Immunize yourself against the myths of monopolies in ten minutes

[discojoe]

[ame=http://www.youtube.com/watch?v=eO8ZU7TeKPw&videos=1BhHnBPfT5k]YouTube - Evil Monopolies Are Fairy Tales In Free Markets[/ame]

[Gilly]

The problem is not the existence of monopolies, but the fact that the actions of their owners, with regards to what they do with their power, cannot be controlled, and that they will default to wringing every cent they can out of consumers, which is just bad for the greater populace. What if we let companies run wild, and one of them gets a monopoly on, say, water or electrical infrastructure? Everybody will always pay, and an unregulated monopoly will run people into the ground because they know their product is needed.

And yes, their are localized monopolies on such things today, but fortunately government is there to back us up to prevent them from abusing us completely. What would happen if they were allowed to run rampant? Simple fact of nature: predators eat their prey.

[discojoe]

The problem is not the existence of monopolies, but the fact that the actions of their owners, with regards to what they do with their power, cannot be controlled, and that they will default to wringing every cent they can out of consumers, which is just bad for the greater populace. What if we let companies run wild, and one of them gets a monopoly on, say, water or electrical infrastructure? Everybody will always pay, and an unregulated monopoly will run people into the ground because they know their product is needed.

Did you watch the video? It explains how competition makes it impossible for monopolies to do what you're saying.

And yes, their are localized monopolies on such things today, but fortunately government is there to back us up to prevent them from abusing us completely. What would happen if they were allowed to run rampant? Simple fact of nature: predators eat their prey.

The kinds of monopolies you're talking about are called natural monopolies, and they only exist because government grants monopoly rights to cable companies, for example, under the mistaken belief that prices are cheaper in such industries under monopolistic conditions.

[Gilly]

Where in the video does it talk about that?

[discojoe]

Where in the video does it talk about that?

4:15 and 8:10.

[1981slater]

* The power grid and the railroads are natural monopolies*

Myths about Monopoly (board game):

-It has an end
-Normal people love it
-It enhances friendships
-It's funny

[Gilly]

@ 4:15: yes, hopefully more responsible people would take over. Wishful fucking thinking. The stockholders will want to make money, so why wouldn't they invest in a company that is going to be raking in shitloads of money? Because we have faith in them to do the right thing? Get lost.

@ 8:10: it CAN happen without government assistance, if it's not a resource but rather a service.

[discojoe]

@ 4:15: yes, hopefully more responsible people would take over. Wishful fucking thinking. The stockholders will want to make money, so why wouldn't they invest in a company that is going to be raking in shitloads of money? Because we have faith in them to do the right thing? Get lost.

The reason stock prices will plummet is because the monopoly's actions would create hugely negative publicity and people would stop buying for fear that the price would drop, which of course would be the cause of the resulting drop in price. Look at the stock for BP, which dropped after the oil leak but bounced when they got closer to plugging it.

@ 8:10: it CAN happen without government assistance, if it's not a resource but rather a service.

When has it happened?

[Gilly]

The reason stock prices will plummet is because the monopoly's actions would create hugely negative publicity and people would stop buying for fear that the price would drop, which of course would be the cause of the resulting drop in price. Look at the stock for BP, which dropped after the oil leak but bounced when they got closer to plugging it.

People aren't going to stop buying electricity and water, or addictive drugs. Care to take a look at where the pharmaceutical industry is headed?

When has it happened?

When has there ever been a completely free market? Of course there are no examples; the conditions have not been properly tested. Government deters such things, right now. But given humanity's natural tendencies, placing them under those circumstances is only asking for one thing; what are you relying on to stop greed from ruling people who devised government in the first place as a method of protecting themselves from others, and from each other? Honestly, people just aren't ready for that; we are not, as a society, in America or anywhere else in the world, socially conditioned thoroughly enough for such a society to function without risking exploitation on a grand scale.

How long does it take before a billionaire with control issues buys up all the power lines, all the grain silos, all the fiberoptic infrastructure? That's what I'm curious about.

[discojoe]

People aren't going to stop buying electricity and water, or addictive drugs.

People don't need to stop buying them for the stock prices to drop. All it takes is enough negative publicity.

Care to take a look at where the pharmaceutical industry is headed?

That industry is heavily regulated by the government and is not a valid example.

When has there ever been a completely free market? Of course there are no examples; the conditions have not been properly tested. Government deters such things, right now. But given humanity's natural tendencies, placing them under those circumstances is only asking for one thing; what are you relying on to stop greed from ruling people who devised government in the first place as a method of protecting themselves from others, and from each other? Honestly, people just aren't ready for that; we are not, as a society, in America or anywhere else in the world, socially conditioned thoroughly enough for such a society to function without risking exploitation on a grand scale.

