In the same week that the E.U. announces its crack down on Intel for allegedly monopolistic practices, the Obama administration announces its intent, in effect, to return antitrust policy in the U.S. to what it was during the hyperactive 1960s and early 1970s. How progressive.
Mark Perry, of Carpe Diem, has the splendid post on the E.U.'s unfortunate action against Intel.
And I sent the following letters recently, on this topic. This one is to the New York Times:
enforcement policy against corporations that use their market dominance
to elbow out competitors or to keep them from gaining market share"
("Administration Plans to Strengthen Antitrust Rules," May 11). [Notice the administration's emphasis on protecting competitors -- that is, producers.]
Anyone
unaware that this new aggressiveness will, in fact, suppress
competition is not familiar with antitrust's history. Firms without
special government privileges successfully compete for market share
only by pleasing consumers. But ability to sic antitrust enforcers on
rivals will encourage many firms now, as it has in the past, to compete
for market share not by pleasing consumers but by pleading with
bureaucrats and courts to hamstring rivals that are more creative or
more efficient.
Sincerely,
Donald J. Boudreaux
This one is to the Wall Street Journal:
policy will stifle competition under the guise of fostering it
("Target: Intel, and Competition," May 14). But this fact is
unsurprising because governments respond only to interests that are
organized and visible.
Genuine competition relentlessly
pressures existing firms to work harder to satisfy consumers, and it
inevitably turns many firms that are today's industry leaders into
tomorrow's bankrupts. In doing so, competition clears the way for the
creation of new firms and industries that today are unimagined – and,
hence, that today are invisible, politically unorganized, and silent.
The
invisible hand, being unseen, will always be at a political
disadvantage compared to the visible palms – palms outstretched to the
state by beggars seeking special privileges.
Sincerely,
Donald J. Boudreaux
There's precious little evidence that antitrust regulation is necessary to protect consumers from monopoly power — and considerable amounts of evidence that it harms consumers by thwarting competition (both intentionally [also here] and as a result of bureaucratic and judicial ignorance). The E.U.'s recent persecution of Intel is, sadly, par for the antitrust course.
Here's a post on antitrust that I wrote in February of 2005.
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I generally agree with all of these points, Don. I am genuinely curious, though, about your take on barriers to entry and especially path dependence from network effects in this sort of market. Should they be completely written off? Is there no reason to expect that monopolization might stifle competition and innovation?
The economic justifications behind this are shallow and as usual forget to take the incentives of the regulators into consideration. What reason is there to believe that, if even there were an objective test for how monopolistic a firm was, regulators wouldn't just ignore the test and go for the biggest sources of revenue anyway?
Yeah, yeah, these actions against Intel are sheer foolishness.
But I have a related philosophical question. By sheer chance, one day (perhaps eternally far in the future) all corporations will merge into one large one.
When that happens, would the Libertarian outlook be okay with that?
Bret,
A large comet the size of Jupiter hits the planet a few million years from now, and knocks it out of the solar system and annihilates life completely, would you be okay with that?
Or a little more realistically?
By sheer efforts, if all nations unite into one world government, from which no one has any place to escape, probably under the banner of Orwellian sounding agency like United Nations or IMF, Would you be okay with that ?
The founding fathers could not foresee the mega-multinational corporation with 1 million employees. If they could, they would have written it into the Constitution to ban such entities from existing. No company should be over 500 employees.
His Imperial Obamnesty:
profoundly stupid?
clever, sinister and evil?
They both could work – I'm still grappling…
No company should be over 500 employees.
Any reason, or is this just a matter of personal taste?
With a slight tweak it's a haiku!
Obamessiah:
clever sinister evil?
profoundly stupid?
Was the parody intentional? You realize that the only way that would happen (short of a total reversal transformation of human nature) is with application of government force, don't you?
The founding fathers could not foresee the internal combustion or jet engine. If they could, they would have written it into the Constitution to ban such things from existing. No person should be able to travel at a rate of over 10 MPH.
The founding fathers could not foresee antibiotics or open heart surgery. If they could, they would have written it into the Constitution to ban such things from existing. No person should be able to live beyond the age of 65.
I like Snarky. XD
RE: "The founding fathers could not foresee the internal combustion or jet engine. If they could, they would have written it into the Constitution to ban such things from existing. No person should be able to travel at a rate of over 10 MPH."
LOL
The founding fathers could not foresee indoor plumbing or electricity. If they could, they would have written it into the Constitution to ban such things from existing. No person should be able to in a clean, hygienic environment.
