This week’s eWeek features an article Microsoft Security Pricing: Predatory or Correctional?.
The problem, it seems, is that MS has priced its security products “way below fair market value”, according to Alex Eckelberry, president of a competing security software company. McEckelberry is quoted as accusing MS of “endangering the entire security ecosystem with ruthless, Standard Oil-style pricing” — 30% to 50% lower than other competing offers. Eckelberry and another CEO in the security space suggest that regulatory authorities should investigate MS’s pricing.Is MS really engaging in “predatory pricing”?
The theory of predatory pricing is that a firm will sell at a loss in order to drive out competitors and then raise its prices and earn a monopoly premium. It appears that the accusation of selling below cost is not being made here, only that MS is selling for less than what its competitors sell for.
But what would it mean to say that MS is selling their software “below cost”? Software has the characteristic that the up-front development costs are more or les independent of the volume of products that will be sold. Most of the cost is in the coding and testing of the software. The cost of distributing the software, especially over the internet, is quite small. The average cost of production (per unit) will fall as the number of units sold increases, while the marginal cost of production is near zero. If MS believes that it can ship a large number of units, due to their large installed base and the relative lower cost of marketing to their own customers, then they may be offering a lower price in order to maximize revenue.
It is even more unlikely that MS is “predatory” in the sense that they plan to drive out their competition so they can raise prices. The software space is one of the most competitive and innovative of all industrial sectors. The idea that a single profitable firm could maintain a sole position without competitors for very long is dubious. Even if some existing security competitors lost market share to MS, the company could compete on short notice with MS were they to raise prices.
It becomes clear that what they mean by “predatory” pricing is lower pricing:
- David Moll, CEO of privately held anti-spyware vendor Webroot Software, threw his weight behind Eckelberry’s concerns, arguing that Microsoft’s pricing policy is “consistently out of line with the rest of the industry.”
This leads to the question of how is the boundary of the product defined. While some disagreement exists among computer software practitioners about what constitutes the operating system and what is an add-on, it has been the history of operating systems in general, and Windows in particular, to gradually expand the range of services that are bundled into the core of the operating system itself. Graphical user interfaces, networking, the handling of various external devices, the handling of various types of audio and visual media, and wireless communication are all examples of features that, while now considered standard in most operating systems, originated as add-ons. The increasing security baseline of Windows itself constitutes a form of “bundling” in that functions which were formerly provided by add-ons are increasingly part of the off-the-shelf version of the operating system.
The result is, for the general buyer, when they buy an operating system, they are getting an increasingly feature-rich bundle of services that have all been engineered to work together. While the sophisticated user may enjoy picking out the best third-party solutions and assembling them, the average user would prefer to buy a bundle of things that “just works” out of the box. Where MS is deficient, such as in the area of desktop search, many competing alternatives exist, and will continue to exist as long as MS Windows does a poor job of offering that service.
Security publications consistently report that the average computer user is woefully ignorant about computer security and does not take even minimal precautions to secure their computer against threats. The best solution for the unsophisticated consumer would be for MS to make their products more secure out of the box, eliminating the need for third-party security add-ons.
A significant fraction of the security software market exists only because of design flaws in the Windows operating systems. The third-party security add-on market has grown up as an attempt to address these flaws because MS has, until the last two years, not been willing or able to make their own products more secure. There is starting to be some evidence that MS has finally gotten more serious security. Windows XP with the addition of service pack 2, has made some progress in this area, and there are some reports that next version of their operating system, “Vista”, which may ship some time in the next five years, will offer additional improvements.
What should the additional price of security software be for a operating system that was engineered to be secure? Zero would the right answer. It is not clear, nor do the CEOs quoted in the article say, why is it a benefit to the consumer to have multiple security companies competing to sell add-ons that solve a problem that could be eliminated from the operating system itself.
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For my Windows using clients and friends, I’ve been using a *free* virus scanner from Trend Micro, housecall.trendmicro.com
Does that mean they’re predatorily priced too?
The absurdity of the legalistic attacks against Microsoft astounds me. Why can’t they just admit Microsoft Windows is a lousy product and leave it at that?
Because there’s no campaign contributions in doing so. Looking at the “Follow The Money” charts for the Gates Foundation and their lobbying agents, it’s obvious that the politicians are just fishing for some more money for the upcoming election cycle.
Let me see if I get this right. If you price too high, you are a monopoly. If you price too low, you are a predatory monopoly. If you give the product away, you are leveraging your monopoly to monopolize a new market.
And if you price the same as your competitors, you’re price fixing!
“What should the additional price of security software be for a operating system that was engineered to be secure? Zero would the right answer.”
This is incorrect. The majority of security issues on Windows are, in fact, a direct cause of misplaced trust on the user’s part. E-mail worms, for example, cannot propogate unless the user trusts the attachment enough to execute it. For this large subset of issues, there is no technical solution that would also be practical.
So what? The additional price for security that can be provided should be zero. The additional price for security that isn’t possible is meaningless.
And it’s hardly true that the majority of security problems on Windows are the user’s fault. That would apply to all OSes. It is, in fact, a very minor point.
“Pricing too high” means you are a monopoly or you are price gouging. “Pricing too low” means you are unfairly competing (maybe dumping). “Pricing at levels equal to your competitors” means you are price fixing (colluding). “Pricing at zero” (giving away your product) is considered socially harmful (unless the government says to do it) because you are destroying competition and jobs. “Pricing the same or similar products at different rates” is price discrimination (such as “bundling”), proving you have monopoly power and usurping “consumer surplus”. The list never seems to end…
Do you, or don’t you, people, believe in fair competition. I do. And for that reason I don’t believe in UNfair competition. Left alone, most markets would end up being dominated by some monopoli or other. Some company, through fair or unfair competition, grows to be bigger than the rest, and then it could simply buy all its competitors one by one. Once they are the only company in that market, there is NO competition any longer. Is that what you people would like to see?
If you do, then you DON’T believe in competition.
The fact that antitrust law prohibits a dominant company from buying all its competitors is good for competition.
I once had this polemic with a guy that doesn’t call himself a libertarian, but seemed to think along your lines. His argument was that as in sports, it doesn’t matter what the rules are, as long as the rules be the same for all. I proved him wrong by a simple argument: Rules in sports have evolved over many years, and were devised to make the games better. There was a time when the “icing” rule did not exist in hockey. So the game used to feature a lot of fulminant shots from long distances that were a lottery whether they resulted in a score or not, as well as whether they resulted in injuries. Then the “icing” rule was invented, and hockey became a much better game, with more strategy and skills, less randomness and less injuries. So, it DOES matter what the rules are.
Apply the same principle to market economics, and you’ll see that business laws, including antitrust laws, have evolved for good reasons, and have a legitimate place.
Pricing too high, for a monopoli, simply shows the fact that monopoli power is being abused.
Pricing too low, for a dominant company, can be a means to achieving monopoli status.
Equal pricing by a duopoli, is a means for a duopoli to act as a single monopoli while pretending to be a duopoli.
Are these concepts so hard to grasp?
I love the dig against Standard Oil, too. In fact, they consistently lowered their prices for decades. If the predatory pricing accusation were true, they would have surely gone out of business after operating at a loss for 20 years.
Dan: You seem to believe that just because a rule has evolved that it is necessarily good. However, the historical record suggests to the discerning observer that antitrust law arose merely on the rhetoric of protecting the consumer, but at behest of small businesses, who realized that they could use the new regulation to reap monopoly rents by stifling competition from larger businesses.
Might I recommend some Public Choice literature? A good place to start is “Antitrust Pork Barrel” by Faith, Leavens, and Tollison, published in the Journal of Law & Economics, Vol. 25 (1982), which found that prosecution of antitrust cases tended to be a function of political favors. For the history of antitrust law, you can try “The Protectionsist Roots of Antitrust” by Don Boudreaux and Thomas DiLorenzo. A more immediately pertinent article would be DiLorenzo’s “The Myth of Predatory Pricing.”
This is just a starting point, of course. Public Choice theory is just one aspect of it all. There’s much more to explore, especially from an Austrian perspective, about contrasting views of competition, for instance. It doesn’t do to just assert that free markets tend toward monopolies; there’s bountiful evidence that the exact opposite is true.
Dan: You seem to believe that just because a rule has evolved that it is necessarily good. Might I recommend some Public Choice literature? A good place to start is “Antitrust Pork Barrel” by Faith, Leavens, and Tollison, published in the Journal of Law & Economics, Vol. 25 (1982),
Who’s to say what the “fair” market value is?
The word “fair” shouldn’t even be included in the sentence. Every market exchange is fair, as long as there is an absence in the use of force.
Well here come the next batch of loses trying to use the legal system when their products fail in the market place.
I am getting tired of these antitrust actions. As long as Linux exists there is no argument any competitor can give to say Microsoft is a monopoly.
After all these years you would figure the legal system would get it but they never do.
Yes. Hopefully the FTC will step in soon. Remember: We need higher prices to benefit the poorest consumers…or…in some theoretical future…prices will go up.
(I’m sorry; it’s just very hard to refrain from sarcasm with this sort of thing.)
Bill hits the nail on the head: Literally every piece of software — OS, office suite, media player, browser, games, antivirus — can be obtained either free or virtually free, even for those in the most dire poverty. And how the hell can any nonschizophrenic individual say with a straight face that, unless government steps in, the following two things will happen:
(1) Microsoft will raise its prices.
(2) All its competitors — including those that are ALREADY FREE, not to mention those that are run by not-for-profit organizations — will go out of business.
Maybe I need some more hockey analogies.
Their argument might be taken to imply that free security updates Microsoft provides to fix weaknesses, bugs, or holes in their software which spyware, viruses, and trojans exploit could also be considered priced in a predatory manner. In this case, Microsoft competes unfairly against security software makers whenever they make their software more secure.
Swimmy:
“Might I recommend some Public Choice literature? A good place to start is “Antitrust Pork Barrel” by Faith, Leavens, and Tollison, published in the Journal of Law & Economics, Vol. 25 (1982)”
Appeal to Authority is a falacy. If you can’t argue my points from your own mind and heart, you lose. You can’t just send me to read a whole library of books that agree with your point of view, and hope to buy yourself a year of my time.
“It doesn’t do to just assert that free markets tend toward monopolies; there’s bountiful evidence that the exact opposite is true.”
Such as?
By the way, you people are all mixed up about free software. Free software is definitely “unfair” competition, per antitrust legislation. No argument there. The nice thing is there’s no one to sue, individual or company. No one for the FTC to investigate. Open source is a monopolistic weapon built by people willing to take justice into their own hands, given the FTC’s inaction about microshaft. Sometimes you need to use a thorn to pull out a thorn.
Dan, he was not arguing from authority.
An example of arguing from authority would be: Joe said it, therefore it is true. He did not make that argument, he said you should read something other than the statist claptrap you’ve been reading.
The fact is that predatory pricing simply cannot work.
Let’s start at the beginning, a company, deciding it wants to take control of the market, sells below cost. There reality already undermines this “predatory pricing” rubbish, because they must pay all of their costs or go bankrupt, so they must raise extra capital to cover their costs, but who would invest in a company that is making losses? No one. They certainly wouldn’t be presuaded by the someone saying “don’t worry, at some undetermined time in the future, their competitors will go out of business, unable to meet the lower prices, then this firm will jack up its prices, and your investment will grow in value”.