Ok, I'm not really sure how any of that follows from the video or from what I've been saying. To answer your general point, the issue is not about finding some perfect policy in which there is no downside. It is about finding the policy (i.e. the free market) that maximizes societal net gains while minimizing societal net loses so that there is the greatest net gain. This is why the free market is always preferable to regulated economies even when you consider the theoretical--and largely negligible--risk of massive monopolistic greed.

How long does it take before a billionaire with control issues buys up all the power lines, all the grain silos, all the fiberoptic infrastructure? That's what I'm curious about.

When has anything like this ever happened and resulted in long-term societal loss?

[DividedsGhost]

That video makes some really good points. But it's a little biased. He's ignoring some important history.

[ame=http://en.wikipedia.org/wiki/Sherman_Antitrust_Act]Sherman Antitrust Act - Wikipedia, the free encyclopedia[/ame]

From Wikipedia

The law attempts to prevent the artificial raising of prices by restriction of trade or supply.[5] In other words, innocent monopoly, or monopoly achieved solely by merit, is perfectly legal, but acts by a monopolist to artificially preserve his status, or nefarious dealings to create a monopoly, are not. Put another way, it has sometimes been said that the purpose of the Sherman Act is not to protect competitors, but rather to protect competition and the competitive landscape. As explained by the U.S. Supreme Court in Spectrum Sports, Inc. v. McQuillan:
"The purpose of the [Sherman] Act is not to protect businesses from the working of the market; it is to protect the public from the failure of the market. The law directs itself not against conduct which is competitive, even severely so, but against conduct which unfairly tends to destroy competition itself." [6]

I assume you're aware, but for those who don't have a knowledge of US history, companies had control of basic resources and made agreements with each other so that they all could raise prices for things that people needed. And the people weren't in a position to act against them with their own resources or financial backing. They had little choice but to buy from these companies.

Of course, you might argue that that means people should have boycotted or armed themselves and gone against the government(s) and businesses, but in this case they didn't and this was an attempt to help give society what it wants/needs and keep the current government and economy intact in the process. What is your stance on what role a government should have in a society, Discojoe? Assuming you believe in the idea of having a government to better society to begin with. I would like to hear your philosophy out of harmless curiousity, if you don't mind.

[silverchris9]

So there can only be monopolies if the monopolies also have good PR. What if the evil monopoly paid off the evil liberal media? I mean, evil liberal media, evil monopoly, makes sense...

[discojoe]

That video makes some really good points. But it's a little biased. He's ignoring some important history.

Sherman Antitrust Act - Wikipedia, the free encyclopedia

From Wikipedia


I assume you're aware, but for those who don't have a knowledge of US history, companies had control of basic resources and made agreements with each other so that they all could raise prices for things that people needed. And the people weren't in a position to act against them with their own resources or financial backing. They had little choice but to buy from these companies.

You're saying that the Sherman Act was necessary to keep these supposedly malicious companies from colluding to raise prices. However, this clashes with my own understanding of the law, which is that it was put into place to raise prices so that smaller, less efficient industries could compete, which is actually counter-intuitive to free competition.

From the Cato Handbook for Congress Antitrust:

Monopolies supposedly restrict output and raise prices. But the trusts that were accused of monopolizing their industries in the late 1880s had been, in fact, increasing their output several times faster than the overall economy had been growing during the decade preceding the passage of the Sherman Act. Also, during that deflationary period, those industries had been dropping their prices faster than the general price level had been dropping. That behavior is contrary to any definition of monopoly.

Members of Congress at that time clearly recognized those facts, but they wanted to pass a law that would protect less efficient and higher priced businesses. "Trusts have made products cheaper, have reduced prices,'' complained Rep. William Mason during the House debates over the Sherman Act. Low prices, he said, "would not right the wrong done to the people of this country by the `trusts' which have destroyed legitimate competition and driven honest men from legitimate business enterprises.''

Raising prices so that less efficient companies can afford to compete amounts to redistribution of wealth, since you're effectively taking money that private consumers would be saving or spending on something else and giving it to people who had been producing goods at prices that consumers opted not to pay.

So the Sherman Act wasn't actually necessary, since there were no actual evil monopolies to begin with.

So there can only be monopolies if the monopolies also have good PR. What if the evil monopoly paid off the evil liberal media? I mean, evil liberal media, evil monopoly, makes sense...

How would the monopoly bribe the liberal media, Fox News, and every blogger in the world? What you're saying just isn't realistic.

[Capitalist Pig]

Natural monopolies are a myth.

[discojoe]

Natural monopolies are a myth.

It's a myth dispelled simply by looking at the Japanese high-speed Internet market.

[xerx]

The guy makes some pretty interesting points, but I have one question -- isn't the government basically a monopoly? Only it stamped out its only competition during the Revolutionary and Civil wars.

