29 ms·
Competition Is Dying, and Taking Capitalism with It?
- pdonis 8y agoI'm not sure how careful this author is with checking his facts. One example that I quickly spotted: "Delta has an 80 percent market share in Atlanta and 77 percent in Philadelphia, while in Dallas-Fort Worth it has 77 percent." The last two are fortress hubs for American Airlines (Philadelphia used to be US Airways until they merged with American), not Delta.
- mi100hael 8y agoThat line stood out as a potential editing error to me due to the "while in" suggesting contrast but the number being the same.
- randyrand 8y agoMilton Friedman always said it’s rare to find monopolies form in a free market, and that by and large monopolies only form with government help. Not sure how true this is, but seems worth evaluating.
- analog31 8y agoIn my view, no business can grow beyond the size of, say, a mom-and-pop grocery store or a family farm without a number of government institutions that we take for granted: The money system, limitation of liability, police, the tort system, and so forth.
- tengbretson 8y agoOur money system is not a government institution.
- randyrand 8y agoThe 'government help' being referred to above is specifically help that limits competition between privately held enterprises. I'm not sure how your examples limit competition.
- analog31 8y agoThat wasn't clear from your comment, but I was supporting what I thought you were saying. Businesses have to be capable of reaching a size where it makes sense to talk about monopolies, and once you've reached that point, then you're already up to your eyeballs in government involvement.
- viburnum 8y agoHe was wrong
- stephen_g 8y agoI would question if it's ever possible to have "free markets" at all (it's definitely not in the neoclassical sense, which relies on the assumption of everybody having the same, perfect information of all prices). Let alone in actual societies where anything like laws exist. So I think what comes more through in that quote is more Friedman's ideology around Government intervention than any actual practical economics.
- rjplatte 8y agoBailouts != free market. We haven't seen a true free market in our lifetimes.
- bradgessler 8y agoYes, and governments benefit greatly from monopolies in the form of control. Consider any heavily fragmented market with several small players where control is decentralized. It’s more difficult for governments to coordinate with all these smaller players to get stuff done, like wiretapping or getting data off a server. It’s much easier for a government to sanction monopolies so they can go to a few, more powerful players, to accomplish the goal of control.
- nanny 8y agoThe author specifically cites large tech companies (Google, Amazon, Facebook) as examples of monopolies that have formed due to lack of state intervention. He also says bad rules have led to monopolies as well (through regulatory capture, lobbying, etc.). So bad things (like monopolies) can happen due to the state or due to lack of the state. Maybe the problem here isn't the state at all.
- Buldak 8y agoPeter Thiel has made similar remarks. He said that IT has been only area to see major progress in recent decades, in contrast to e.g. transportation, because it is relatively unregulated. (Hence Twitter rather than flying cars.) Of course, Thiel also holds the view that monopolies are often a good thing.
- pdonis 8y ago> Thiel also holds the view that monopolies are often a good thing. I spotted this (IMO badly mistaken) view of his when he first came out with it quite a while back: http://blog.peterdonis.com/opinions/monopoly-money.html http://blog.peterdonis.com/opinions/monopoly-money.html
- losteric 8y agoSoftware is unlike any prior field because it's so... clean. Energy, agriculture, transportation - all built on the unintuitive building blocks of physics, and our approximate understanding of the universe. The clean abstraction layers and separation of concerns in IT is unparalleled, with powerful positive feedback begetting further innovations. Applying advances to other fields also grew economies of scale rapidly, supporting innovation while barriers to entry were low. We're now approaching the end to low-hanging fruit and maturing into the consolidation phase, as further innovation requires greater capital and time commitment.
- tjr225 8y agojust because software exists on layer(s) of abstraction means nothing. It still requires hardware to run on - and still adheres to the laws of physics. I don't take much stock in your clean argument at all.
- peisistratos 8y agoIf one thinks the important thing is a dominant position in the relations of production, the effect would be reversed - the tendency to monopoly means more power for the monopoly, means it getting government help. Whether or not there is a "free market", whatever that means, would also be affected by the desires of monopolies.