The whole "antitrust" case is based on the assumption that monopoly is bad for the consumers. But it's like anything else, bad for them when imposed by the state but good if an outcome of market action itself.
And, if monopoly really were such a bad thing in the market, why is it such a good thing in "government," schooling, and healthcare?
Crusader wrote: "No company should be over 500 employees."
yet another Dave wrote: "You realize that the only way that would happen (short of a total reversal transformation of human nature) is with application of government force, don't you? "
These responses address the same point. Given Lord Acton's "Power corrupts. Absolute power corrupts absolutely", a mega-corporation is quite a concentration of power. Coupled with Mancur Olson's research and thought regarding the nature of special interests, it seems inevitable to me that mega-corporations, especially in slow changing industries, will form a symbiotic relationship with the State that further strengthens both the mega-corporation and the State, to the detriment of the rest of the citizenry. And, of course, we're seeing exactly that with GM, Chrysler, Steel protectionism, banks, etc., etc., etc.
So, given this seemingly inevitable sequence towards Corporatism, I was just wondering if Libertarians were generally okay with enormous corporations (which I think will ultimately evolve to a single Corp), or if there was a preference towards smaller companies and therefore smaller concentrations of power. But, as usual, I can't seem to get a Yes or No answer to a very simple question.
Dovetailing on dg's post, I am showing my economic ignorance here, but I honestly wonder if an true monopoly could exist for long in a true free market? Assuming the monopoly didn't use strongarm tactics to keep out competitors (and acheived monopoly status via consumer choices), wouldn't competitors eventually spring up like mushrooms if the market would support them? I realize this is just theory, but I am curious.
Bret,
Workers are not big companies but they create interest groups by cohering. If all you had was a bunch of little companies you'd still be able to get big industry-wide associations; so there's little reason to suppose that there would be any diminishment of interest-group pressures.
Has anyone ever noticed how the price of gas always seems to rise and fall roughly the same amount at all the service stations?
I wonder why there is never a sale at gas stations.
I wonder if a monopoly would ever have a sale on its products.
Do monopolies also supress competition?
Thomas, here is some interesting information on the Phoebus cartel run by GE, Phillips, and others to keep the price of light bulbs high, and to stifle competition. It existed for 20 years.
I wonder why there is never a sale at gas stations.
Gasoline is not a perishable. It has more or less constant demand. Even during the high prices of last summer, the demand fell by only about 4-5%( not sure of the exact figure ). THere is no need worry about it getting spoilt, or having to get rid of huge inventory. Which is the reason why you wont see any discount sales at a particular gas station.
Clothes don't spoil.
And gas grills, and paint…
Clothes do spoil, but they have longer shelf life. However, they go out of season, out of fashion. It will occupy space in stores where cost of real estate is very high. Where as gasoline keeps flowing in and out. If the situation for any reason slows a little bit, Gas stations can ask for refills less often, but it will be sold anyways.
Gas grills or paint doesn't have steady demand.
Bret,
"corporations, especially in slow changing industries, will form a symbiotic relationship with the State that further strengthens both the mega-corporation and the State, to the detriment of the rest of the citizenry. And, of course, we're seeing exactly that with GM, Chrysler, Steel protectionism, banks, etc., etc., etc.
Posted by: Bret | May 14, 2009 5:10:06 PM"
You seem so comfortable with massive intrusive state, but so uncomfortable with massive corporations; and, even more terrified of the two merging, yet seem to ignore that it is the state that has the coercive power in that mix, not the corporation. Why are you so comfortable with the one and hate the other?
"Has anyone ever noticed how the price of gas always seems to rise and fall roughly the same amount at all the service stations?
I wonder why there is never a sale at gas stations.
I wonder if a monopoly would ever have a sale on its products.
Do monopolies also supress competition?
Posted by: K Ackermann | May 14, 2009 5:33:41 PM"
I am surprised that you don't know the answer.
Government regulation is the answer.
Gas stations like grocery stores are allowed only a miniscule leeway in setting their daily price, and it is law.
Talk to a gas station owner sometimes about the situation, you might learn something.
Competition.
The way a competitor competes is to become competitive (whew) and always improve on that.
You can't call someone who turns to government coercive force for favoritism in the game a competitor, that one is a supplicant.
But, socialist do not understand anything I just said. They have their own unique defintions for words you and I think mean one thing and they another.
