7 ms·

In an unregulated capitalist economy, the inevitable end result is monopoly. The best way to compete in the economy is to not have to compete. Without external

by Osiris 5y ago

In an unregulated capitalist economy, the inevitable end result is monopoly. The best way to compete in the economy is to not have to compete. Without external restraints, any sufficiently large company will focus on eliminating competition either through pricing them out of the market or just outright buying them. The only reason the US has more than one cellular network right now it because the government has prevented multiple attempts at mergers, and even with that effort we're down to three. edit: if you disagree, I'd love to hear your opinion. The government has entire agencies dedicated to maintaining competition in the economy. If monopoly was not the inevitable end result of capitalism, then such agencies would not be required.

milkytron 5y ago
> The only reason the US has more than one cellular network right now it because the government has prevented multiple attempts at mergers, and even with that effort we're down to three. There actually was a monopoly in the telephone system[0] in the US that had to be broken up via antitrust. [0] - https://en.wikipedia.org/wiki/Bell_System https://en.wikipedia.org/wiki/Bell_System
- Osiris 5y ago
  And over the last 40 years has slowly consolidated back again.
  - 0_____0 5y ago
    Thanks, Reagan.
    - AnthonyMouse 5y ago
      The AT&T breakup actually happened under Reagan, and was initiated in 1974 (which was Nixon/Ford). The reconsolidation happened under both parties throughout the 90s and 2000s.
      - gjvc 5y ago
        ...and this whole saga, lest we forget (and relevant to the HN crowd), was instrumental in giving rise to the unix wars of the 90s, due to the AT&T copyright dispute with University of California Berkeley. (The relevant point here being not the copyright dispute itself, but the fact that AT&T was not allowed to sell the UNIX system for profit, this being one of the conditions of being allowed to operate as a telephone company.)
Jensson 5y ago
Yeah, power always consolidates unless people use violence (or threat of violence) to stop it. Companies merges to bigger companies, company owners loves this, that is bad and gives people less freedom. Countries merges to bigger countries, politicians loves this, that is equally bad. The more the power is spread around the better, but everyone who sits on power tries to work against that. Note that giving all the power currently held by capitalists to politicians is also consolidation of power, that is bad. Or vice versa. So giving the government too much power over companies will hurt on the other end, balance is needed and it is hard to say where the line should be drawn.
- Osiris 5y ago
  Exactly. The phrase "power vacuum" is a good way to visualize this idea. When there is an opportunity for someone to gain power (of which there are many kinds), someone will exert the effort to take that power for themselves.
cjbgkagh 5y ago
The US allows monopolistic returns because the country (politicians) benefit from it. If antitrust successfully kills monopolistic returns the beneficiaries of the increase in consumer surplus are the customers, many who are foreign.
Hermel 5y ago
In sectors where products can have infinite variety (like fashion), monopolies don't seem to happen because the small creative producers can create new market niches faster than the monopolies can enter them.
- arrosenberg 5y ago
  Eh, maybe 15-20 years ago, but fast fashion producers have made it much harder. You get 6-12 weeks before you get copied, at best. It's still possible to carve out a small business, but a lot of good business operators are being held back by those types of companies.
- Spooky23 5y ago
  Exactly. AT&T was a monopoly because it made sense to be one given the capital investment requirements and technology. Universal access was something that lifted up the whole country and had and has enduring value. Think of the bullshit and lack of interop between Facebook, Apple and Google messaging - without AT&T, you would have had that problem with legacy phones. They were tightly regulated, which worked well until technology moved ahead of the operations. Tight regulation works well when change rates are slow and you need to make capital investments. Short term decision making driven by final optimization always constrain capital investment. That’s why your power grid is less robust than it was 40 years ago.
- dwohnitmok 5y ago
  That's not clear to me. I don't know much about things like clothes fashion, but e.g. eyeglass fashion is completely dominated by Luxottica (resulting in eye-wateringly high markups) and fashion-adjacent fields such as music are still dominated by just a few labels (this one you can say is basically a product of legal lobbying for protections). The pattern there is that small producers for the most part fail and fizzle out. The few successful ones get snapped up by the big players.
- twobitshifter 5y ago
  This should happen with pizza, yet we see dominos successfully applying a monopoly strategy. https://www.forbes.com/sites/dalebuss/2019/04/30/fortress-made-of-pizza-dominos-ceo-ritch-allison-keeps-building-brands-lead/?sh=3079593f7782 https://www.forbes.com/sites/dalebuss/2019/04/30/fortress-ma...
deleted 5y ago
[deleted]
arcbyte 5y ago
Actually there are lots of factors impacting horizontal and vertical integration in the capitalist economy. In general you are right that "external" restraints are needed to prevent a firm from competing so aggressively or moving to integrate horizontally. However, the external restraints are far and away most often free market forces. Economies of scale are nothing to laugh at, especially in ventures with very high fixed costs. However, integration is also high risk because it comes with significant downsides. I don't care to analyze the US cellular market, but I would be curious to what extent the way the government has regulated this market has pushed it toward mergers. And perhaps that is a good thing to have a small number of national cell carriers. People who grew up in the early telephone era would probably agree its better than having to navigate the byzantine maze of regional networks and long distance charges. There are other mostly unregulated wireless markets that might serve as interesting case studies though. Wireless ISPs have been a booming business for decades and is still extremely dispersed in ownership. They're facing some disruption now from Starlink but that is likely years away from posing a serious industry challenge.
