if they did, there would be bad short-term consequences for consumers. Historically, however, the only monopolies which have exploited people have achieved “power” with the aid of government.

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I think there is a hidden assumption here that is not entirely true, namely that a company is a thing that provides a product or service, competing in an industry. While, there is a sense that this is true, a better definition would be a company is a thing that uses capital to generate capital. In a capitalist economy companies look at their service or their product as an expense. Put another way, it is the incovenience associated with acquisition. But acquisition is all there is. So anytime that a company feels it is worth it in the short term to enact predatory pricing it will. That company can always move its capital to other industries where better opportunities to acquire capital exist once the party is over, and they do this.

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Firms which have a dominant position in the market don’t enact predatory pricing schemes because they realize it is unprofitable. Firms which have power through government protection, however, are free to because they realize that their position cannot be compromised.

[peritonlogon]

The primary reason for my reply was to add a sociological perspective to something which, on the serface, seems to be a wholly economic issue. Economics, which, generally speaking, deals with incentives and disincentives is not, in itself sufficient to analyze something as complex as anti-trust laws and monopolies. An understanding of the power structures and social capital and how they're used for exploitation is also important. The statement that no monopoly has emerged or practiced predatory pricing without the aid of the government I find to be, not only a claim that monopolies and predatory pricing don't happen without the government's support, but also (and perhaps more revealingly) an indication that those who have power and influence use it wherever they can use it effectively. Or, put another way, the power that dominant firms have in the marketplace is not entirely distinct from the power they wield politically.

[tylerdurden]

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The statement that no monopoly has emerged or practiced predatory pricing without the aid of the government I find to be, not only a claim that monopolies and predatory pricing don't happen without the government's support...

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Care to name one "monopoly" that got it's position without government support?

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, but also (and perhaps more revealingly) an indication that those who have power and influence use it wherever they can use it effectively. Or, put another way, the power that dominant firms have in the marketplace is not entirely distinct from the power they wield politically.

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There's a difference between market power and coercive, violent power.

[The Don]

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Or, put another way, the power that dominant firms have in the marketplace is not entirely distinct from the power they wield politically.


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Agreed. I don't think that there is a debate on this subject. The larger firms can spend more money on lobbyists and other means of manipulating the system.

My problem is with "the system."

[Borodog]

pvn,

I don't believe he was claiming there were any?

[peritonlogon]

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There's a difference between market power and coercive, violent power.

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There may be a difference between violent power and nonviolent power insofar as one is violent, but the difference between market power and political power (I assume what you mean by coercive power) is not all that distinct. Market power can be coercive, dollars can buy votes in congress, politcal favors can buy money. There is another form of currency, it's usually called social capital.

[sam h]

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1) Firms can gain monopoly status without the aid of government



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It is rare for firms to gain effective monopoly status without government, but it has happened at some points.



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Name two.

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I should add a bit of nuance to my statement. A pure free market capitalism has never existed, and so it is unthinkable that a major firm, would be monopoly or not, would ever exist that was unregulated in its sector. The question is whether any firms that ever achieved effective monopolies (and I said there were few) did so largely for reasons unrelated to government regulation. I would submit that Standard Oil and Microsoft both fall into this category, but again, may point was that there are very few of these examples historically.

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The more important point to make, however, is that much anti-trust legislation is not really supposed to prevent monopoly so much as oligopoly . . .



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Why? Under what justification?

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I was simply responding to the original poster, correcting him on the intent of anti-trust laws. What is your issue with that response? The justification usually raised by those supporting these laws is obviously that cartels are bad for consumers.

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I don't really undertand your Microsoft example. How have anti-trust laws affected the price of their software? And if the price would be lower without them, as you say, then aren't the laws actually helping other competitors because the microsoft product isn't as competitive as it could be?



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Is that supposed to be a good thing?


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What is your problem? I was asking the OP a question. When did I say this was a good thing?

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It is my assertion that a market can both competitive and efficient with but a single firm. How do we know this? Because the prices are low and the firm is profiting. Under these circumstances, one particular firm is able to produce and distribute their goods and services so efficiently that their competitors cannot enter the market.