Actually, in addition to the "nonperishable" aspect, there are two other reasons that gasoline is never on sale. First, you can't sell below cost or the feds will come get you. Second, gasoline is effectively a commodity in the sense that people perceive little difference between your gas and mine.
In other words, it doesn't go on sale because you can't make a margin large enough in normal times to drop the price enough to constitute a "sale" – everyone will just go around the corner. I used to manage a gas station for a small chain. Its "pricing strategy" was to sell for 1 cent per gallon less than the big chain. It worked pretty well, too. Why? Because people (rightly, as we had the same supplier) believed that there was no difference between the two.
BTW snarky,
That was a beautiful series of satire.
OK, I'll say it: OPEC fixes the price.
Or, I should say, sets the price.
Not only do I want a cheap computer, I want one that is fast, longlasting, not prone to breaking down, has the latest technological innovations, etc. This is probably best achieved by having legitimate competition based on innovative chip design. You don't believe there is such a thing called anti-competitive practices. When will you come out from under a rock?
Why aren't they setting it higher?
Thomas,
I agree that that a monopoly would have a hard time surviving in a free market, but my point was that even if it did survive it would be to the advantage of the consumers.
By the way, why haven't we heard any more from Daniel? Surely he's not buying all this.
And gas grills, and paint…
consumer taste for clothes and paint change and old product must be shifted to offer new product. Grills are seasonal and must be shifted for the same reason. Gasoline is an undifferentiated commodity needed year round where competition has already cut everyone's profit margin to the bare minimum.
Or gas stations are evil and greedy. Your choice.
"OK, I'll say it: OPEC fixes the price."
Well, it tries Ackerman. However, when demand moves to extremes, the cartel loses control of the oil price because it can only control supply. Following the Asian currency crisis demand fell so precipitously that OPEC couldn't cut supply enough to support oil price. Last summer it couldn't pump enough oil to reduce prices. Extremely high prices are damaging to OPEC in the long run because they encourage efficiency and substitution and that can have long-term consequences for them in the form of a permanent reduction in demand (the lesson of the '74 embargo).
Bret,
What's with the "will form". Isn't the symbiotic relationship a done deal and hasn't it been for decades?
I think your "one corp" scenario is absurd because it's not possible. That was sort of the idea behind conglomerates and you know how that story ended – on a much smaller scale.
I don't know if I'm a libertarian, but I don't favour smaller over larger or larger over smaller. I favour government not having the power to extract rents from me and bestowing them on corporations, but if it's going to (and it is), then I just position myself on the receiving end. How's THAT for a straight answer?
Depends on the definition of "free market".
If Congress wants to discourage excessive monopoly, it can eliminate software patents and business process patents, limit device patents to the most capital intensive and innovative devices and shorten their duration, substantially shorten copyright and cease enforcing many anti-competitive covenants. Proprietors may write whatever they like into their contracts, but courts need not enforce anything, and the less enforcement of anti-competitive covenants the better.
States needn't actively interfere with resource organization to limit monopoly. They only need to cease enforcing it.
Beats the hell out of bullshit.
"Is there no reason to expect that monopolization might stifle competition and innovation?"
Am I the only one who sees the irony of this comment with respect to health care and education.
The government is busy busting some monopolies and building others.
Intel has 80% of the chip market while AMD has about 20%. Why is this the case? Is AMD losing market share to the point that it will soon be forced out of the market? What might be causing this to happpen? What will it mean for consumers if AMD is no longer in business. If the economic profession is good for anything, it should be able to provide answers to these and similiar question. Why do I always feel shortchanged by most economists?
I can only suggest an answer and it has to do with numbers or if you prefer statistics. Any economic discussion without real world numbers is suspect, in my opinion. Theory can only go so far. Very rarely do I see numbers used to bolster an argument around here. That's is why what most of you say rings hollow to me. I suggest you take some brush up math, econometric classs for starter to put numbers squarely into your arguments. That may help you to regain your lost respect and self-esteem. Can you imagine a bank teller who can't count. An economist who doesn't use numerical arguments is no better than a political scientist or an English major with bad grammar. You say that Indian sweatshop workers are happy to have moved off the farm and they are blissfully on their way to stardom in Bollywood. Can I have some numerical proof they don't really waste their life away doing menial sewing for pennies an hour? Give me the facts (and the numbers), Mam. Just the facts. (Otherwise, I'll keep assuming your dogmatic and just plain wrong.)
"States needn't actively interfere with resource organization to limit monopoly. They only need to cease enforcing it.
Posted by: Martin Brock | May 14, 2009 8:21:37 PM
How's THAT for a straight answer?