The uncertainty about the time is a key problem with this nonsense about predatory pricing. There is no certainty about when the others will give in, the only certainty is that until they do, the only certainty is that firm engaging in “predatory pricing” will incure losses through all of that time, and the longer it goes, the worse it will be, with the only reassurance being the idea that some time in the undetermined future. Running on blind faith is no way to run a business.
During the low price predation period, consumers will stock up. The law of demand (have you heard of it) says that consumers will demand more at a lower price than at a higher price. If they do this (and they will), then the strategy fails because when they raise their prices, all consumers do is thank their lucky stars that they stocked up during the low.
Another problem is that the competing firms (selling at a profit) will be better able to attract capital, in order to “ride out the storm”.
There is also the possibility of the victim firms entering into long term contracts, these will be accepted because consumers will fear the higher prices after the end of the price war.
If the victims are forced out of business, their assets aren’t burned to the ground, and their employees aren’t marched out and shot. The assets would be available at bargain prices (remember that we would be liquidating the victim firms), and the employees would be glad of new jobs. Why would this happen? Because the new high profits from the “predatory” firm would attract investment to that industry.
Incidently, I obtained this argument from Mr. DiLorenzo’s article, linked above.
Am I arguing from authority?
“Pricing too high, for a monopoli, simply shows the fact that monopoli power is being abused.”
That’s like saying the presence of a dead body proves a racially motivated homocide occurred on Shrove Tuesday.
Anyway, you’ve yet to show how a private sector “monopoli” can exist.
“Pricing too low, for a dominant company, can be a means to achieving monopoli status.”
No, it can’t. Simple as that.
“Equal pricing by a duopoli, is a means for a duopoli to act as a single monopoli while pretending to be a duopoli.”
So what should a company charge in relation to its competitors?
If it charges more, it is a “monopoli”.
If it charges less, it wants to be a “monopoli”.
If it charges the same, it is part of an “oligopoli”.
Now, some basic maths. If the competition charges $1, you can only charge more than $1, less than $1, or $1.
What should they charge in relation to the competition?
“Are these concepts so hard to grasp?”
I can’t make sense of nonsense.
“Free software is definitely “unfair” competition, per antitrust legislation.”
I gave a friend of mine sone jewellery last Christmas. Is that unfair to the jewellers of society?
The reason the FTC are softer on Microsoft is that Microsoft is giving more money to the political classes than when Clinton was in charge.
These comments are proudly brought to you from a computer using Microsoft Windows XP Professional, and Microsoft Internet Explorer 6.
Chris:
“Dan, he was not arguing from authority.
An example of arguing from authority would be: Joe said it, therefore it is true. He did not make that argument, he said you should read something other than the statist claptrap you’ve been reading.”
Not sure about what you thing I’ve been reading, but fair enough; he did not exactly appeal to authority.
“The fact is that predatory pricing simply cannot work.
Let’s start at the beginning, a company, deciding it wants to take control of the market, sells below cost. There reality already undermines this “predatory pricing” rubbish, because they must pay all of their costs or go bankrupt, so they must raise extra capital to cover their costs, but who would invest in a company that is making losses? No one. They certainly wouldn’t be presuaded by the someone saying “don’t worry, at some undetermined time in the future, their competitors will go out of business, unable to meet the lower prices, then this firm will jack up its prices, and your investment will grow in value”.”
I find it hard to believe you do not understand how predatory pricing CAN work and does. Let me take for example a case where it didn’t “work”, depending on your definition:
Back in 1995-97 I think it was, or around then, AMD came up with a much better processor than Intel’s Pentium, called the K6. Much faster and less buggy. (Yes, long story, Intel had an architectural definition for the Pentium, but many many silicon errata, whereas the K6 conformed to Intel’s definition of a Pentium without the errors, believe it or not.) Intel were manufacturing the Alpha processor under contract for Digital. So, they reverse engineered the Alpha’s famous Floating Point Unit (FPU), and used their enormous market power to influence (in fact bought many) software benchmark companies to emphasize floating point performance over integer performance, to make AMD’s products appear inferior. In record time, AMD came up with a new processor called the K6-II, with multiple FPU units that could work in parallel, but needed special instructions they called 3DNow!, a FP extension to Intel’s MMX instruction set. They got ID software to support the new instructions, as well as Direct3D, later OpenGL drivers; and began to get back market share in the gaming market.
Here’s where predatory pricing comes:
Intel had a comfortable monopoli for x86 servers and workstations, with their ultra-expensive Xeons, some fetching as much as $6000 a piece. Plus the P2′s were selling for 500 to 1500. So they came up with a SUPPOSEDLY slower processor they called the Celeron, which had less cache, but the cache was on-die, less latency; and very overclockable. In fact, the original Celerons were faster than the P2 when overclocked, but sold for like 1/10th of the price. Well below production cost.
The strategy did not work, because businesses began to buy cheap Celerons and overclocking them, instead of buying P2′s, so they had to stop doing it, but they very, VERY nearly bankrupted AMD. They were having huge losses, and it was almost a myracle that they managed to get some loans and investments to survive.
In many such situations, predatory pricing would succeed; in fact does.
Predatory pricing doesn’t need to be sustainable as you imply; it only needs to last long enough to achieve its purpose.
“So what should a company charge in relation to its competitors?
If it charges more, it is a “monopoli”.
If it charges less, it wants to be a “monopoli”.
If it charges the same, it is part of an “oligopoli”.”
You seem to have an agenda. I mean “you” as the whole organization. The dogma is that “Government Intervention is BAD. Now, let’s find out why.” Otherwise I can’t believe you honestly don’t get the picture. It’s not a question of what a company should charge, as if antitrust law was to be written down, Napoleonic law style. What kind of law system does Austria have? Most of the civilized world have what’s called “Common Law”, whereby the law that’s written is subject to refinement and interpretation by a judge. “The Law” is what a judge decides, in a particular case; and whether the next case will be judged to fall under the same category and interpretation, is for the next judge to decide. The question “what should a company charge?” is as absurd as you make it sound, in fact.
What matters is that a company that has a dominant position does not abuse its dominant position to try and elliminate competitors. It’s one thing for Intel to try and make the best processors and price them to compete with AMD. It’s quite another for them to abuse the fact that they could charge anything they wanted for Xeons, to then sell Celerons at a loss to try and force AMD into bankruptcy.
Could it be that government intervention is BAD in most cases but not ALWAYS? Food for thought…
Dan, I read this sites content, and I download some of it. I am not part of the Ludwig von Mises Institute, I’ve no agenda, except arguing what is true.
“Not sure about what you thing I’ve been reading”
The chap did provide you with some links, and I read DiLorenzo’s article, as I said previously.
“Let me take for example a case where it didn’t “work”, depending on your definition”
There is only one definition of predatory pricing in existance, lowering one’s price to below cost in order to force the competition out of business.
“Predatory pricing doesn’t need to be sustainable as you imply; it only needs to last long enough to achieve its purpose.”
Of course it must be sustainable, and the point is that no company knows how long it will take, and even if it did, it can’t stop the competition “riding out the storm”, or making long term contracts, and it cannot stop other entrepeneurs (people who know infinitely more about markets than civil servants, anti-trust lawyers, and judges) buying the assets of bankrupt competitors, and hiring their workers.
This is where we come to the crux of monopoly, only government force can stop competitors entering an industry. Monopoly is a grant of privilege by the state.
“Back in 1995-97 I think it was, or around then, AMD came up with a much better processor than Intel’s Pentium, called the K6.”
Stop right there, you have just based your argument on your own personal subjective opinion of the K6 (frankly, you wouldn’t catch me dead buying AMD chips, they are rubbish, too prone to overheating).
Since business was buying more Celerons, it is evident that they believed the Celeron better for their purposes.
“So they came up with a SUPPOSEDLY slower processor they called the Celeron, which had less cache, but the cache was on-die, less latency; and very overclockable. In fact, the original Celerons were faster than the P2 when overclocked, but sold for like 1/10th of the price. Well below production cost.”
The Celeron is cheaper because it has half the Front Side Bus Bandwidth of a Pentium. It is not a high performance processor.
Secondly, can you prove that they were selling below cost?
Thirdly, AMD still exists, and they still pump out chips, so Intel can hardly be called a monopoly.
What your argument in fact boils down to is Intel were gaining market share by offering business a better deal than AMD.
“It’s not a question of what a company should charge”
That is exactly the question, because the in prices is the evidence of violating anti-trust “laws”. You admitted it yourself.
Anti-trust is not a question of common law, common law concerns property rights (both in one’s own person, and things)
“What matters is that a company that has a dominant position does not abuse its dominant position to try and elliminate competitors. It’s one thing for Intel to try and make the best processors and price them to compete with AMD. It’s quite another for them to abuse the fact that they could charge anything they wanted for Xeons, to then sell Celerons at a loss to try and force AMD into bankruptcy.”
No company can set its prices. Surely you aren’t that naive. Prices are set by supply and demand, all a company can do is set the asking price.
Of course you’re ignoring the fact that Intel failed to drive AMD into bankruptcy. How does a failure show that something can work?
You’re also ignoring what would have happened if they had succeeded.
Obviously (you seem to hold to the statist view that immediately after the competition goes bankrupt, the “predator” will immeidately raise prices to recoup the losses), the inevitable raising of prices will attract investment to the sector, and with the assets of the bankrupted AMD available at bargain prices, and the employees eager to work again, what good entrepeneur could pass it up?
Intel can’t stop that, only the government can stop it.
“Could it be that government intervention is BAD in most cases but not ALWAYS? Food for thought…”
Vomit bags on standby!
You are also accepting this absurd idea that the government knows exactly what a particular industry should look like, that a judge with virtually no experience in the productive sector of the economy can know the appropriate prices.
You’ve not addressed any of my arguments at all, you’ve not shown them to be praxeologically false. Your example of a failure can hardly be said to illustrate your case, never mind prove it.
Dan, since you seem to be so concerned with abuse of power by monopolies, has it occurred to you that the very government that you so badly want to intervene is itself, gasp, a monopoly? Please elaborate on how taking power from a monopoly-without-guns and giving it to a monopoly-with-guns is an improvement.
Dan:
Reading the give-and-take, I see you’ve been getting battered; to a degree, you have my sympathy.
One guy referred you to some recommended reading. You reacted to that as though he expected you to put in a year or so and, further, made out that his conclusions with which you disagree were somehow suspect merely because he didn’t make the points himself. Now, it would be nice if everyone were capable of constructing a cogent argument for each position on which he had, somewhat previously, become convinced; even nicer if he could state such in concise terms. But that is rarely how such discussion works–not only because relatively few have the compositional skills but also because, no matter how well constructed, such arguments will always prove to consist of subsections, each of which will prove to be fertile ground for detection of still further points of contention. Only rarely are such arguments “won”; rather, each contender believes himself to have “scored points” on the other guy.
Let’s go back. Just why is is unreasonable to expect you try some recommended reading? After all, many of the posters here (though not all) have spent a fair number of years in studying not only the works of minds such as von Mises and others of whom they approve but of others, particularly those of the most noted critics of such ideas. Nobody said it was easy to understand such matters but it IS possible for almost anyone of reasonable intelligence who’s willing to expend some time and effort.
There’s another reason I have some sympathy. And that’s because I recognize the very sort of things I might’ve said in a similar discussion had it taken place 35 or more years ago. The world’s chock-full to overflowing with really intelligent people who believe a lot of nonsense simply because they were raised on it or it happens to be accepted doctrine.