[Capitalist Pig]

The guy makes some pretty interesting points, but I have one question -- isn't the government basically a monopoly?

Yes, it is, and it ought to be abolished.

[xerx]

Why not just use a competition model to make it lose some of its monopolistic features?

[silverchris9]

How would the monopoly bribe the liberal media, Fox News, and every blogger in the world? What you're saying just isn't realistic.

I'm not saying it necessarily is realistic. But to be fair, they wouldn't have to bribe every single blogger by any means. You just said it had to cause a big enough stir to drop stock prices. I don't think you can create a big enough stir to drop stock prices in the blogosphere alone. Also, if people keep causing a big stink, and stock prices keep dropping, but revenue stays constant, aren't people eventually going to realize that the big stink isn't affecting the company's profitability?

That video was okay, but it really wasn't terribly well-argued. It never proved its central assertion, which the guy returned to over and over again, which is that as soon as the company raises prices, competition is going to come in and people will start buying from the cheaper guy. This is another version of the central assertion of economics "people behave rationally." But people don't behave rationally. In fact, the whole point of the multibillion dollar marketing industry is to get people to behave irrationally.

I've always said that regulation vs. free market comes down to who you trust more, the government or businesses. Businesses can be short-sighted or insulate themselves from risk (i.e., banks make money as long as money continues changing hands, regardless of whether the people they gave the money to made any money with that money, lol). Government officials can be bribed or simply be lazy precisely because they don't have competition. But that doesn't mean that every company is going to be short-sighted. AND it doesn't mean that every government official is going to be corrupt or lazy because of their lack of competition (in place of competition, a sense of public service a la George Washington serves as a nice motivator). I don't know which one I trust more, but I'm not a humongous fan of either. In theory, I have more control over the government, insofar as I have a vote, but really, when you think about it, having one vote is a lot like owning one share in a company as far as how much influence you have on government decisions. But at least there's (theoretical) socioeconomic parity when it comes to votes, whereas there is not when it comes to stocks, obviously.

[DividedsGhost]

Thanks, that's interesting. I'll have to look into that further out of curiosity.

[Gilly]

People don't need to stop buying them for the stock prices to drop. All it takes is enough negative publicity.

Publicity won't do shit to their stocks if their product is irreplaceable.

That industry is heavily regulated by the government and is not a valid example.

Not a valid example because it's regulated by the government? That's my point, ditzyjoe. If it WEREN'T regulated by the government, they would wind up doing all sorts of ridiculous things to their drugs, making them addictive, all sorts of additives, ridiculously manipulative marketing campaigns, etc etc, just to get them sold. I'm sorry, but letting the chains loose on people who are only in it to make money is simply not a good idea, given the amount of power they stand to wield. I agree that the government should interfere less, but it's a necessary evil.

Ok, I'm not really sure how any of that follows from the video or from what I've been saying. To answer your general point, the issue is not about finding some perfect policy in which there is no downside. It is about finding the policy (i.e. the free market) that maximizes societal net gains while minimizing societal net loses so that there is the greatest net gain. This is why the free market is always preferable to regulated economies even when you consider the theoretical--and largely negligible--risk of massive monopolistic greed.

How is it theoretical when we have laws designed as the result of attempts to embody it? How is it negligible when the stakes are as high as they are? You are an idealist.

Maximizing generation of capital is great, but it shouldn't be the highest priority of society, the standard by which its efficacy is judged. The highest priority of society, is ensuring the continued existence of society and its moral structure that allows people to live together in relative safety (that being the evolutionary origin and projected goal of the concept of a society).

When has anything like this ever happened and resulted in long-term societal loss?

Do I have to repeat myself? It hasn't happened, because as long as there have been corporations with the potential to do such a thing, there has been government to stop them.

[discojoe]

Publicity won't do shit to their stocks if their product is irreplaceable.

But history shows that only the government can make a product irreplaceable. Monopolies only exist as a result of government action, so yes, when backed by the law, companies can charge whatever they want. Even in utilities markets, competition DOES take place, and lots of it at that. These monopolies you're talking about only exist because politicians bring in revenue from companies in exchange for monopoly rights.

Not a valid example because it's regulated by the government? That's my point, ditzyjoe. If it WEREN'T regulated by the government, they would wind up doing all sorts of ridiculous things to their drugs, making them addictive, all sorts of additives, ridiculously manipulative marketing campaigns, etc etc, just to get them sold. I'm sorry, but letting the chains loose on people who are only in it to make money is simply not a good idea, given the amount of power they stand to wield. I agree that the government should interfere less, but it's a necessary evil.

Why wouldn't a competitor step in and reveal all the shady details about one particular medicine in order to win over the market? That's EXACTLY what would happen.

Also, the FDA, which you claim saves lives, actually kills far more people than it saves.

How is it theoretical when we have laws designed as the result of attempts to embody it? How is it negligible when the stakes are as high as they are? You are an idealist.