Beats the hell out of bullshit.
Posted by: Martin Brock | May 14, 2009 8:23:29 PM"
Pretty good, MB, but I said it on this blog long ago and with fewer words.
"no monoploy can exist without support from government." Vidyohs, circa late 2007 AD
But, feel free to quote me. ;-D
Thomas: I do not believe a monopoly could exist for long – if at all – in a free market. Here's why: it would always have competition, either direct competition, or potential competition.
Let's say Widget Company A, through innovation, great management of resources, aggressive marketing, lower prices, etc. manages to drive out all direct competition in the widget industry. It's the last widget company standing. Could it then ratchet up the prices and gouge the public? Not for long!
Once entrepreneurs saw the high prices – and accompanying high profits – they would swoop in to take advantage. They may not be real existing competitors today, but they are potential competitors, and Widget Company A should be very aware of them. If they want to maintain their monopoly they will have to continue to behave as if it's a jungle out there.
In a free market competition always exits, either directly, or as potential.
My favourite use of anti-trust law was when it invoked against Alabama blacks against their boycott of Montgomery buses. That was some restraint of trade! I love silly laws, if you proponents of anti-trust have benefits of such law then prove it! Damned, J.D. Rockefeller for reducing the price of kerosene by 90 percent. Ohh, evil monopolist, you think he would have saved the whales or something.
I've been wanting to respond to one of George's question/criticism:
"Where's this "liberal society"/"free market" you talk about, when has it ever existed, blah, blah, blah?"
George, circa 800 B.C.
Where is this "democracy" you keep talking about, when has it ever existed, blah, blah, blah?"
Trumpit – don't' talk about the semiconductor industry. STick to things you understand, like gay sex.
Math equation for the day:
Crusader = Troll
One possibility, Trumpit, for your question as to what is happening to AMD is their lack of ability to compete with them Intel CPUs. I believe AMD was on a roll back in the days of the Athlon 64 CPUs which faster than Intel's Pentium 4 CPUs yet had a slower clock speed requiring less cooling and they costed less. Intel must have felt terrible when the AMD's A64 4000+ 2.0 GHz CPU outperformed their Intel Extreme water-cooled 3.8 GHz CPU in gaming benchmarks and it cost less than half too. However Intel bit back with their Core Duo processors in a way that Intel CPUs are technically slower than AMD CPUs yet can outperform them. AMD CPUs generally sell cheaper but their performance is slower too.
On the other hand, Trumpit, naturally if you want a hardcore computer that lasts a long time, yet is fast as the latest releases then you'd have presume there won't be any more technical innovations once you buy your magical computer.
P.S. Interestingly it is said that the coma of the Great Comet of 1843 was size of the Sun. It wouldn't have mattered if the comet had have collided with the Sun as it akin to sponge colliding with a cannonball. (Same size, helluva different density and mass.)
Gil,
You seem to know what you are talking about. My slow computer with an AMD chip and Microsoft's Vista operating system sucks as far as I'm concerned. I don't know how to apportion the blame for my decidedly "softcore" computer. I suspect it's Microsoft's fault but I don't know how to establish that fact.
I played "Doom" a few times on my computer, but I decided I didn't want all that virtual guts and gore spilling on my computer screen. I guess it was fun in a totally mindless way. Like I need a high-speed computer to waste my life. I wonder how many people really need a fast computer, or a fast sports car. Funny, it's considered freedom to have a right to all sorts of nonsense. It probably more like slavery if you give it a moments thought.
TrUmPiT,
Google 'risc' and 'cisc'.
That should answer some of your questions.
Great point, Dan Phillips. I believe the story of Standard Oil provides empirical support for your argument. Rockefeller's goal was to establish a monopoly (or something close) to stabilize oil prices which swung wildly with boom and bust cycles. Despite very aggressive tactics, the largest share of the U.S. market Standard ever achieved was 90% and it was always fighting competition. Standard was never able to achieve anything close to that market share internationally.
A monopolist persuing it's profit objective produces an output below allocative efficiency creating deadweight loss to the detriment of society. Without a minimum efficient scale that is sufficiently large relative to market demand, the monopolist must rely on some barrier to entry other than it's low cost competitiveness. Barriers that protect intellectual property rights for some given period benefit society by encouraging innovation. It is only those barriers that are the product of rent seeking that benefit the monopolist and the regulator at the expense of society. This is corruption and a real threat.
Some of the posts above demonstrated a need for an Econ 101 refresher. There you go.
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