The minds of men, whether they are anonymous members of the masses or part of leadership elites and opinion-makers, are only changed individually–one by one. But, in nearly 35 years of study (of economics) and of observation of surrounding discussion, I have yet to see anyone mount a serious critique or otherwise challenge what Mises had to say in HUMAN ACTION. You may not “have time” for it but there’s no way around that difficulty; not everything is easy.
Dan:
Two more things. Several of the guys here have tried to lay out the reasons why various pricing policies on the part of certain market participants cannot have the sort of effect on consumers you predict (quite regardless of the fact that current regulations fully mirror your expectations). None has done a thorough job, which would entail also a consideration of the reason why monopoly itself is viewed unfavorably:
the prospect that the monopoly might be in position to demand a monopoly price for its product (not a foregone conclusion in many cases). Also, I differ with the reading recommendations and again suggest going to the more complete treatment I’d recommended before.
Comments on blogs are strange sometimes. The second most common criticism I see of libertarians in comment forums is that they have “blind faith” in free markets. Of course, most of us do not; for the most part, we have seen evidence and read theories that have led us to these beliefs. One of my goals has always been to cite evidence. But, when I do that, I get told that I should argue myself rather than having others do it for me.
I guess that’s fair enough–three lengthy articles may be more than you have time to read on the subject–but it seems rather pointless. Comment threads might be the worst place on earth to have an argument about economics. Have you ever looked at the ones where things get really heated? They go on and on for 70 or more comments and never really say anything; no minds are changed, little real information is spread. I do my best to drop out at the first sign of that, and God have mercy on anyone who gets steeped in an argument about the minimum wage or immigration these days.
That said, I am perfectly capable of doing so, and if you’re still reading, I’d like you to understand my point of view.
The first, and most important question, is, “Why do we hate monopolies?” Standard economic theory tells us: A monopolist, not facing the pressures of competition, is able to restrict output by lowering the production of the good in question; therefore, he can raise the price to a non-equilibrium level. It damages the individual consumer, who now has to pay an artificially higher price and experiences deadweight loss as a result of the transaction.
I note that this is the only reason I dislike monopolies. They harm consumers. Moreover, I only accept as a definition of “monopoly” a business which reduces output and increases the price. Therefore, an industry like Standard Oil, for instance, which at one point had an 80% market share but never once used that advantage to restrict output and raise the price of oil is, to me, a competitive industry. Even the threat of competition can be enough for a company to refrain from monopoly pricing. As long as the consumer is winning, I am happy.
On the other hand, your arguments suggest that you dislike monopolies for another reason–because they drive out competition. Now, personally, I simply do not care. I prefer numerous smaller businesses competing to large monolithic corporations, but I believe that bringing about such a situation through government intervention most often helps businesses at the expense of the consumer.
“Predatory pricing” arguments are one such way this comes about. Competition, to me, means that businesses try to outperform each other to win the business of the consumer. As I said earlier, even a monopolist can be highly competitive in a contestable market, where the threat of losing business to potential competitors keeps prices low. Therefore, if a business lowers its prices and its competition suffers, as in your example, my immediate inclination is to see this as the very purpose of competition. If Intel was attempting to engage in predatory pricing, they undoubtedly lost a lot of money. However, if Intel was engaging in the standard practice of lowering prices to compete with a rival business, they undoubtedly gained a lot of money. Either way, the consumers benefited; they paid lower prices for a good they wanted. (Since Intel did not gain a monopoly from this venture, it’s a rather specious example of predatory pricing.)
However, say AMD had brought charges against Intel. Say the court found Intel guilty of predatory pricing. Now, Intel is forced to raise their prices back up to the “competitive” level. Consumers are now paying a higher price for a good which used to be cheaper; they have lost. In fact, if that price was a result of competition–and really, since all economic theory suggests that predatory pricing is an extremely dangerous venture in which a company sustains temporary losses for a (fairly small) potential of future profit, it probably was–then we have a situation in which the consumer is paying an arbitrarily higher price and experiencing deadweight loss, while AMD reaps undeserved profit.
In other words, we have a monopoly–this time, granted by the one and only government that we love so much.
And most evidence suggests that this is a fairly common practice. The “Antitrust Pork Barrel” study I recommended shows that the best determiner of whether monopoly cases will be prosecuted or not is geographically linked political favors. The overwhelming majority of monopoly cases are not undertaken to protect the consumer from monopoly prices, but to protect businesses from competitive pricing.
You point out that not all government intervention is bad. This is true. For instance, unlike most libertarians, I favor some moderate amount of redistribution. (The way I see it, if we can eliminate all the costly regulation, immensely lower taxes, and establish free banking, we’ll be so prosperous it won’t make a damn difference.) But the question is one of institutions. Do we currently have a governmental structure that creates incentives only to prosecute genuine, output-restricting, price-increasing monopolies? (Even if we did, could it bust trusts more efficiently than standard competitive forces?) We do not. Not by a long shot.
(You know, I’ve always thought exchanging essays was a better way of debate than writing pithy comments on blogs anyway.)
“I note that this is the only reason I dislike monopolies. They harm consumers. Moreover, I only accept as a definition of “monopoly” a business which reduces output and increases the price. Therefore, an industry like Standard Oil, for instance, which at one point had an 80% market share but never once used that advantage to restrict output and raise the price of oil is, to me, a competitive industry. Even the threat of competition can be enough for a company to refrain from monopoly pricing. As long as the consumer is winning, I am happy.”
Last months’ issue of Harper Magazine has an article on Walmart. They introduce a lesser known term, similar to “monopoli” but different: “monopsony?”. Frankly, I forget now; I lent the mag to a friend. I think it was “monopsony”. It refers to a business having the power to dictate price to its suppliers. Walmart is as big as the next 6 retail chains put together. If you have a company that makes consumer products and you have the (good?/bad?) luck of selling through Walmart, be prepaired for a really rough ride. Ask Kraft, who having been picked as an example of organization and efficiency and profitability, a couple of years later was laying off 14,000 employees and closing plants everywhere because it could not meet Walmart’s price cutting quotas.
What’s more interesting, many consumer product manufacturers are forced to charge more to small retailers in order to make up the losses they have to take to be able to continue doing business with Walmart. Thus, even without Walmart doing anything directly to harm its competitors, it ends up harming its competitors by way of its suppliers.
The story goes back to President Reagan, who, I take it, was a Libertarian at heart. He wanted to get rid of all antitrust laws, but settled for narrowing who the “victims” of antitrust violations could be to “consumers”. Since then, US antitrust law covers monopoli, but does NOT cover monopsony, and therefore removes any basis for charging a company like Walmart.
Now, as Walmart continues to advance and open outlets down to the smallest towns, every community it touches sees the gradual closing of all mom’n'pop businesses, of small retailers AND small producers. But you would say, as Walmart would say, that “the consumer benefits”… After all, judging from the statistical patterns of their use of their purchasing power, they all love crap manufactured in China that breaks just after the warranty expires. Of course, there are recalcitrants like me that will never set a foot at a Walmart, but would rather spend more money and buy products that are the labor of love of some local unknown, but we recalcitrants aren’t the majority of consumers, and this is a democracy, so if we end up being forced to shop at Walmart because there’s nowhere else to go, so be it. Hey, I’ve benefitted, because, as a consumer, statistically speaking, I want garbage from China.
Now, let me ask you a question:
Do you people believe in government at all? Is there a role for government in anything?
Obviously Libertarians don’t believe in any constraints being placed on businesses, therefore commercial law should not exist, environmental regulations should be abolished, slavery or not should be left to the private sector to decide…
But you do belive in civil law? Do you believe that killing someone to take his/her wallet should be illegal?
Then why make such huge distinction between “people” and “business”? Aren’t businesses run by people? Because it sounds like you think…
Business == GOD
Government == THE DEVIL
And people are only tolerated because they consume and produce, which benefits business.
Swimy, who does not have “blind faith” on free markets, argues:
The first, and most important question, is, “Why do we hate monopolies?” Standard economic theory tells us: A monopolist, not facing the pressures of competition, is able to restrict output by lowering the production of the good in question; therefore, he can raise the price to a non-equilibrium level.
A monopolist would not face the pressures of competition if competition is artificially limited by laws and regulations, which is exactly what happens when you have a restricted market, not a free market.
You point out that not all government intervention is bad. This is true. For instance, unlike most libertarians, I favor some moderate amount of redistribution. (The way I see it, if we can eliminate all the costly regulation, immensely lower taxes, and establish free banking, we’ll be so prosperous it won’t make a damn difference.)
Swimy, the reason some libertarians do not agree with your contention of a limited government has to do with simple consistency: how much redistribution is adequate for you may not be adequate for others, especially if these others have tasted what is like to be in power. Your idea of limited government rests on many “ifs”.
Do we currently have a governmental structure that creates incentives only to prosecute genuine, output-restricting, price-increasing monopolies?… We do not. Not by a long shot.
The problem is, how do you trust a government will prosecute output-restricting monopolies? The first problem that pops out of my mind is: how do you define how much output a market needs?
You seem to forget that many monopolies are actually government’s children: these exist because of trade restrictions, regulations, taxes, and patent/intellectual property laws. Trusting a government to prosecute what it created in the first place is like asking the fox to guard the hen house.
Swamy wrote:
I think it was “monopsony”. It refers to a business having the power to dictate price to its suppliers.
A monopsony does not dictate prices to its suppliers. That is a neo-classical economics fantasy. See below.
Walmart is as big as the next 6 retail chains put together. If you have a company that makes consumer products and you have the (good?/bad?) luck of selling through Walmart, be prepaired for a really rough ride.
No, be prepared for a tough buyer. That is all. Walmart does not put a gun on a company’s CEOs and tell them to sell at cost – the benefits of having Walmart as customer outweights any apparent inconvenience.
Ask Kraft, who having been picked as an example of organization and efficiency and profitability, a couple of years later was laying off 14,000 employees and closing plants everywhere because it could not meet Walmart’s price cutting quotas.
You make two assumptions here, and a post hoc conclusion. First, you assume Kraft is a marvel of organization – you cannot possibly know that, unless you were that company’s comptroller. Second, you assume Kraft laid off 14,000 employees because of Walmart, but again, you cannot know this. You conveniently ignore that Kraft has many competitors and that many of those lay-offs very well may be the result of a decision to close inefficient plants and departments.
What’s more interesting, many consumer product manufacturers are forced to charge more to small retailers in order to make up the losses they have to take to be able to continue doing business with Walmart.
That does not make sense. Raising the price of such products to your smaller retailers would actually encourage them to sell LESS of your product, which means the company would not compensate anything. Only a complete idiot would make a decision to “compensate” the loss of profitability of doing business with Walmart by raising prices to other retailers.
Thus, even without Walmart doing anything directly to harm its competitors, it ends up harming its competitors by way of its suppliers.
Guess again. Walmart does not “hurt” its competitors by buying at low prices. What does hurt its competitors is not willing to give the same value for money to their customers, and it is the customers who choose who stays and who does not, and not Walmart.
After all, judging from the statistical patterns of their use of their purchasing power, they all love crap manufactured in China that breaks just after the warranty expires.