- djrobstep 8y ago> large monopolies only form with government help Markets only exist in the first place because of "government help": without government creating and enforcing property law contract law, and numerous other laws, there would be no markets. So, like most of what Milton Friedman said, it's a dumb, wrong, and misleading statement. And of course, monopolies exist quite happily in the libertarian fantasy of version of a free market, because economies of scale and network effects exist.
- mindcrime 8y agoSo there was no trade before "government" was invented?
- djrobstep 8y agoCorrect. Trade cannot happen without the threat of violent attack against those who would otherwise freely use particular land or possessions, aka rules, aka law enforcement, aka government.
- mindcrime 8y agoAnd your evidence to support this crazy assertion? Also, what's your basis for claiming that "government" is the only way to protect people/possessions from violent attack?
- djrobstep 8y agoIf one was not violently prevented from using land or objects, why would one "trade" for their use, when they could freely use them already?
- danaris 8y agoIncorrect. Trade can happen with any two or more people who have different things (and the things need not even be physical). Stable markets, on the other hand, require a stable government of some sort to maintain them. And that's what you really need for the economic side of what we would think of as civilization.
- hyperpallium 8y agoEconomies of scale create natural monopolies. Though one could argue that IP monopolies (like Microsoft) could only form through government help - in the form of IP enforcement.
- geofft 8y agoWhat does "government help" mean? Did the Microsoft monopoly form with the "government help" of enforcing intellectual property rights?
- Matticus_Rex 8y agoIMO yes -- IP rights are literally government-granted monopolies.
- deleted 8y ago[deleted]
- omeid2 8y agoIt is true that governments can be complicit or implicated in formation of monopolies, but I personally think the more fundamental problem with the idea of free market is the assumption that consumers afford meaningful consideration and choice. I believe that people, generally: don't vote with their money for greater good but rather personal utility, by choice or lack of economical standing (A form of The Tragedy of Commons), poorly understand the long term impact of their choices, people’s choice is swayed by deceitful and psychological trickery of targeted advertisement. I am not sure how free market can address this without outside (generally legal or consumer advocacy) intervention.
- ethbro 8y agoHmm, based on your interpretation, it seems like a lot of money could be made by offering people ostensibly free services, while quietly collecting and monetizing their data. But who knows if your theories about people choosing convenience are accurate...
- pdonis 8y ago> people, generally: don't vote with their money for greater good but rather personal convenience Not personal convenience, but personal benefit--people want to be better off after buying something than they were before. That in itself is a perfectly reasonable thing to want. There are, generally speaking, two potential problems: (1) people might misjudge whether they will actually be better off (through lack of information or lack of understanding or failure to recognize longer term consequences); (2) people might individually be better off but society as a whole could be net worse off due to externalities (costs not borne by the people making the choices and so not considered by them). It is true that these problems are unavoidable in a free market. However, outside intervention does not, in general, solve them. In fact it almost always makes it worse, because whoever is making the outside intervention has even less at stake in the choices about what to "vote with money" for than the people making those choices. I think the best we can do is to try to give people the best tools we can for making their own choices, not trying to dictate those choices by outside intervention.
- omeid2 8y ago
- jka 8y agoIt'd be interesting to investigate how this relates to tech companies' hiring of politicians, and the 'revolving door' effect between industry and government. Perhaps Friedman's theory remains completely true, while in reality the separation between the two players has blurred over time. Cui bono?
- jujulet 8y agoThat's not really saying anything, especially coming from a free-market crusader and with no reasoning/arguments attached. Also that which stringent free-marketers and ancaps consider a 'free market' probably can't exist at all.
- 113 8y agoIt's a no-true-Scotsman as any market with a monopoly just wasn't "free" enough.
- _emacsomancer_ 8y ago> Milton Friedman always said it’s rare to find monopolies form in a free market Why would that be true? Once a company becomes big enough, it has resources to squash competition in various ways.