- Osiris 5y ago
  > I don't care to analyze the US cellular market, but I would be curious to what extent the way the government has regulated this market has pushed it toward mergers. I believe that auctioning spectrum is a huge factor in creating monopolies because only the biggest companies get spectrum. No small guy can afford to compete in the auction. I don't think that auction (to the highest bidder) is the best way to allocate spectrum if the goal is to preserve competition.
lcedp 5y ago
You are right, but it's not the full picture. The government also has agencies dedicated to maintaining monopoly. It is done through patents, copyright, trade secret laws. It's important to maintain a balance between completion and monopoly. Monopoly allows collecting huge margins that could be invested into further research that would not be otherwise be feasible financially.
- Jensson 5y ago
  > The government also has agencies dedicated to maintaining monopoly. It is done through patents, copyright, trade secret laws. Without those laws the big companies would steal and copy every small business idea or IP with no impunity. The laws protect small companies much more than big companies. Of course big companies sits on a lot of patents so they are still powerful, but not as powerful as if they could just abuse espionage etc as much as they wanted. For example, what do you think would happen with the harry potter books? Others would just print their own copies, write their own books with the same characters and names, and the company with the biggest marketing budget to throw around would win and sell the most. That doesn't seem very good for the little guy to me, rather it would make it basically impossible for the little guy to compete.
  - mLuby 5y ago
    (Intellectual property) rights depend on your ability to enforce them. Large companies have many resources to throw at enforcement while small companies have few and individuals even fewer. In the past, patents may have worked for the little guy but no longer. I don't know why exactly. On the Harry Potter thing, "the biggest marketing budget would win and sell the most" is indeed what happens, but the original creator still has huge power. For example if George Lucas (who sold the Star Wars IP to Disney) decided to publish his "fan fiction" screenplay for Star Wars Episode VII, Disney would have a massive continuity problem because he's the original creator—no matter how much The Mouse spends on marketing. That is what Disney paid him $4B for, to not do that. Further, isn't "people will write new stories for characters they love" a good thing? We could certainly use fresh ideas rather than this rut of reboots and sequels. In that sense, letting The Market winnow the winners from the chaff would improve consumer offerings. It's happened before: remember that Twilight fan fiction that became a literary sensation and major movie series?
Spooky23 5y ago
I wouldn’t use cellular as a success story. Even with billions of dollars in investment directly from the Feds, AT&T seems to be wallowing.
hn_throwaway_99 5y ago
Peter Thiel: "Competition is for Losers" https://web.archive.org/web/20141215224757/https://www.wsj.com/articles/peter-thiel-competition-is-for-losers-1410535536 https://web.archive.org/web/20141215224757/https://www.wsj.c...
- pdonis 5y ago
  Thiel's argument, to the extent it's valid at all, doesn't prove that monopolies are good for consumers (or workers, for that matter). It only proves that monopolies are good for monopolists. http://blog.peterdonis.com/opinions/monopoly-money.html http://blog.peterdonis.com/opinions/monopoly-money.html
deleted 5y ago
[deleted]
AnthonyMouse 5y ago
> Without external restraints, any sufficiently large company will focus on eliminating competition either through pricing them out of the market or just outright buying them. The counterargument is that this only happens in markets with high barriers to entry, which in turn are mostly caused by regulatory barriers. For example, the government makes permanent spectrum auctions, so if all the holders of spectrum merge together, no new competitors can enter. Suppose instead they held a new auction every year or every month for use of the spectrum in a given region until the next auction. Then mergers wouldn't prevent competitors from entering; a new competitor goes to the next auction, places a bid and can get spectrum to launch a competing provider. It's clear that this theory is sometimes true -- that regulatory barriers can do this. Whether it's always the cause is hard to say and depends mostly on how you define what "regulatory barriers" means. But consider the consequences either way. If there are regulatory barriers causing monopolies, you have to break them up. If there are some other things causing monopolies, you have to break them up. Monopolies are bad. And breaking them up, if they are caused by regulatory barriers, can hamper the entities lobbying to keep the regulatory barriers. The question is what comes after. You don't want them to just reform again, right? Antitrust is a necessary evil, but still an evil -- still means you had a monopoly for long enough to have to bust it up. So if it's mostly or entirely regulatory capture which is causing them, we still need to address that. And then we don't need antitrust enforcement as often. But we still need it whenever a monopoly/oligopoly forms. That's just not a thing that can remain.
- tablespoon 5y ago
  >> Without external restraints, any sufficiently large company will focus on eliminating competition either through pricing them out of the market or just outright buying them. > The counterargument is that this only happens in markets with high barriers to entry, which in turn are mostly caused by regulatory barriers. Not necessarily. For instance: if the barriers to entry are zero but the monopoly can price things below cost (e.g. due to cash reserves or strength in other markets), it can bury any competitor. The mere existence of that ability could have a deterrent effect that prevents competitors from forming in the first place.
  - 5y ago