You are making a value judgment that cannot be objectively compared to other people’s value judgment. The fact that some products break down is not immaterial to some, but irrelevant to many others, because the cost of replacement is still much lower than having an article of better quality. All the same, it is not up to you to decide what other people can buy, and certainly it is not up to Walmart; that company can only make the offer, but it is the buyers who decide in the end.
there are recalcitrants like me that will never set a foot at a Walmart, but would rather spend more money and buy products that are the labor of love of some local unknown
You have the freedom to do with your money whatever you wish. However, it is not up to you nor government to make that decision for anybody else. If people are not recalcitrant and are not willing to pay for more expensive goods, they are free to buy whatever they wish… unless, of course, that what you really have is an issue with freedom.
, but we recalcitrants aren’t the majority of consumers, and this is a democracy, so if we end up being forced to shop at Walmart because there’s nowhere else to go, so be it.
You exaggerate. There are many places to go to buy extremely expensive goods for the posh and petulant. Your comments reek of elitism.
Do you people believe in government at all?
It is not a question of belief, since government exists. It is a question of trust, so: NO, I do not trust goverment.
But you do belive in civil law? Do you believe that killing someone to take his/her wallet should be illegal?
What does this question have to do with trusting a government? You assume that only because there is a government, people are civilized and cordial. This is pure nonsense – if anything, governments actually encourage conflict, using envy as a political tool. There is nothing “civilizing” about government.
Francisco Torres, I think you misunderstand me. Of course I recognize that monopolies are overwhelmingly government creations, enforced by legal barriers to entry or legal threats to competitive practices like lowering prices. I contend that’s it’s possible–not probable–for a business to attain a very short-run monopoly status under certain circumstances. Of course, monopoly profits are a very large incentive for entrepreneurs to take advantage, if not in that market then in a substitutionary one. The phenomenon of non-governmental monopoly is very rare, and the free market alone is more than enough to make short work of them in short time. I do not trust the government to prosecute monopolies, and I believe we should abolish all antitrust regulation. You bring up a very good point: we do not know, without the process of competition, the proper prices and outputs of any given product. I do not like the deadweight loss generated by temporary monopolies, but I personally believe it is impossible to create an efficient governmental structure that can deal with them without generating even greater deadweight loss or infringing upon the freedoms of the populace. However, there are others who disagree, and their arguments are worth consideration. It does no good to blow them off as statist bastards.
As for redistribution, this is an argument for another time. For now, I’ll just say that I admire Milton Friedman more than Murray Rothbard and leave it at that.
Now, Dan:
Yes, I believe there is a role for the government. I am not an anarchist. It’s very silly for you to infer that, because I distrust market regulators, I must believe that murders and slavery should be legal.
Something else that amazes me is how often libertarians get labeled pro-business. If I say, “I do not care if businesses fail in the process of competition,” and you say, “I do not want small businesses to fail,” I am not the one who is pro-business. Just as you seem to believe that I worship at the altar of business, I can just the same say that you worship at the altar of small business, and your devil is the large business. I’m sorry, but I cannot accept that dichotomy; there’s nothing inherently immoral about taking advantage of economies of scale. The truth is that all businesses, large and small, are composed of greedy men who will do what they can to get your money. They can go about this many different ways: they can offer me what I want at a superior price to what others are offering it, or they can petition the government to protect them from the others who are offering products at a superior price. You are correct that the government is not the devil. It is a tool which can be used for good or evil. By and large, it is used by businesses and special interests, both large and small, for the latter. (If you’re genuinely interested in learning more about the economic theory of regulation and how special interests manipulate the government, I can recommend a large number of works from Mancur Olson, George Stigler, Gordon Tullock, and others. However, if you’re just interested in calling me a corporate whore over and over, we can just leave it at that.)
As for your Wal-Mart example, I will note only that the cheap crap from China you so disdain is more often what people can afford rather than what they want. Government action against Wal-Mart may be great for Mom and Pop or Kraft (or rich people who are too stubborn to do their shopping on the internet), but it would be miserable for the myriad lower-income consumers who lose the ability to purchase many products that they simply wouldn’t be able to afford at those higher prices. Once again, it is you who is pro-business.
Swimmy wrote:
“As for your Wal-Mart example, I will note only that the cheap crap from China you so disdain is more often what people can afford rather than what they want.”
EXACTLY! Glad you mention because this is precisely a situation that Walmart, consciously or unconsciously, helped create. I’m in Canada here, but close enough to the US to be concerned: Every crap made in China that Americans buy using their plastic cards, half of what they think they are paying but aren’t really is coming out of the growth in the virtual money supply. Why half? Just making a rough guess… The US trade deficit is about half its federal deficit. Materially, this resolves itself into US bonds going to China’s foreign reserve. When China wants to use those bonds to buy American oil cartels, Congress blocks the transaction; yet they can’t prevent China buying the oil itself in the world market, driving up the price of oil. Meanwhile the fed get addicted to China’s taking their bonds; they could never have dreamt of borrowing so much from Americans, who were already in debt to their ears. And China get addicted to selling their garbage to Americans, and then find themselves stuck with taking useless bonds because otherwise their numero uno crap consumer goes belly up. But I know Torres will say “nobody is putting a gun to anybody’s head so it’s all well and good.” But it isn’t, unless the recession that is coming in probably a week’s time’s waves of poverty, unemployment, hunger and disease, which will touch Austria as much as the rest of the world, is all well and good, as well.
I agree with both you guys in the matter of trusting government. I’d trust 666,000 lawyers before I’d trust 1 government. But the question then is political: How to build a system that ensures trustworthy government. Democracy, as we know it, doesn’t do it. I don’t have a categorical answer, though I do have tons of ideas I’ve been working on, over the years.
What I cannot agree with is the concept that government should simply be elliminated. I won’t throw on your faces the “You’re Anarchists” argument for two reasons: A) It is obvious B) Anarchism is a valid ideology, and one which I once embraced. Rather I’ll explain what changed my mind: Put a bunch of people who don’t even speak a common language in an island. Come back a year later and you’ll find an economic system and a political system. Human nature. The problem is when societies get so big and political systems get so big, that there is no cohesion, and no compassion. By compassion I don’t mean charity; I mean the ability of people to feel for the plight of others. Some highly paid bureaucrat makes a descision that affects the standard of living of millions and he or she doesn’t think any of it. Same goes the other way, government critics who don’t understand the complex descisions in the public sector and might even commit their erroneous suspicions to a cartoon that migh really hurt the feelings of a functionary who was doing the best possible under the circumstances.
Even law making requires compassion. The laws were not handed to us; we invented them because by nature we ***love Justice***; we are born that way.
Me:
“Do you people believe in government at all?”
Torres:
“It is not a question of belief, since government exists. It is a question of trust, so: NO, I do not trust goverment.”
I trust English is your second language. The 2-word verb “to believe in” has the meaning of believing in the value of. The expression “believe – in” is not a two word verb, but rather a use of the simple verb, plus the word “in”. Although the sentence structure can be identical, the intended meaning is often clear from the context. When I asked “do you believe in government”, I was clearly asking “Do you believe in the value of government?”. It is common use to say “I don’t believe in marriage”, for instance; which in no way questions the existence of the institution.
Habla el Castellano? Argentino aqui. Lo que no se es como meter acentos, y eso; disculpeme.
So, okay, you don’t trust government. I’m almost the same way, at least I can’t think of a government I trust. The only difference is that I don’t attribute untrustworthiness to the institution itself. I’ve known very good people, trustworthy people, in government positions. The problem is they are often outnumbered by the other kinds. Hey, it happens all the time; I’ve been working for this company for 15 years; I’m the senior engineer, and yet these useless idiots that know how to dress well with their damn suits and ties, are getting ahead of me and are probably going to take control of this company in time. At which point I will leave, and since I’m the only one around here who can design a circuit, the company will go belly up, and the useless pretenders will learn, or will they? Anyhow, others who had no part in it all will suffer because of it. So, it’s not like I cannot sympathize with someone hating everything to do with government or management.
But the solution is NOT to say, there should be no govenments and no managements. The solution is to come up with a solution.
“
“But the solution is NOT to say, there should be no govenments and no managements. The solution is to come up with a solution.”
Dan, you’ve not actually shown that a sustainable monopoly can exist in a free market. Before you establish that solutions are necessary, you could at least establish the existance of the problem. The way to do that is praxaeology, the logic of human action.
The problem you established in your above post was not a private sector monopoly, it was a public sector monopoly creating that problem (The Fed). The solution to the problems created by the Fed: Abolish the Fed, go to free banking, and a gold standard.
Chris Marshall wrote:
“Dan, you’ve not actually shown that a sustainable monopoly can exist in a free market. Before you establish that solutions are necessary, you could at least establish the existance of the problem. The way to do that is praxaeology, the logic of human action.”
The solution I was just advocating to come up with was related to the lack of trustworthiness of government; no direct relation to monopolies.
Chris Marshall wrote:
“The problem you established in your above post was not a private sector monopoly, it was a public sector monopoly creating that problem (The Fed).”
Precisely, but the last sentence, “creating the problem”, is your addition; I never said the fed was creating the problem of monopolies. That’s your value judgement, not mine. I wouldn’t deny that central governments ***often*** support or create private sector monopolies, but I do not concur with your subtle insinuation that they do so “by their very nature”.
Chris Marshall wrote:
“The solution to the problems created by the Fed: Abolish the Fed, go to free banking, and a gold standard.”
I do not concur that a fed must necessarily create monopoli problems.
I do concur that a federal government is a sort of monopoli itself, and I cannot see how it could not be. But if you could not trust a government’s political will to regulate monopolies, I’d much less trust the political will OR ability of a private sector entity to do so. A private sector entity would either be smaller and therefore weaker than a fed, and therefore unable to regulate monopolies; or else it would be large but unaccountable, since they’d be governed by their wish to profit, and therefore could not only easily be “bought” by monopolies, but would itslef be a monopoli of the kind it would be in charge of regulating away.
That’s the whole idea behind “government”, a large, non-profit monopoli that bears custody to the interests of of the citizens it represents. It doesn’t always work, but the “solution” I advocate is to figure out ways to make it work, rather than throw away the baby with the bath water.
Free banking and gold standard are antonyms. If banks were not regulated, they’d have less and less reserves until the system collapses, the day just after its directors take off in their private jets, never to return.
You guys think exactly the way I used to think 20 years ago. I had exactly your same ideas and arguments. The only question in my mind was why the forces of supply and demand were not working when it came to the problems of the environment, such as the rapid deforestation, green house effect, illegal dumping of toxic waste, etceteras. I had a friend who was a Communist, and we used to argue day and night, and she kept telling me to read this or that book, and I kept saying “forget it; you prove me wrong”. One day she grabbed a book of Karl Marx and put it in my hands. I was so tired of arguing, that particular day, that I just opened the book at a random page and started reading a paragraph aloud, which I though I’d disect and rip apart after. The paragraph read, paraphrasing, “Another problem with capitalism and the concept of ‘worth’ of ‘value’ of goods, is that only things that are *exchangeable* can have a monetary value. Things that you can pick up from a store shelf and pay for at the checkout. If something is not exchangeable, its value, under Capitalism, is zero.”
Nothing I could argue with; and then suddenly I had my answer for all my nagging questions about the faliure of private sector to protect the environment: The ozone layer is not exchangeable, therefore its value is zero, even if our future depends on it. Biodiversity is not exchangeable, therefore its value is zero. “The Future” of humanity is not exchangeable…
What about trees?
Trees in private property are exchangeable, but the secondary benefits of preserving old growth within those properties, such as providing a sustained existence for species that were evolving there for millions of years isn’t exchangeable. So the best that supply and demand could come up with is replanting of trees for the future benefit of the industry that consumes trees, which is not a solution for the real problem: The loss of bio-diversity.