- TangoTrotFox 8y agoHe was mostly talking of for-pay goods and services. The current trend of offering "free" services, that are anything but, is severely distorting the market. It's exploiting a current gap in consumer knowledge where people are massively undervaluing the literal value of their private information. But in a normal pay-to-play business, the argument is self evident. Either the monopolizer is malicious or benevolent. If they're benevolent then a monopoly doesn't matter. If they're malicious then that means that they're exploiting their market positioning to artificially inflate the prices of their goods/services. When a company has unreasonably high prices this enables competitors to come in and gain marketshare easily by offering lower prices. And you're definitely right that the company can do things like try to buy out the smaller company, perhaps put pressure on their suppliers, etc. But this is a never ending game since for instance the smaller competitor could then even begin to develop their own supply chain, etc. And a small company getting bought out for some fat paycheck before they even really hit their stride is hardly discouraging to other would-be competitors! So long as the pie and the end of the tunnel is large enough, there will be an incentive to compete against the monopoly. There is also the innovation issue. Coercive monopolies do not often innovate. Their focus is on profit whereas innovation tends to be focused on competition. This lack of innovation once again offers a big gap in the market for competitors. The aerospace industry vs SpaceX are the best example here. Boeing/Lockheed had a partially government enforced coercive monopoly in a field with greater barriers to entry than practically any 'material' industry. Yet a guy with 'nothing' but a few hundred million and the understanding that something worth on the order of let's say $20 million of material costs should not cost $500 million to build and launch, was able to enter the field and rapidly rise to dominance by working on nothing but innovation and non-monopolistic prices. Boeing/Lockheed by contrast were still so stuck in the past with their MBA style executive leadership that now, many years after the 'threat' of SpaceX has become self evident, that they've still been unable to effectively react. So to avoid retro-fitting the past to fit a narrative, I expect in the future we'll be able to spin an exact tale of the telecoms industry. Once again another [heavily government enabled] monopoly that's completely failed to innovate and charges unreasonably high prices. Something like the proposed SpaceX constellation of LEO satellites for the purpose of low-cost high-stability internet stands to leave them completely taking over that industry. Of course the failure of Google fiber is an argument to the contrary, but that gets into an entirely different tangent and I think there were many reasons for that failure that lay squarely with Google.
- api 8y agoI think one factor he didn't comprehend was lock-in via de-facto standards controlled by single corporations. Take AWS or Microsoft Windows as examples. Businesses that build a lot of infrastructure around those products are stuck with no choice but to continue to use them or ditch many years and sometimes tens or even hundreds of millions of dollars in sunk cost. Computing seems to facilitate this particular kind of monopoly more easily than physical systems.
- abootstrapper 8y agoI wonder how many and which free markets Milton Friedman evaluated in order to draw this conclusion?
- conanbatt 8y agoMany, as he wrote about it, and it's one topic where he changed his mind after studying it. It is absolutely sure that monopolies are most pervasive through the state.
- Joeri 8y agoThat may have been true once, but I don’t think it is true today. Scale effects and negotiation power means large companies are able to reach structurally lower costs per unit than small ones, which creates an incentive to grow big. This also makes them slow to respond to change, so normally upstarts push them aside. But in the modern VC-backed ecosystem competitors are bought out without having a say in it. The upstart becomes part of the big player. Even if companies thread that needle and grow big, shareholders love mergers (for reasons I still don’t understand), so over time you get fewer and fewer big players. The regulatory capture is just icing on the cake, but I think you would get market concentration anyway, unless the government took a stronger stance against mergers and acquisitions.
- Gibbon1 8y ago> Milton Friedman Advocated murdering people to get rid of unions.
- dang 8y agoCould you please stop posting unsubstantive comments to Hacker News, and particularly not ideological battle comments? https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html
- Gibbon1 8y agoSorry Friedmans approval of Augusto Pinochet is well documented.
- dragonwriter 8y agoThere's a difference between unsubstantive and unsubstantiated.
- fergie 8y agoHas Friedman has actually said that? If so it runs counter to the economic consensus. Corporate lobbyists tend to cite an academic case for deregulation that has not been made. As the article rightly points out Adam Smith is frequently trotted out as an advocate of deregulated free markets, when in fact he was very clear that a free market must be regulated.
- agumonkey 8y agoThere's a ~debate between Rand and Donahue where she claims the same frenetically. He makes the point that any large company can buy off competition [1]. I don't know where the theory for free market being the most perfect game came from but I can't stand it. [1] funnily, reminds me of MS
- randyrand 8y agoPersonally, my affinity for the free market came when I studied economics in undergrad.
- ionised 8y agoAnother example of Milton Friedman being a hack.