by Osiris 5y ago

milkytron 5y ago

> The only reason the US has more than one cellular network right now it because the government has prevented multiple attempts at mergers, and even with that effort we're down to three. There actually was a monopoly in the telephone system[0] in the US that had to be broken up via antitrust. [0] - https://en.wikipedia.org/wiki/Bell_System https://en.wikipedia.org/wiki/Bell_System

Osiris 5y ago
And over the last 40 years has slowly consolidated back again.
- 0_____0 5y ago
  Thanks, Reagan.
  - AnthonyMouse 5y ago
    The AT&T breakup actually happened under Reagan, and was initiated in 1974 (which was Nixon/Ford). The reconsolidation happened under both parties throughout the 90s and 2000s.
    - gjvc 5y ago
      ...and this whole saga, lest we forget (and relevant to the HN crowd), was instrumental in giving rise to the unix wars of the 90s, due to the AT&T copyright dispute with University of California Berkeley. (The relevant point here being not the copyright dispute itself, but the fact that AT&T was not allowed to sell the UNIX system for profit, this being one of the conditions of being allowed to operate as a telephone company.)

Jensson 5y ago

Yeah, power always consolidates unless people use violence (or threat of violence) to stop it. Companies merges to bigger companies, company owners loves this, that is bad and gives people less freedom. Countries merges to bigger countries, politicians loves this, that is equally bad. The more the power is spread around the better, but everyone who sits on power tries to work against that. Note that giving all the power currently held by capitalists to politicians is also consolidation of power, that is bad. Or vice versa. So giving the government too much power over companies will hurt on the other end, balance is needed and it is hard to say where the line should be drawn.