In so-called “crown land”, land owned by the fed, the fed issues permits to logging companies, which permits cost as little as 25 cents per tree. If a truer “value” were assigned by the feds, such as several thousand dollars per tree, there would be supply and demand for recycled paper products. As it is, paper recycling has to be a non-profit endeavor, simply because it cannot compete with the cheapness of raping the natural environment.
The whole idea that private sector can regulate itself is based on the false assumptions that all things that are valuable have a price, and that the interests of humanity at large and of societies in particular will always be represented by some business or party in whose profit will be to serve that interest.
But this is not so: Protecting the ozone layer is in the interest of humnanity at large, but not in the economic interest of any party or business in particular, as the ozone layer is not exchangeable and therefore has no “price” even if it has an enormous value.
That is why we have representative governments. Their true mission would be NOT to interfere with business where the common good is properly represented by forces of offer and demand, but to step in with force when necessary, if or whenever the common good is not best served by offer and demand, such as the preservation of our environmental heritage.
To think that offer and demand ALWAYS work for the best of the common good is fanatical and myopic.
Offer and demand could never have come up with a clean air act, or with a kyoto accord. (But of course you people will now attack the value of the clean air act and the kyoto accord, since that’s all fanatics can do: step on the evidence when it doesn’t suit their theories…)
And that’s also why governments have evolved out of necessity: Private sector will never be forward looking enough to manage natural resources sustainably, because the problem of cut-throat competition is an immediate one. The private sector won’t produce a civil law system, or a defense department, or a NASA. Sure, we might have a scattering of mafias and militias, and pricy hotels at the Lagrange point between the Earth and the Moon, but we wouldn’t have rovers taking pictures of Mars. Private sector wouldn’t have produced a superconducting super-collider, and President Reagan, who believed so much in the private sector, therefore cancelled the project, setting back the progress of Science 20 or 30 years in a single stroke of the pen.
“The solution I was just advocating to come up with was related to the lack of trustworthiness of government; no direct relation to monopolies.”
You have consistantly suggested that the government should solve the “problem” of private sector monopolies, without establishing that they can exist.
“Precisely, but the last sentence, “creating the problem”, is your addition; I never said the fed was creating the problem of monopolies. That’s your value judgement, not mine. I wouldn’t deny that central governments ***often*** support or create private sector monopolies, but I do not concur with your subtle insinuation that they do so “by their very nature”.”
No, what you said was that loose credit was creating the “problem” of people buying “cheap Chinese crap”. The Fed is creating all the loose credit.
“Free banking and gold standard are antonyms. If banks were not regulated, they’d have less and less reserves until the system collapses, the day just after its directors take off in their private jets, never to return.”
The only real threat to the gold standard was government.
The banks will be regulated by market forces, a bank engaging in fractional reserve practices will be found out, and that bank will go out of business. The banking system as it stands now doesn’t keep banks in line, it subsidises their excesses.
You’re also assuming that there is a need for central banking, yet that has never been the case, at least not from the point of view of the ordinary person, the only people who need a central bank are bankers who wish to profit from fraud, and the state.
“One day she grabbed a book of Karl Marx and put it in my hands. I was so tired of arguing, that particular day, that I just opened the book at a random page and started reading a paragraph aloud, which I though I’d disect and rip apart after. The paragraph read, paraphrasing, “Another problem with capitalism and the concept of ‘worth’ of ‘value’ of goods, is that only things that are *exchangeable* can have a monetary value. Things that you can pick up from a store shelf and pay for at the checkout. If something is not exchangeable, its value, under Capitalism, is zero.”"
Value is simply a subjective judgement of the individual. Exchangability has nothing to do with value, unless we want something for the purpose of exchange. The only thing that we value because it is exchangable is money. Everything else is valued because it serves some individual want. That is the basis of value, what an individual wants.
I do not value my DVD collection because I can exchange it for any number of things, or because it has a paticular dollar price. I value it because I like watching the programs on the DVD’s. I value it because I want the satisfaction I get from watching them. The reason I bought each DVD was the anticipated satisfaction.
On the question of value, Marx had absolutely no idea.
“Biodiversity is not exchangeable, therefore its value is zero.”
Of course it has value. Value doesn’t come from its ability to be exchanged, value is a subjective judgement of the individual.
“If a truer “value” were assigned by the feds, such as several thousand dollars per tree, there would be supply and demand for recycled paper products.”
If arbitrary prices set by the state can work, why have they never worked before?
As it is, the governments have been terrible at forest management, they have either created virutal deserts, or firetraps full of dead wood. They have never created a fully sustainable model, that will serve everyone’s interests, all they can do is create a chaos which will serve a highly limited set of special interests. This is the story of government.
“As it is, paper recycling has to be a non-profit endeavor, simply because it cannot compete with the cheapness of raping the natural environment.”
Paper recycling is only non-profit because it cannot make a profit.
*********************************
The root of environmental problems is the tragedy of the commons. These disasters have occurred on government owned land, or because of government grants of privilege in that they refuse to enforce property rights.
*********************************
Dan, in all of your statist ranting, you have not answered the key question: How can a sustained private monopoly exist?
All you have done in this discussion is assume this question away. This is the crux of this argument, without an answer to this question that can stand up, nothing else you have said has any meaning.
As it stands now, I don’t see how a private sector firm could legitimately keep other firms out of a particular industry, or from offering an alternative product.
You might say that in a town with a single fried chicken store, that store had a monopoly, but that town also has several pizza stores, burger outlets, fish-and-chip shops, kebab shops, pie shops, bakeries, sandwich bars, delis, and the townsfolk could also cook at home.
Again, you must show that a single producer could keep everyone else out of an industry, and prevent the offering of any alternative product legitimately.
“Dan, in all of your statist ranting, you have not answered the key question: How can a sustained private monopoly exist?”
I do not have to prove any such thing, since I never used the word “sustainable” in connection to monopolies. If a monopoli manages to last 10 years, that’s bad enough for me.
And as for the ability of monopolies to exist, do you think the term was conceived by theoretical speculation? This is like talking to a typical “skeptic” about any subject the skeptic chooses to be skeptical about, an uphill battle leading nowhere. So, some skeptic decides to be skeptical about medicine and vaccination, and won’t believe that polio ever existed, and won’t accept the fact that polio was conquered by vaccination programmes, so the only way I could convince him would be by travelling back in time and sabottaging the vaccination programme, then come back to our time, and let him see a world population decimated by polio. You’ll say I’m exaggerating; I’m not: My employer (wish I believed in Hell) is a self-proclaimed skeptic, who a couple of years ago was making light of SARS and “all these people making such a big deal out if a few deaths here and there”. The only way to convince the moron would be for the WHO and many other organizations to do nothing and let the world’s population be decimated, as SARS could very well have done, had they not acted on it so fast. I remember here in Canada, two passenger arrived in flights from China showing symptoms. One to Vancouver, where a doctor there had been reading up on the reports of this possible new epidemic, on the internet, so he had the traveller put immediately in isolation. The other passenger arrived in Toronto, and a doctor there had read reports of the new epidemic, but was “guardedly skeptical”, so he kept the patient at a hospital for observation, but not under isolation. Result? Nobody died in Vancouver. Dozens died in Toronto.
So how am I supposed to prove that, with a lack of anti-trust law, monopolies would arise? I cannot prove it, except to go back to Standard Oil and say it would be like that but in a bad way; because Standard Oil makes for a bad example of a bad monopoli. Standard Oil was IMO a beneficial monopoli, in that its existence helped regulate the boom and bust of the oil industry. They helped cap the rampant extraction rate of a limited resource. If we had a Global Standard Oil, or a Global OPEC, today, we would have learnt to be more energy efficient, and would have pushed a lot less CO2 into the atmosphere.
But the fact that quasi-monopolies, like Intel and Microsoft, manage to exist today in spite of antitrust legislation should stand as a warning of what things could be like without antitrust legislation.
“I do not have to prove any such thing, since I never used the word “sustainable” in connection to monopolies.”
Anyone can have a short term monopoly, he simply has to be first into a particular field, and he retains a monopoly until someone else enters the industry.
A monopoly is sustainable if he can legitimately prevent that happening.
“And as for the ability of monopolies to exist, do you think the term was conceived by theoretical speculation? ”
Of course not, however its original and correct meaning was a grant of government privilege to a single producer in a defined area. (the area must be defined, and the definition realistic, or no one could possible be a monopoly, going back to fried chicken, without any definition of an area, the presence of a fried chicken shop in Saudi Arabia, and another in Iceland would indicate that there was no monopoly).
The notion of a private sector monopoly is relatively new, unproven, and utterly absurd.
I am fully aware that a monopoly can exist, however you seem incapable of distinguishing a monopoly granted by government privilege (in effect outlawing any competition), and a privater sector monopoly that arises, and remains a monopoly without government intervention. The distinction is the most important thing in discussing monopolies, and you seem totally unaware of its existance, and you will not deal with it.
I shall say it again, the crux of your argument is that there is such a thing as a completely private sector monopoly that rises, and remains without the intervention of government.
“So how am I supposed to prove that, with a lack of anti-trust law, monopolies would arise?”
Simple, show how a single producer in an industry could either force all the other producers out of business and legitimately prevent anyone else entering, or pre-emptively prevent those competitors entering in the first place (nor a new industry), and in both cases, they must also legitimately prevent the rise of alternative products.
All of this must be done without government force (which leaves the Patent Office out).
Show me how this can work, and then your statist rants might be going somewhere.
Microsoft and Intel are not monopolies (as you admit by your use of the weasel word “pseudo”).
Standard Oil was not restricting production, it was increasing production, while reducing prices, and it was never a monopoly.
*****************************************
Dan, I am finding it difficult to work out what you are saying because it is within huge tracts of irrelevant nonsense about polio.
Dan, if you’re going to keep this up, please learn to spell “monopoly”
Peter, sorry about that.
Chris, do you *really* not understand my way of example? I cannot show you the consequences of widespread polio, precisely because anti-polio vaccines have brought it under control. Similarly, I cannot show you monopolies, because there IS anti-trust law. And by the same token I cannot prove to you that it is because of anti-trust law that there are no monopolies; it just makes sense to me.
“Simple, show how a single producer in an industry could either force all the other producers out of business and legitimately prevent anyone else entering, or pre-emptively prevent those competitors entering in the first place (nor a new industry), and in both cases, they must also legitimately prevent the rise of alternative products.”
Well, let’s take the case of Intel, who successfully drove Digital and Cyrix out of business, and tried their best to drive AMD out of business. This is a particularly good example because, as part of an earlier court ruling, Intel and AMD cannot take each other to court for patent infringement, so it leaves that out of the picture. (By the way, I’m fully with you guys about getting rid of patents and intellectual property.)
So, let me be chatty here; this is going to be an assortment of techniques that can be used successfully to drive competition out of business. The fact that Intel did not succeed, IMO, does not prove that the techniques “could not” succeed, and in fact AMD was several times just a hair away from bankruptcy. Much of it was probably because of fans of AMD buying their chips no matter what, out of sympathy for all they injustice they faced.