- RRRA 8y agoGovernment can derail things as much as they can fix things. That's why we should have better anti monopoly laws to keep the market free, as in equal chances given equal efforts & quality.
- bighi 8y agoWhile it's true that some monopolies are formed because of the government, MANY more would be formed without it.
- xiphias2 8y agoWith the current low interest rates there's no capitalism in the world, just crony capitalism, which inflated some asset classes, like the housing market, stock market and private companies that plan to go to the American stock market. This problem will be corrected in the next 10-15 years, but it won't be an easy ride.
- ekianjo 8y ago> The American skies have gone from an open market with many competing airlines to a cozy oligopoly with four major airlines. It is clear why we have reached this point. Most monopolies are allowed to exist because of state influence (which happens thru many forms, regulation, patents, or plain direct support), all increasing the barrier to entry for would-be competitors. You see this in most heavily regulated markets. There are other markets where the cost of entry is so high anyway (investment-wise) that naturally very few companies can make it - this is something that is not an issue per se.
- pdonis 8y agoWith regard to airlines, I think there's another factor in play: the core business of airlines is not selling tickets to individuals and families, it's selling tickets to businesses for work-related travel. The government and most large corporations negotiate contract fares with the airlines, and large airlines have an obvious advantage in doing this.
- jryan49 8y agoWhich markets that have huge monopolies do not have high costs of entry or capital costs?
- maxxxxx 8y agoTech would be an example. Instagram was only a dozen or so people when FB bought them. Unfortunately FB was able to do so and kill competition that way.
- nanny 8y ago>You see this in most heavily regulated markets. Except airlines were heavily deregulated in 1978. In my mind it's also "clear why we have reached this point", except that I've come to the opposite conclusion that you have.
- pdonis 8y ago> airlines were heavily deregulated in 1978. With regard to the routes they could fly and the prices they could charge, yes. But they were never de-regulated with regard to the safety requirements they had to meet or the qualifications their pilots and crew and maintenance workers have to have. Those regulations have, if anything, gotten more stringent over time. And those regulations pose a huge barrier to entry for new competitors, and favor large airlines over small ones because a large airline can more easily absorb the costs of compliance.
- rjplatte 8y agoIn many of the industries listed, competition is regulated out of existence, thanks to the large corporations' deep lobbying pockets. I looked into starting an ISP when Spectrum left New York, and wow. It's not too cost prohibitive, except for the licensing and regulatory fees. It's absolutely incredibly expensive.
- thwy12321 8y agoBig tech companies arent really monopolies. A ton of them can disappear overnight, its just a trendy thing to harp on. Look at the irrelevance of IBM, CISCO, HP, Intel, Oracle, etc. The list goes on and on, companies fail to innovate after a certain point and most die. Enough with the monopoly narrative.
- nanny 8y agoAre you trying to say that because a company can disappear overnight, it isn't currently a monopoly? Because I don't think that makes any sense.
- thwy12321 8y agoI'm saying that its true that some are monopolies, but none really stay that way for long, and so its completely overrated to worry about. It's a similar talking point to how we are in an "AI bubble", good for clicks on an article. Look at FB stock, it just dropped from 220 -> ~130, they saw almost half of their market cap wiped away in a few weeks. The monopoly idea is a narrative invented to stoke fear, outrage, and page clicks. It's a talking point for psuedo educated people.
- msiyer 8y agoMonopolies, whether ephemeral or eternal, are bad. Disappearance of a monopoly does not mean the data collected disappears nor does it repair the torn social fabric.
- afjl 8y agoI entirely disagree. Monopolies discourage innovation and creativity. American companies do not operate in some bubble; we have to remain competitive with the outside world, with countries that would seek to erode our competitive advantage. Internal competition is a great way to ensure that we do not fall behind others. I also don't think bringing up FB's stock price is relevant, not sure what your point is getting at there?
- BurningFrog 8y ago
- geofft 8y agoWhy does the author refer to this as "fake capitalism"? Isn't this what capitalism is? It reminds me of the arguments that communism must be a good idea because we haven't seen true communism yet. We've seen true capitalism for much longer and much more clearly than we've ever seen any form of communism, and it's exactly what the US has. You can't just hope that maybe with a little more regulation, or a little less regulation, or something, capitalism will magically work. Capitalism sets up incentives for people to figure out regulatory capture and lobbying in whatever regime you come up with. Capitalism sets up incentives for companies to influence the public to believe that certain forms of government intervention are perfectly natural (take copyright, for instance - if you convince everyone to get rid of copyright, you'll just set up incentives for companies to convince everyone to bring it back). If you think this isn't working right, please work with the folks who want to figure out an alternative.