Osiris 5y ago
Exactly. The phrase "power vacuum" is a good way to visualize this idea. When there is an opportunity for someone to gain power (of which there are many kinds), someone will exert the effort to take that power for themselves.

cjbgkagh 5y ago

The US allows monopolistic returns because the country (politicians) benefit from it. If antitrust successfully kills monopolistic returns the beneficiaries of the increase in consumer surplus are the customers, many who are foreign.

Hermel 5y ago

In sectors where products can have infinite variety (like fashion), monopolies don't seem to happen because the small creative producers can create new market niches faster than the monopolies can enter them.

arrosenberg 5y ago
Eh, maybe 15-20 years ago, but fast fashion producers have made it much harder. You get 6-12 weeks before you get copied, at best. It's still possible to carve out a small business, but a lot of good business operators are being held back by those types of companies.
Spooky23 5y ago
Exactly. AT&T was a monopoly because it made sense to be one given the capital investment requirements and technology. Universal access was something that lifted up the whole country and had and has enduring value. Think of the bullshit and lack of interop between Facebook, Apple and Google messaging - without AT&T, you would have had that problem with legacy phones. They were tightly regulated, which worked well until technology moved ahead of the operations. Tight regulation works well when change rates are slow and you need to make capital investments. Short term decision making driven by final optimization always constrain capital investment. That’s why your power grid is less robust than it was 40 years ago.
dwohnitmok 5y ago
That's not clear to me. I don't know much about things like clothes fashion, but e.g. eyeglass fashion is completely dominated by Luxottica (resulting in eye-wateringly high markups) and fashion-adjacent fields such as music are still dominated by just a few labels (this one you can say is basically a product of legal lobbying for protections). The pattern there is that small producers for the most part fail and fizzle out. The few successful ones get snapped up by the big players.
twobitshifter 5y ago
This should happen with pizza, yet we see dominos successfully applying a monopoly strategy. https://www.forbes.com/sites/dalebuss/2019/04/30/fortress-made-of-pizza-dominos-ceo-ritch-allison-keeps-building-brands-lead/?sh=3079593f7782 https://www.forbes.com/sites/dalebuss/2019/04/30/fortress-ma...

deleted 5y ago

[deleted]

arcbyte 5y ago

Actually there are lots of factors impacting horizontal and vertical integration in the capitalist economy. In general you are right that "external" restraints are needed to prevent a firm from competing so aggressively or moving to integrate horizontally. However, the external restraints are far and away most often free market forces. Economies of scale are nothing to laugh at, especially in ventures with very high fixed costs. However, integration is also high risk because it comes with significant downsides. I don't care to analyze the US cellular market, but I would be curious to what extent the way the government has regulated this market has pushed it toward mergers. And perhaps that is a good thing to have a small number of national cell carriers. People who grew up in the early telephone era would probably agree its better than having to navigate the byzantine maze of regional networks and long distance charges. There are other mostly unregulated wireless markets that might serve as interesting case studies though. Wireless ISPs have been a booming business for decades and is still extremely dispersed in ownership. They're facing some disruption now from Starlink but that is likely years away from posing a serious industry challenge.

Osiris 5y ago
> I don't care to analyze the US cellular market, but I would be curious to what extent the way the government has regulated this market has pushed it toward mergers. I believe that auctioning spectrum is a huge factor in creating monopolies because only the biggest companies get spectrum. No small guy can afford to compete in the auction. I don't think that auction (to the highest bidder) is the best way to allocate spectrum if the goal is to preserve competition.

lcedp 5y ago

You are right, but it's not the full picture. The government also has agencies dedicated to maintaining monopoly. It is done through patents, copyright, trade secret laws. It's important to maintain a balance between completion and monopoly. Monopoly allows collecting huge margins that could be invested into further research that would not be otherwise be feasible financially.