1) Pricing below cost
At the time of the P2 vs K6-2, Intel were making huge profits out of P2 and Xeon chips, so they came up with the first Celeron, a chip that was as fast or faster than a P2 when overclocked, to directly compete with AMD’s only piece of the market: gamers, and sold it far below cost –about 1/10th of the price of a P2. They did this for I think it was about 6 months. AMD reported losses two consecutive quarters, their money ran out, their stock plunged, making stock dilution a poor way to raise operating cash flow. It was almost a myracle they managed to obtain a few hundred million dollars in exchange for bonds, to keep them afloat.
2) Influencing suppliers
When AMD came up with the Athlon processor, it was far superior to anything Intel had to offer. Intel had stolen the FPU design of the Alpha processor from Digital, driving Digital out of business (bought by Compaq on behalf of Intel, to avoid antitrust law infringement). But the designers of the Alpha processor left Digital (Compaq), and went to work for AMD. They were the ones who now designed the Athlon. Intel were soiling their pants, and with good reasons. So they sent their thugs (representatives) around the world to persuade, and when necessary threaten, motherboard manufacturers away from the notion of making motherboards for the Athlon. 2 of those manufacturers had already the boards for sale through their websites, and they pulled out those webpages and refuse to talk to the media about where those motherboards had gone. The rumor was that the standard Intel threat was “our chipsets might be put on allocation, and you might experience delays getting them”. Their campaign was so successful that AMD, a chip manufacturer, had to manufacture its own chipset, *and* its own motherboards, to be able to sell Athlons. I remember very well. My first Athlon computer had an AMD-made motherboard.
3) Influencing clients
Intel came up with a system of “incentives” designed to keep AMD chips out OEM computers. Since OEM’s depended on Intel chips to survive, as AMD did not have the production capacity to serve them alone, but Intel did. So, Intel set up a system that worked roughly like this:
If you’re an OEM, like Dell, HP, Gateway, etc., and say that in the past quarter you sold 50,000 Intel Inside computers, now someone would call you or visit you, from Intel, and say to you, basically: “If you sell 50,000 again next quarter, we’ll give you a 10% discount on all the chips you sold in the quarter. If you sell 55,000, we’ll give you a 20% discount. If you sell 60,000, we’ll give you 30% discount, on ALL chips sold in the whole quarter.” So, beyond the 50,000 chips they expected you to sell, any more chips you’d sell come essentially for free. For AMD to be able to gain a bit of the sales by that OEM, they would have to price them at zero, to be competitive.
But so many people were clamoring for AMD Athlons that some of the OEM’s began to sell some, anyhow. When that happened, Intel would threaten them with parts “allocations” and stuff. They did this with all the major OEM’s. Some of them resorted to selling AMD systems secretly. Circuit City had all its AMD based computers listed in a page that was not reachable through any links from the main page. Dell was also rumored to sell AMD systems to trusted customers. Toshiba and Samsung both opened lines of products with AMD processors, only to close them again after being threatened by Intel. There was one incident when Intel CEO Barret walked into Acer headquarters and went to threaten Acer’s President. Acer were going to show their faces and a video at a launching of the Athlon 64, the next day. They cancelled their appearance and asked for the video to be returned.
4) Influencing supporting markets
Int the case of microprocessor manufacturers, one such supporting market is software. Intel markets Fortran, C and C++ compilers that are highly optimizing; –i.e.: produce smaller and faster executables than any other compilers. But there was a catch: The executable tested for the presence of an authentic Intel processor. If it wasn’t, it not only elliminated most optimizations but in fact sent the processor into running highly “pessimized” routines, such as block copies that would copy one byte at a time. The truth is out, but most people still don’t know it. Furthermore, Intel used its influence on benchmark software houses to use their compiler to compile the benchmarks with, to make AMD processors appear slower than they are.
5) I could mention Intel’s attempt at cornering the chipset market, their attempt to move away from the open x86 standard to a closed standard with the IA64 (Itanium), and their attempt to force the entire industry to adopt RAMBUS memory, to which they had preferential access; but I will leave these episodes aside, since they involve patents and intellectual property issues.
So, do the 4 examples above satisfy you question as to how a monopoli could keep competition at bay?
As for the question of sustainability, the only sustainability necessary to abuse a position of market dominance is the time necessary to bankrupt your competitor. If AMD had 1 billion in cash and equivalent assets, losses of 200 million per month would conceivably drive AMD bankrupt in 5 months.
“Chris, do you *really* not understand my way of example?”
Do you not understand praxaeology?
An empirical example can illustrate a theory, but you have not even outlined a cogent theory. That is what you need to do, outline a cogent theory of how a single producer could legitimately eliminate, and exclude any competition without the force of government. The exclusion of future competition is the most important thing as without it, a “monopoly” might only last a week.
“Similarly, I cannot show you monopolies, because there IS anti-trust law.”
I can show you monopolies:
US Postal Service
Federal Reserve
Highways
Electricity (in some places)
Railways
Telephones (historically)
All government monopolies. The government outlawed conpetition in these areas.
I wish you would understand that the only genuine monopoly is a grant of government privilege. Only the government can legitimately eliminate existing competition, and prevent further competition.
You have advanced no theory as to how a private sector monopoly (that is a monopoly that is created, and sustained without any government intervention) could exist.
“Well, let’s take the case of Intel, who successfully drove Digital and Cyrix out of business, and tried their best to drive AMD out of business.”
A failure doesn’t illustrate your theory (if there is a theory).
Intel is clearly not a monopoly. The existance of AMD proves that.
The first criticism of your argument I have is that you operate on the relatively new definition of monopoly, i.e. single producer in an industry. The theory behind this definition is that the optimum shape of an industry is many firms, zero cost entry and exit, no product or price differentiation. This is nonsense on stilts. Its like holding up an image of nirvana, and condemning the real world for not measuring up to it.
The second criticism is the hidden notion that AMD et al have a right to be in business that is asserted independently of consumer soverignty. A firm does not have the right to stay in business, it only has the right to offer something to consumers. The consumers decide. If they want AMD out of business, they have a right to abstain from AMD’s products. It is they who are making all the decisions here, not Intel.
The third criticism I have is that you have dismissed the problem of sustaining a monopoly. The only way to sustain a monopoly is to be able to exclude the conpetition.
You haven’t actually addressed the theory, nor have you demonstrably read anything you had been asked to read on the topic. You haven’t come up with an example of a successful predatory pricer, nor have you shown that it is possible.
“1) Pricing below cost
At the time of the P2 vs K6-2, Intel were making huge profits out of P2 and Xeon chips, so they came up with the first Celeron, a chip that was as fast or faster than a P2 when overclocked, to directly compete with AMD’s only piece of the market: gamers, and sold it far below cost –about 1/10th of the price of a P2.”
The Celeron is not a gaming chip, and overclocking is irrelevant to the main market for Celerons: business, who don’t need great amounts of processing power for a desktop PC.
You have not shown that Celerons were actually sold below cost, just that they were sold more cheaply, which in itself proves nothing.
Celerons and Pentiums cannot be directly compared in terms of price because they are not similar products, and they sell for about 30-40% of the price of a Pentium, not 10% (at the same speed)
“2) Influencing suppliers”
The highly subjective language you are using here hides something much simpler: Intel could offer their suppliers a better deal than AMD. To say that Intel has no right to do this is to say that the suppliers don’t have property rights, or contract rights.
“3) Influencing clients”
Again, your emotitional language hides the fact that Intel could offer a better deal, probably due to their economies of scale.
If Intel doesn’t want to deal with companies producing for AMD, why should they have to?
“4) Influencing supporting markets … 5)”
Now your degenerating into conspiracy theory.
“So, do the 4 examples above satisfy you question as to how a monopoli could keep competition at bay?”
No, they do not.
Firstly, there is no cogent theory on how this could happen. An illustration of a failure doesn’t show anything. It supports my theory that predatory pricing simply doesn’t work.
Secondly, you haven’t established that anyone’s rights were being violated. Sure, you talk of “thugs”, and “threats”, but your emotional talk simply covers the fact that Intel believed in getting the best deal they could. If you try to get a discount out of a car salesman, are you a “thug” “threatening” him, or simply a prudent buyer?
Thirdly, you haven’t produced a single shred of evidence to support your claim that Celerons are sold below cost, merely that they are sold more cheaply, never mind your conspiracy theories.
“As for the question of sustainability, the only sustainability necessary to abuse a position of market dominance is the time necessary to bankrupt your competitor.”
A market is always and everywhere dominated by either the consumer, or the state. If a company goes out of business, it is simply because the consumers decided to abstain from its products. To say that it was because their competition offered them a better deal doesn’t show that anything wrong took place.
Market competition is a dynamic, searching process. Not a numerical end state. The purpose of competiton is to find the best, least costly way to serve the needs of the consumer.
Your answer to the question of sustainability appears to have had no thought behind it. If a company had to engage in a permanent price war, always selling below costs, to meet the challenge of each new competitor as it emerged, they would simply go bankrupt. To sustain a monopoly, they must be able to completely excluse competition.
About the only way they could do this is to keep selling at a loss after the end of the price war, in order to keep further investment away. This destroys the purpose of being a monopoly (making higher profits than normal). If they raise their prices after the end of the price war, then the extra profits brings investment back in, and the assets and employees of the bankrupted competitor will be available to compete once again.
****************************
Monopoly is spelt M-O-N-O-P-O-L-Y. There is no “I” in monopoly.
Fellas,
I joined late and just wanted to commend the discussion thus far.
Just to add my two cents, I remember a time when I believed that monopolies and cartels could exist in a free market, but then I worked on Capital Hill. The only monopolies and cartels that exist in the U.S. are bought and paid for from the government. If the industry isn’t run by the government it’s regulated by the government to insure protection to those who provide the most money or votes to the lawmakers. The media calls it democracy. Political scientists call it lobbying. Unions call it collective bargaining. Economists call it rent seeking. Laymen call it corruption.
Call it what you will, but the bottom line is that any product or service is only worth what someone is willing to pay for it, and if it someone thinks the price is too much, they’ll either go somewhere else, make it themselves, or do without. E.g., the flat screen TV. It was pricy when it first came on the market. Some bought it, others passed. Some thought there was enough demand to make it themselves, make a profit (God forbid), and sell it for less than others. Free enterprise is crazy like that. Less efficient makers of flat screen TVs will not make it (hopefully). But if no one loses, no one wins. Perhaps the government should just outlaw invention and ingenuity. No more ideas, no more change, everyone stays in the position they were born in. Some might call that a utopia. I think we should just call it silliness.
Chris Marshall wrote:
“I can show you monopolies:
US Postal Service
Federal Reserve
Highways
Electricity (in some places)
Railways
Telephones (historically)
All government monopolies. The government outlawed conpetition in these areas.”
No argument from me there.
“I wish you would understand that the only genuine monopoly is a grant of government privilege. Only the government can legitimately eliminate existing competition, and prevent further competition.”
This whole paragraph’s meaning seems to rest on the meaning of the words “genuine” and “legitimate”. Do I take it that you admit that there can be private sector monopolies, but that by some mysterious value judgement you’re applying you’re discounting them as “non-genuine”? And that they are able to eliminate existing competition, but that, by their not being government, they do so “illegitimately”? If so, allow me to clarify that I never made use of the term “genuine monopoli”, or “legitimate predatory pricing”.
“You have advanced no theory as to how a private sector monopoly (that is a monopoly that is created, and sustained without any government intervention) could exist.”
You seem to either overestimate me, or underestimate the meaning of the word “theory”.
“”Well, let’s take the case of Intel, who successfully drove Digital and Cyrix out of business, and tried their best to drive AMD out of business.”"