- pdonis 8y ago> Why does the author refer to this as "fake capitalism"? Isn't this what capitalism is? The author appears to be conflating the terms "capitalism" and "highly competitive markets", which are not at all the same thing. "Capitalism" is, as you say, perfectly compatible with regulatory capture and co-opting the government to help stymie potential competitors; in fact that is exactly how the "capitalists" of the late 19th century in the US operated.
- lgregg 8y agoI think when people say "fake capitalism" or "true capitalism" they're talking about unrestricted and unregulated free markets. It's also important to realize that the thought tied to Communism and Capitalism is one in the same; I'm sure most would be surprised that Karl Marx and Friedrich Engels were the ones that coined the phrase and idea of Capitalism. > Capitalism sets up incentives for people to figure out regulatory capture and lobbying in whatever regime you come up with. Capitalism sets up incentives for companies to influence the public to believe that certain forms of government intervention are perfectly natural (take copyright, for instance - if you convince everyone to get rid of copyright, you'll just set up incentives for companies to convince everyone to bring it back). If you think this isn't working right, please work with the folks who want to figure out an alternative. I like your line of thought but I'm unsure if I agree with the fact that copyright could be incentivized to come back but that's just an opinionated view of mine. It started with the structure of the government from the beginning making it was a day 0 idea. There are also different types of capitalism; China's capitalism is different from US capitalism. So, that also is something to consider with the "fake capitalism" issue you brought up. Overall, I think one baseline to be able to tell if capitalism is working is if one can actually go from rags to riches in today's time. I also think what people are picking at is the imbalance that happens at an economy of scale when a company becomes so large that it is the market.
- maxxxxx 8y agoPeople are always confusing capitalism with competitive markets.
- PinkMilkshake 8y agoFew ever bother to separate Money, Markets, Capitalism and Corporatism when discussing this stuff. There's probably others I'm also not differentiating properly. It makes talking about what is and isn't working difficult. When I argue with commie friends, they frequently conflate collaboration with collectivism. One claimed that the internet was greatest communist project ever. We're so screwed.
- jtolmar 8y agoIt's a shame. A lot of people on this website would love Syndicalism but can't conceive of it because a pro-market anti-capitalist ideology doesn't make sense to them.
- 113 8y agoWhat would be the point in separating those ideas, when capitalism is the one that's the biggest problem? You're arguing semantics.
- PinkMilkshake 8y agoBecause they are separate ideas and not all of them are dependent on one another. Money and/or markets can (and did) exist without capitalism. The point is not to throw the baby out with the bath water.
- csdreamer7 8y agoSpeaking of monopolies, anyone heard of JA Konrath? http://jakonrath.blogspot.com/ http://jakonrath.blogspot.com/ He wrote the blog a newbie's guide to publishing. During that time he discovered publishing his refused books on Amazon KDP because the big 6 publishing companies had rejected them. He used to be an advocate for signing with a big publishing company, and suffering their 17.5% royalty + marketing costs. Most large published books never out earn their advances your chops. But his refused books kept growing in sales with Amazon Kindle. The books he did publish with traditional publishes kept insisting on high prices to keep the paper backs competitive. Eventually he switched to just publishing on Amazon KDP as the future and eventually got the rights to his books back. The above book is published by Wiley. The digital version listed on Wiley's site is $14.95, the hardback is $27.95, while the amazon hardback is $18.27. The Kindle version is listed for $11.99.
- fithisux 8y agoThe title states something obvious as news. Have we reached the bottom?
- dvasdekis 8y agoBoth The Economist and Bloomberg have focused on new monopolies in the past few months, and a key problem has been quantifying the "moat" that provides companies with a lasting advantage. Seems to me that a "moat" is most easily quantified by the share market total capitalization, and to disrupt monopolies, simply introduce a tax on total market value for a firm.
- RandyRanderson 8y agoRandy's rule 279: Capitalism aspires to the condition of a communist dictatorship.