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How can it be competitive with one firm? There is no competition by definition.

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Actually, that is not true at all. This is non-competitive only under the bizarre definition of "perfect competition," one of the most useless pieces of doublethink I have ever run across. Until the early 20th century, "competition" was a behaviorial concept involving product differentiation, price advantage, etc. In the early 20th century the mathematical economists developed a mathematical model of "perfect competition," which relies on an absurd suite of assumptions such as...

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Empirical reality never meets the standards of perfect competition. That's not a big secret. It is just a set of modeling assumptions.

But in the ordinary language of the business world nobody cares about modeling assumptions. When people talk about competition, they are talking about actual firms in the sector. Of course there is always potential competition if others move in. But if you are the only player, nobody is going to say that you face stiff competition. And if you are the only player, generally you will not continually innovate, improve, and fight for market share with the same vigor just because of potential competition.

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Even if prices seem "low," how would you determine whether or not there were monopoly rents without a benchmark to compare with?



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You're suggesting that we should compare the "monopoly" price with some nebulous market price that would be obtained from a thousand non-existent competitors, when the actual comparison should be with no price at all--because the product would not be being produced if the "monopolist" were not providing it.

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The comparison I suggested, in which you compare the world as is with a hypothetical model in which other conditions hold, is the basic intuition behind a lot of economic models that approach these subject. That is the whole idea behind the concept of a rent, whether it is a monopoly rent or a rent from government intervention. Say what one will about the discipline of economics, but that is the approach. My point to the original poster was simply that you cannot tell whether the absence of other firms is hurting the efficiency of the sector without some counterfactual, which is logically obvious. In the absence of an empirical counterfactual, economics supplies a hyothetical one for better or for worse. Your counterfactual of the product not being produced at all makes no sense to me given the questions that are being debated.

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I don't see what the firm profiting has to do with it. That's just to be expected in a monopoly situation.



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That's just the point though. The implication is that somehow, magically, a single provider will reap "monopoly profits." But of course no one is holding a gun to the heads of consumers. The monopolist does not "make" the price. The price is freely negotiated by both sides. And if the price that consumers are willing to pay is so high that the level of profit made by the provider is higher than the general level of profit in the economy, entrepeneurs and capital will be enticed to enter this new market. Only by acting competitively, even in the absence of competition, can the "monopolist" prevent others from entering the market. Unless, of course, he can use the police power of the state to simply legislate and regulate his competition away.

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As I said in my original post, I don't think these kind of effective monopolies occur very often at all. When they do occur, however, then it is silly to say that nobody is forcing the consumer to enter the transaction. That's technically true, but if you want to buy a PC, then you don't have much of a choice but to pay the price for Windows. Most people will never actually even know how much it costs, since the price is just built-in to whatever they happen to be buying from Dell or whoever. Do you really think the price of Windows is determined in the market, the result of some equilibrium between supply and demand? Of course Microsoft "makes" the price to a significant degree.

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Honestly, I think you are too hung up on this efficiency thing. When most markets aren't competitive, its usually because something other than the efficiency of the major player is keeping others out. There are plenty of markets in which barriers to entry are very high for a variety of reasons.


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Name two (that aren't governmental).


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Name two sectors with high barriers to entry for non-regulatory reasons? Historically, this has been the case in most countries for almost any sector that is capital intensive. Right now some obvious ones are utilities like gas and electricity. Others might have high barriers to entry because of the nature of the sector. Maybe it is conducive to network effects, like on-line auctioning, or maybe it depends upon ownership of resources that are scarce, like diamond production.

[tylerdurden]

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There may be a difference between violent power and nonviolent power insofar as one is violent, but the difference between market power and political power (I assume what you mean by coercive power) is not all that distinct. Market power can be coercive, dollars can buy votes in congress, politcal favors can buy money. There is another form of currency, it's usually called social capital.

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This is like saying hot dogs and ice cream cones are the same thing because you can trade one for the other.

You recognize that political power is the problem, but seek to limit market power instead?