“A failure doesn’t illustrate your theory (if there is a theory).”
I never said that they failed. And I never claimed to have a “theory”. Intel drove Digital out of business by stealing from them the design for the Alpha’s FPU (Floating Point Unit), which in those days was a legend. Unless by “failure” you mean the naivity of trusting Intel to manufacture the Alpha for them without reverse-engineering.
“Intel is clearly not a monopoly. The existance of AMD proves that.”
A fact that I warned about from the start, but now you throw it on my face like I was hiding it. But in fact you fail, because I never said that Intel is a monopoly; what I did is take from this saga examples of ways by which a company could try to drive away competition and possibly succeed. Perhaps you forget that YOU asked me to show how a company could try and achieve the status of monopoly and or sustain it, and here I was answering your question, and now you accuse me of a different agenda, namely proving that Intel IS a monopoly, which I never said; and throwing on my face that I’m failing to prove it, which I never intended to, since I never said nor thought such a thing.
“The first criticism of your argument I have is that you operate on the relatively new definition of monopoly, i.e. single producer in an industry. The theory behind this definition is that the optimum shape of an industry is many firms, zero cost entry and exit, no product or price differentiation. This is nonsense on stilts. Its like holding up an image of nirvana, and condemning the real world for not measuring up to it.”
You’re putting definitions in my mouth and then tell me I’m speaking nonsense. Do you understand the difference between Napoleonic law and Common law. Common Law is where the law is what a judge decides in a particular case, in a particular context. Smart people came to realize at some point that you cannot rigidly write laws. Pushing elderly people as they cross the street should be illegal, but if you push an elderly person crossing a street to save her from a streetcar about to hit her, that’s a different context.
You understand that?
So I don’t need such rigid definitions as you’re trying to push, because to say that “a company in a position of market dominance shall not *abuse* the privileges of this dominance to drive away competition” is a good start for me. As long as a judge and a jury can read it and think about it and decide whether a particular case constitutes a violation or not, that’s all that’s needed basically. We don’t need to have a rigorous, mathematical definition of monopoly (or monopsony), because we fortunately have people to read them, rather than microcontrollers executing them. What you’re trying to do is rule out the possibility of grey areas –it has to be black or white– and then are going to proceed to say that what remains is not exactly black or not exactly white. Seen this whole trick many times.
“The second criticism is the hidden notion that AMD et al have a right to be in business that is asserted independently of consumer soverignty.”
I’m glad you had the semi-decency of calling it a “hidden” notion, since I never said any such thing, and I guess you’ve put enough things in my mouth I never said, now for a change you accuse me of NOT saying something, but hiding the notion like a subliminal message in a commercial.
AMD had and still has a huge number of fans. They gained these fans by ingenuity and innovation. When AMD first signed a contract with Intel, at Intel’s invitation, to become a co-producer, AMD began making small changes that improved the speed of their versions of Intel’s processors. That what Intel didn’t like and therefore led them to walk out of their contractual agreement. Even back in those days AMD was being innovative and competitive; too much for their own good, perhaps.
It’s not a case of consumers choosing against AMD, it’s a matter of consumers being denied access to AMD processors. When AMD came up with the Athlon, I was in the business of selling PC’s, and I had orders for Athlons piling up, and then the motherboards that had been announced for the Athlon mysteriously disappeared from the market, curtesy of Intel’s thugs; and it took like two months for AMD to acquire the equipment and infrastracture necessary to manufacture their own motherboards. Lucky for me, those customers were very patient and understanding. Thanks for your attempt to twist history to suit your theories.
“A firm does not have the right to stay in business, it only has the right to offer something to consumers.”
Did I ever say otherwise? Are you talking to me?, or to someone behind me?, or to whom?
“The third criticism I have”
you don’t “have” ANY criticisms at all, btw…
” is that you have dismissed the problem of sustaining a monopoly. The only way to sustain a monopoly is to be able to exclude the conpetition.”
I though I gave plenty of examples. In fact, I think this problem was what all of my post was about, and here you are dismissing my whole post by saying that I dismissed the very question I answered at length!
“You haven’t actually addressed the theory,”
What “theory”?
” nor have you demonstrably read anything you had been asked to read on the topic.”
Oh, gee! I have failed to demonstrate reading a dozen books recommended to me. What a disgrace! So, I suppose that is not appeal to authority, exactly, but an appeal to authority in reverse: It’s not that you’re right because X says so, but that I’m wrong because I’m not X and haven’t read X.
” You haven’t come up with an example of a successful predatory pricer, nor have you shown that it is possible.”
I did come up with such an example; but it’s impossible to prove that 2 + 2 = 4 to a cat; or to someone who refuses to understand or admit even the simplest truth. If a business like Intel is making tons of profit in some areas of the microprocessor market, such as servers and high end workstations, then it can afford to lose money sustainably in some other area of the market, such as budget desktops. If a competitor only has the technical capacity to sell into this latter market, then the dominant business can live off its other divisions’ earnings while selling below cost in the budget desktop market, to drive its competitor out of business. What’s so difficult for you to understand?
“The Celeron is not a gaming chip, and overclocking is irrelevant to the main market for Celerons: business, who don’t need great amounts of processing power for a desktop PC.”
I’d recommend you abstain from making categorical statements about subjects you don’t know the first thing about. What the Celeron IS, right now, is not relevant. What the Celeron WAS, at that time, is. And what the Celeron WAS, at the time, was actually a beefed up P2. It was actually being worked on as a new and improved stepping to the P2. It had 1/2 as much cache, but for the first time in Intel’s products, this cache was internal to the CPU, and enjoyed lower access latency. But at the same time, the think tanks were trying to come up with an idea for a processor to compete with AMD’s K6-2, which was the gamers’ favorite. Finally they put two and two together and came up with the evil idea of taking this new and faster stepping of the P2, and ***MARKET IT as a lesser processor***. The idea was brillant, if sinister, because they knew that gamers and enthusiasts were into the business of overclocking. So they marked the Celerons down to very low official speeds, made a big thing of the fact that they had less cache than a P2 (which was NOT a disadvantage), and sold them ultra-cheaply. Overclockers found they could just about double the clock speed and the thing were screaming fast.
“You have not shown that Celerons were actually sold below cost, just that they were sold more cheaply, which in itself proves nothing.”
No, I have not shown either thing.
Does that matter anyways? You asked how a company COULD establish a monopoli, not how a company DID; and I’ve answered your question.
“Celerons and Pentiums cannot be directly compared in terms of price because they are not similar products, and they sell for about 30-40% of the price of a Pentium, not 10% (at the same speed)”
You’re talking about present day market data, when you know perfectly well that the example I gave you was set in the mid 90′s. I think you’re just trying to muddy this discussion, rather than to get to the truth of the matter.
“The highly subjective language you are using here hides something much simpler: Intel could offer their suppliers a better deal than AMD. To say that Intel has no right to do this is to say that the suppliers don’t have property rights, or contract rights.”
For about the 20th time you’re putting words in my mouth. I never said that Intel had no right to offer a better deal, did I? *** DID I? ***
And the highly subjective language you’re using here hides something much simpler: You’re trying to turn this into an argument about what Intel did or didn’t do, to try and sneak away from the subject of answering the very question that YOU asked, namely, how COULD a company drive away competition. If everything I said about Intel and AMD was pure lies (which it isn’t) it would not matter one iota, since all you ask me to give you “theoretical” examples, and so I did.
“Again, your emotitional [sic] language hides the fact that Intel could offer a better deal, probably due to their economies of scale.”
Ditto.
“If Intel doesn’t want to deal with companies producing for AMD, why should they have to?”
You’re not being very constructive or cooperative, Chris. Nobody said Intel has to deal with any particular manufacturer. But what they cannot do, as per anti-trust law, is go to a manufacturer they have business with and say to them “we will cut you off if you do any business with AMD”, which is what they did again, and again, and again, in the Americas, in Eureope, in Japan…
But thanks to anti-trust law, now they’ll be in court in 2008, not only facing AMD, but facing many of their own customers, at the witness stand.
Without anti-trust law, we’d be stuck with Intel Inside garbage chips, running at 300MHz, and they’ cost $1000 and up. 100%.
“Now your degenerating into conspiracy theory.”
Now you’re degenerating, period.
“”So, do the 4 examples above satisfy you question as to how a monopoli could keep competition at bay?”"
“No, they do not.”
Somehow I was expecting that response…
“Firstly, there is no cogent theory on how this could happen. An illustration of a failure doesn’t show anything. It supports my theory that predatory pricing simply doesn’t work.”
Wrong. That’s like speaking to a skeptic about the possibility of core meltdown in breeder reactors. And uphill battle leading to nowhere before there’s a Chernobyl. Like I said, AMD came very close to bankruptcy. And besides, without AMD, Intel would be in a very tough position vis a vis anti-trust law, so what they were probably trying to do was to drive AMD close to bankruptcy, to slow down its progress, and if that is so, to a large extent they succeeded. In any case, just the fact that they were able to hurt AMD financially to such a great extent is bad enough for me. But I’m sure your tight, black and white definitions of monopoly require that a company go bankrupt before there’s enough evidence to convict.
“Secondly, you haven’t established that anyone’s rights were being violated.”
Per YOUR definition of “rights” I would never be able to establish such a thing. But per US anti-trust law, that will be established by a jury in 2008. Again, you overestimate me.
” Sure, you talk of “thugs”, and “threats”, but your emotional talk simply covers the fact that Intel believed in getting the best deal they could. If you try to get a discount out of a car salesman, are you a “thug” “threatening” him, or simply a prudent buyer?”
No, I’m a thug if I buy 100 cars a month from a dealer and then I say to the dealer that if they sell one car to you I’ll stop buying. Understand? Capisco? Entiende?
“Thirdly, you haven’t produced a single shred of evidence to support your claim that Celerons are sold below cost, merely that they are sold more cheaply, never mind your conspiracy theories.”
And here, once again, you’re putting words in my mouth. When did I say that Celerons are being sold below cost, in the present tense? I made it PLENTY clear I was talking about a situation spanning about six months back in the mid 90′s. You are being downright DISHONEST in your argument. You are deliberately trying to pull at straws that aren’t even there. And ultimately it doesn’t matter what happened; you asked what COULD happen and I gave you an example of something that DID happen, so as to save myself the work of having to come up with a hypothetical situation. But take the Intel-AMD history I’ve presented to you as hypothetical if you like. The fact that in fact it happened so is irrelevant.
“A market is always and everywhere dominated by either the consumer, or the state. If a company goes out of business, it is simply because the consumers decided to abstain from its products. To say that it was because their competition offered them a better deal doesn’t show that anything wrong took place.”
That is simply false. Utterly false. Take Stacker, for example. They invented the idea of disk compression. Microsoft came up with secret hacks in their new OS that caused Stacker to crash intermittently, while coming up with a disk compression software of their own. Stacker went out of business. Did the consumers or the government have any say in that?
“Market competition is a dynamic, searching process. Not a numerical end state. The purpose of competiton is to find the best, least costly way to serve the needs of the consumer.”
Did I say something to the contrary?
“Your answer to the question of sustainability appears to have had no thought behind it. If a company had to engage in a permanent price war, always selling below costs, to meet the challenge of each new competitor as it emerged, they would simply go bankrupt. To sustain a monopoly, they must be able to completely excluse competition.”