- ako 8y agoProblem is that big money, aka capitalism, has been winning from government froms like democracy, and communism. You can see this in rusia where after 1990 communism has been replaced by big money government, not democracy. In china same thing, communism has been replaced with big money government, a capitalist economic system. And you see the same trend in the US where a democratic government has been replaced by a big money capitalistic government, only interested in serving the needs of money making. And without a government system making rules to minimize the negative impact of the economic system, we can see all the negative aspects of capitalism. Exploitation of humans, winner takes all. Capitalism is winning even at the level of government, and this is what it looks like. Just like we see the need to separate state and religion, we should also separate state from the economic model. Democracy and capitalism aren't one and the same thing. Democratic governments have multiple economic models to choose from, depending on the problem they want to solve.
- suddenstutter 8y agoWhat were in is not capitalism, uts crony capitalism aka not capitalism. The question is, if every form of economy/government is bound to be corrupted, is this form of fake capitalism the best option? Or is there an untested alternative?
- suddenstutter 8y agoWhat were in is not capitalism, its crony capitalism aka not capitalism. The question is, if every form of economy/government is bound to be corrupted, is this form of fake capitalism the best option? Or is there an untested alternative?
- shmerl 8y agoAnti-trust was diluted to the point of being completely toothless. Not sure why the public went along with it.
- molteanu 8y agoI've commented about this before with the same quote. But since the propaganda campaign against all that is coming from the East has left an enduring mark in US, it will always be received with a sneer. But, irrespective of that, Lenin, more than 100 years ago, said something like this: This transformation of competition into monopoly is one of the most important — if not the most important — phenomena of modern capitalist economy. He gives ample evidence of this with official market and financial data regarding the steel industry. Even then, a few conglomerates dominated the marked. But, again, since the story of how capitalism is the greatest, the one and only salvation of the people (does it sound like religion?) is so pervasive, no amount of evidence can undermine its foundations. If reality proves that it doesn't work, the reason HAS to be that "it wasn't implemented right in this or that country. So we must take bolder steps to implement it right". Sounds like slaughtering goats to me. If the gods didn't favor our army in battle it surely must be that we didn't slaughter enough goats at the altar and NOT that our army was ill prepared for the task at hand.
- notacoward 8y ago> If the gods didn't favor our army in battle it surely must be that we didn't slaughter enough goats Excellent analogy. Thank you.
- titzer 8y ago"Competition is the essence of capitalism, yet it is dying." Sorry to have to point out something that should be blatantly obvious, but no. The essence of capitalism is capital, the accumulation of wealth in private hands that own the means of production. And capitalism has a nasty tendency toward fewer, more powerful players as they gobble up market share, muscle out competitors, erect legislative and logistical barriers. This is what capital does. It buys the power to continue itself. What you are seeing is absolutely capitalism running its normal course.
- 113 8y agoThis misinterpretation is all over this thread. "Capitalism is an economic system based on the private ownership of the means of production and their operation for profit." I wish people would do some cursory research before trying to argue about it.
- AstralStorm 8y agoAnother person who writes that essence of capitalism is competition. No, the essence is capital and company which will try to squash any competition.
- touristtam 8y agoAnyone read "Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism" and care to compare?
- thisisit 8y agoIMO, the ease of credit has led to lots and lots of consolidation and companies getting into markets where they don't belong. This has indirectly led to big companies getting bigger and even bigger and "competition slowly dying". But, I think this is temporary. As and when credit tightening starts to happen, and it will with time, many of the companies will be hard pressed to pay what they are owed. And with time companies will start to restructure their businesses back to where things were.
- notacoward 8y agoThere are many ways in which the big get bigger, until they become oligopolies. Some are fair (network effect, economies of scale). Others are not (predatory pricing, regulatory capture). Regulation alone can slow this process and mitigate its worst effects, but it can't stop the process entirely because there are just so many mechanisms involved. If you're OK with the idea of companies large enough to rival or even exceed the power of governments (as with the East India Company mentioned in the article) then that's the end of the story and I'm not here to argue that point. If not, then sooner or later you'll have to come to grips with the idea of a tax on size itself. Few people start out liking it (I didn't), but it's really the only alternative to the imposition of a corporate state.