Jensson 5y ago
> The government also has agencies dedicated to maintaining monopoly. It is done through patents, copyright, trade secret laws. Without those laws the big companies would steal and copy every small business idea or IP with no impunity. The laws protect small companies much more than big companies. Of course big companies sits on a lot of patents so they are still powerful, but not as powerful as if they could just abuse espionage etc as much as they wanted. For example, what do you think would happen with the harry potter books? Others would just print their own copies, write their own books with the same characters and names, and the company with the biggest marketing budget to throw around would win and sell the most. That doesn't seem very good for the little guy to me, rather it would make it basically impossible for the little guy to compete.
- mLuby 5y ago
  (Intellectual property) rights depend on your ability to enforce them. Large companies have many resources to throw at enforcement while small companies have few and individuals even fewer. In the past, patents may have worked for the little guy but no longer. I don't know why exactly. On the Harry Potter thing, "the biggest marketing budget would win and sell the most" is indeed what happens, but the original creator still has huge power. For example if George Lucas (who sold the Star Wars IP to Disney) decided to publish his "fan fiction" screenplay for Star Wars Episode VII, Disney would have a massive continuity problem because he's the original creator—no matter how much The Mouse spends on marketing. That is what Disney paid him $4B for, to not do that. Further, isn't "people will write new stories for characters they love" a good thing? We could certainly use fresh ideas rather than this rut of reboots and sequels. In that sense, letting The Market winnow the winners from the chaff would improve consumer offerings. It's happened before: remember that Twilight fan fiction that became a literary sensation and major movie series?

Spooky23 5y ago

I wouldn’t use cellular as a success story. Even with billions of dollars in investment directly from the Feds, AT&T seems to be wallowing.

hn_throwaway_99 5y ago

Peter Thiel: "Competition is for Losers" https://web.archive.org/web/20141215224757/https://www.wsj.com/articles/peter-thiel-competition-is-for-losers-1410535536 https://web.archive.org/web/20141215224757/https://www.wsj.c...

pdonis 5y ago
Thiel's argument, to the extent it's valid at all, doesn't prove that monopolies are good for consumers (or workers, for that matter). It only proves that monopolies are good for monopolists. http://blog.peterdonis.com/opinions/monopoly-money.html http://blog.peterdonis.com/opinions/monopoly-money.html

deleted 5y ago

[deleted]

AnthonyMouse 5y ago

> Without external restraints, any sufficiently large company will focus on eliminating competition either through pricing them out of the market or just outright buying them. The counterargument is that this only happens in markets with high barriers to entry, which in turn are mostly caused by regulatory barriers. For example, the government makes permanent spectrum auctions, so if all the holders of spectrum merge together, no new competitors can enter. Suppose instead they held a new auction every year or every month for use of the spectrum in a given region until the next auction. Then mergers wouldn't prevent competitors from entering; a new competitor goes to the next auction, places a bid and can get spectrum to launch a competing provider. It's clear that this theory is sometimes true -- that regulatory barriers can do this. Whether it's always the cause is hard to say and depends mostly on how you define what "regulatory barriers" means. But consider the consequences either way. If there are regulatory barriers causing monopolies, you have to break them up. If there are some other things causing monopolies, you have to break them up. Monopolies are bad. And breaking them up, if they are caused by regulatory barriers, can hamper the entities lobbying to keep the regulatory barriers. The question is what comes after. You don't want them to just reform again, right? Antitrust is a necessary evil, but still an evil -- still means you had a monopoly for long enough to have to bust it up. So if it's mostly or entirely regulatory capture which is causing them, we still need to address that. And then we don't need antitrust enforcement as often. But we still need it whenever a monopoly/oligopoly forms. That's just not a thing that can remain.

tablespoon 5y ago
>> Without external restraints, any sufficiently large company will focus on eliminating competition either through pricing them out of the market or just outright buying them. > The counterargument is that this only happens in markets with high barriers to entry, which in turn are mostly caused by regulatory barriers. Not necessarily. For instance: if the barriers to entry are zero but the monopoly can price things below cost (e.g. due to cash reserves or strength in other markets), it can bury any competitor. The mere existence of that ability could have a deterrent effect that prevents competitors from forming in the first place.
- 5y ago