What about if your company has many divisions and it can live of 11 of its 12 divisions while the 12th continuously loses money to drive a competitor in the 12th division’s market out of business? Besides, all a company needs to do is sell a product below cost for long enough to bankrupt a competitor. I doesn’t need to sell a product below cost forever. It can sell high, and as soon as a new competitor appears, drive price down below cost until the competitor goes bk, then bring the price up again. Is this too much for you to grasp? So, if a dominant company makes tons of profit and puts it in the bank, a new competitor would have to have at least as much money in the bank already, to be able to survive the price war.
“About the only way they could do this is to keep selling at a loss after the end of the price war, in order to keep further investment away.”
Why would they need to maintain investment away? They can just let them invest, and as soon as they start selling, start the price war.
” This destroys the purpose of being a monopoly (making higher profits than normal). If they raise their prices after the end of the price war, then the extra profits brings investment back in, and the assets and employees of the bankrupted competitor will be available to compete once again.”
You lost me now. What prevents the dominant company from buying the assets of the company they drove out of business at auction prices? And who would invest money on a new competitor after seeing what happened to the first?
“This whole paragraph’s meaning seems to rest on the meaning of the words “genuine” and “legitimate”. Do I take it that you admit that there can be private sector monopolies, but that by some mysterious value judgement you’re applying you’re discounting them as “non-genuine”? ”
A private firm could exclude competitors by burning down their facilities, hijacking their deliveries or assaulting/murdering their staff, however a company that did this would be rightly held as criminal. Clearly this isn’t a legitimate way to maintain a monopoly.
The only way they could legitimately maintain a monopoly is if they could exclude competition in a manner that complied with the law (assuming the non-existence of anti-trust law).
As to “genuine”, if you open the first mens wear shop in a town, you could be said to have a monopoly; however, you would only have it until someone else opened a mens wear shop. Certainly this is not a genuine monopoly. A genuine monopoly would be able to prevent the opening of the second store.
“I never said that they failed.”
They failed. Whether or not you said it was irrelevant.
“And I never claimed to have a “theory”.”
If you don’t have a theory as to how a private monopoly can exist, and can remain, why are you posting?
If you’ve no answer to the problems inherent in predatory pricing, why are you posting?
“So I don’t need such rigid definitions as you’re trying to push, because to say that “a company in a position of market dominance shall not *abuse* the privileges of this dominance to drive away competition” is a good start for me. ”
It is no start at all.
For one thing, you are assuming the legitimacy, and virtue of anti-trust laws. If you had actually studied anti-trust laws, you would know that they criminalise all successful business activity because they are essentially arbitrary in nature.
Secondly, there is no such thing as “market dominance”; there is only consumer sovereignty.
Thirdly, what you claimed to set out to show was that there was such a thing as a fully private sector monopoly that could exist and remain without government help.
“But in fact you fail, because I never said that Intel is a monopoly; what I did is take from this saga examples of ways by which a company could try to drive away competition and possibly succeed. Perhaps you forget that YOU asked me to show how a company could try and achieve the status of monopoly and or sustain it, and here I was answering your question, and now you accuse me of a different agenda, namely proving that Intel IS a monopoly, which I never said; and throwing on my face that I’m failing to prove it, which I never intended to, since I never said nor thought such a thing.”
It was you who started down this road. Don’t blame me for showing the roadblocks.
All you needed to do was put forward a cogent theory, or answer the problems with the predatory pricing model. These are all summed up in DiLorenzo’s article, which is hardly a burdensome read, and will provide you with all the questions you would need to answer.
You didn’t need to engage in longwinded rants about Intel to put forward a cogent theory.
“AMD had and still has a huge number of fans.”
What has that to do with anything?
You don’t understand consumer sovereignty. AMD would have to have enough fans to keep it in business.
“It’s not a case of consumers choosing against AMD, it’s a matter of consumers being denied access to AMD processors.”
The OEM’s you mention are consumers of AMD chips; they buy them as producer goods. Intel offered them a better deal.
“Intel’s thugs;”
Did they threaten violence against the OEM’s, or their property, or did they merely drive a hard bargain?
It is the latter, and that doesn’t make them thugs, it makes them prudent sellers.
“If a competitor only has the technical capacity to sell into this latter market, then the dominant business can live off its other divisions’ earnings while selling below cost in the budget desktop market, to drive its competitor out of business. What’s so difficult for you to understand?”
No, the same problem applies, a company cannot afford to keep a loss making division indefinitely, it will deter investment just as much as a fully unprofitable firm. If it raises prices in other divisions, it will drive consumers towards the competition in those areas.
I will say it again; a price war cannot go on indefinitely. Eventually the company must go bankrupt, or give up. If it is just a division, it will have to divest itself of this division, or give up.
Had you simply laid out a theory, without going into a longwinded “example”, this would have been much easier on us both. There was no need to go into all this history; all you needed to do was speak about “the firm” etc.
Now, if a firm wants, it has the right to say “if you do business with him, I will not do business with you”, and what follows is a simple decision based on how much each firm’s business is worth. If the firm offering such a deal squeezes the supplier/client too much, it will simply drive him back into the arms of the competitor/s. the market will restrain them.
“Does that matter anyways? You asked how a company COULD establish a monopoly, not how a company DID; and I’ve answered your question.”
I’ve already dealt with selling below cost. To sell below cost, a company must get extra capital in order to pay its costs, but a company running at a loss is not a good investment.
“For about the 20th time you’re putting words in my mouth. I never said that Intel had no right to offer a better deal, did I? *** DID I? ***”
Actually, you did. If their actions were illegitimate, why would we be having this discussion?
In fact, what you do is step around this issue by accusing them of violating anti-trust law, as though that was a crime (rather than a violation of an unjust law, which is not a crime). Assuming the justness of anti-trust law doesn’t make your argument any better.
You are also neglecting consumer sovereignty.
“Nobody said Intel has to deal with any particular manufacturer. But what they cannot do, as per anti-trust law, is go to a manufacturer they have business with and say to them “we will cut you off if you do any business with AMD”, which is what they did again, and again, and again, in the Americas, in Europe, in Japan…”
Actually, you did say it. Why should they not have the right to refuse to do business with certain firms?
“Without anti-trust law, we’d be stuck with Intel Inside garbage chips, running at 300MHz, and they’ cost $1000 and up. 100%.”
Rubbish. Such an environment would invite competition, and there is nothing Intel could do to stop that. Anti-trust law does not cause reductions in price (in fact the prohibitions of “predatory pricing” ensure that it cannot cause a reduction in price), nor does it cause advances in technology. Competition does that, and anti-trust law doesn’t ensure competition.
“Per YOUR definition of “rights” I would never be able to establish such a thing. But per US anti-trust law, that will be established by a jury in 2008. Again, you overestimate me.”
Nonsense, your hypothetical doesn’t show the violation of anyone’s rights. It shows a breach of the law, but you cannot assume that anti-trust law is just.
“No, I’m a thug if I buy 100 cars a month from a dealer and then I say to the dealer that if they sell one car to you I’ll stop buying. Understand? Capisco? Entiende?”
No, you’re not a thug in that situation. You would be a thug is you said “If you sell one car to him, I’ll torch the place”
“That is simply false. Utterly false. Take Stacker, for example. They invented the idea of disk compression. Microsoft came up with secret hacks in their new OS that caused Stacker to crash intermittently, while coming up with a disk compression software of there own. Stacker went out of business. Did the consumers or the government have any say in that?”
Actually, yes. Microsoft would clearly have been violating the property rights of consumers. Government obviously has a say in this just as much as if General Motors employees went about torching Fords. What you are pointing to here is a failure of government to keep up with the real world, in other words, it isn’t news.
What you have said here is in fact the main problem with the argument you’ve taken, the “examples” you are using aren’t actually examples of what you’re putting forward.
“Did I say something to the contrary?”
Yes. If you had not, nothing you have said would be meaningful.
“I doesn’t need to sell a product below cost forever. It can sell high, and as soon as a new competitor appears, drive price down below cost until the competitor goes bk, then bring the price up again. Is this too much for you to grasp? So, if a dominant company makes tons of profit and puts it in the bank, a new competitor would have to have at least as much money in the bank already, to be able to survive the price war.”
Why would consumers go for such a game? They wouldn’t buy when they massively raised their prices (remember that it isn’t all profit, they have to recoup their previous losses, which would be significant), they would go to the competition when prices rose.
Also, it is the act of raising prices that brings the new competition into the industry, because the profits induce additional investment, so what your saying boils down to is that to deal with new competition, they must do what brings in the new competition.
“Why would they need to maintain investment away? They can just let them invest, and as soon as they start selling, start the price war.”
A price war cannot be sustained indefinitely. A company must keep getting capital to pay its costs, if its selling below cost.
A division selling below costs sucks profits from the whole company to pay the difference, if the prices for the products of other divisions are raised to keep the profits at the same level, it will merely drive consumers away. The reason is that the cost of a price war cannot be passed on to consumers. The law of demand holds that consumers will demand less at a higher price than at a lower price.
“You lost me now. What prevents the dominant company from buying the assets of the company they drove out of business at auction prices? And who would invest money on a new competitor after seeing what happened to the first?”
This is a non-sequitor. Since they would have been running at a loss throughout the price war (as you admit), they would not have the money. You act as though the “monopoly profits” were in the bank as soon as the others went bankrupt.
As to your second question, to take advantage of its monopoly, the “winner” will raise his prices to make his “monopoly profits”; these profits will attract investment. I don’t accept the premise of your question because it relies on the notion that a company could continue a price war indefinitely. If they tried, they would eventually go bankrupt.
The most capable entrepreneurs knows how to compete
In a free market the most capable entrepreneurs finds out all possible ways to satisfy consumers wants. One way for an entrepreneur to compete is to prevent other entrepreneurs, larger or smaller, from bankruptcy his business by the use of predatory pricing. This can be done by receiving incomes from several products and sources. If the entrepreneur has a competitive product, he will if he has the capability to compete, find out how to compete. We should see competition in a broader sense.
Secondly, If consumers, really values competition, they will not buy products and services from companies that dominate the marketplace, even if they economically will lose in buying from other businesses. Only by action, consumers demonstrate their true values.
Björn Lundahl
Göteborg, Sweden
The market is flooded with free security software
The antivirus software I use is Avast! 4 Home Edition. It is really good! I recommend it. It doesn’t cost you a penny.
http://www.avast.com/eng/avast_4_home.html
If you do not like Avast, use other antivirus software for free.
http://www.grisoft.com/doc/products-avg-anti-virus-free-edition/lng/us/tpl/tpl01
http://www.free-av.com/
And Microsoft advertises their existence! “What a silly thing to doâ€. Go to:
http://www.windowsmarketplace.com/category.aspx?bcatid=1183&tabid=1
I also use Ashampoo Firewall and it is free. If you enable Windows firewall together with this firewall, your pc will be in stealth mode.
http://www.ashampoo-root03.com/webcache/html/1/product_2_0050_.htm
If you do not like this firewall, use others for free.
http://www.download.com/ZoneAlarm/3000-10435_4-10550364.html?tag=lst-0-2
http://www.download.com/Jetico-Personal-Firewall/3000-10435_4-10418587.html?tag=lst-0-2
I could make this list much longer.
Björn Lundahl
Göteborg, Sweden
Opera used to be commercial software, but when Firefox came along they made it free.
Was that “predatory pricing” ?
It made Opera a better browser and now the consumers have better choices.
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