List one single example of companies successfully creating and sustaining monopolies without the help of government.

Maximizing generation of capital is great, but it shouldn't be the highest priority of society, the standard by which its efficacy is judged. The highest priority of society, is ensuring the continued existence of society and its moral structure that allows people to live together in relative safety (that being the evolutionary origin and projected goal of the concept of a society).

The free market does this better. Maximizing capital output measurably leads to happier, healthier, safer citizenry. There is no evidence whatsoever that the government is needed to regulate economic behavior.

Do I have to repeat myself? It hasn't happened, because as long as there have been corporations with the potential to do such a thing, there has been government to stop them.

Have some Ti: It is fundamentally illogical to say that measures you are taking are preventing something from occurring that has never been observed or proved.

[Rick]

Discojoe, I think some of your points are based on the premise of a free and independent press that is capable of revealing facts and spreading negative publicity. From my experience in Eastern Europe I would say that it is not too difficult for press to be controlled by government and/or big business. Even in a relatively "free" society such as the USA, mass media cannot be relied upon to provide an accurate picture of reality, since they are guided by a money motive: whatever sells. Sometimes it's the truth that sells, sometimes it's half-truths and paranoia, sometimes patting people on the back and making them feel good.

You ask:

"Why wouldn't a competitor step in and reveal all the shady details about one particular medicine in order to win over the market? That's EXACTLY what would happen."

A competitor could just as easily step in and create an even more addictive product. Or, the first company could create a retaliatory smear campaign about the competitor who is attempting to reveal the shady details. Consumers who are unhealthy and addicted may not be inclined to pay much attention to facts and reason, anyways.

I agree that if there is an objective (i.e. scientific) and highly influential information network that has the resources to investigate everything happening in society, then your scenario works. However, many people are prone to superstitions and wishful thinking and can't distinguish an expert opinion from disinformation. Looking at U.S. mass media, of course it is better than Ukraine and some other countries, but I don't think it is facts-based enough and independent enough of big business to fulfill the role it needs to.

[FDG]

Well, creating an addictive product is very probably illegal. So, it's not a question of "who would win the market" whenever there's an illegal practice at play, because the rules of the game called "competition" aren't being respected (namely, one specific rule: transparency). So, even if a given person thinks that bad monopolies will be automatically ruled out by competition, he doesn't need to find a justification as to why such a behavior might persist: it's simply "against the rules".

[mu4]

Well, creating an addictive product is very probably illegal. So, it's not a question of "who would win the market" whenever there's an illegal practice at play, because the rules of the game called "competition" aren't being respected (namely, one specific rule: transparency). So, even if a given person thinks that bad monopolies will be automatically ruled out by competition, he doesn't need to find a justification as to why such a behavior might persist: it's simply "against the rules".

I think technology, and technological progress are addictive products, to the social organism itself. Increased standards of living and improved mode of production has a irrevocable effect on the psychology of the following generations.

Competition is very important to society as it allows for stagnate areas of society to be identified and culled. Socialist and capitalistic thought are both competitive ideologies and I think the existence of that competition is more important then the ideology themselves.

There are a few ways to improve society.

One is continuous improvement of the mode of production and distribution of those products.

I actually have no problem with smaller government or reducing some regulations on economic activity, but often the advocacy of the these forms of rhetoric leads to government subsidized robber barons.

Thins like lower taxes on the rich, elimination of the estate tax for a year, and general benefits to the owning class has been the result of the small government movement.

Big companies and the wealthy have a lot easier time dealing with complex regulation with their army of lawyers and accountants. Unfortunately some poor deluded people don't even realize that the party they support for smaller government have no interest or competence in creating smaller government, and others simply back fringe candidates running with cynicism and ressentiment towards various groups on personal dislike, such as immigrants, differing races, gays, muslims, etc.

Increasing disparity of wealth is the original form of anti-competitive stagnation.

There are complaints about high taxes on the rich will only result in more expensive goods for the consumers. The point isn't pricing, but to keep money moving, money has to move, exchange has to occur, debt has to be paid, otherwise you have fiscal paralysis.

I'm not a economist or anything, but this is what I see happening in the US right now.

[silverchris9]

Well, creating an addictive product is very probably illegal. So, it's not a question of "who would win the market" whenever there's an illegal practice at play, because the rules of the game called "competition" aren't being respected (namely, one specific rule: transparency). So, even if a given person thinks that bad monopolies will be automatically ruled out by competition, he doesn't need to find a justification as to why such a behavior might persist: it's simply "against the rules".

But rules immediately imply some level of government intervention. If we're just asking "can you create a monopoly" this is irrelevant, but if we're addressing the question of free market vs. regulation in general, that's worth noting. But I still don't have a solid opinion on the subject.

[smilodon]

I actually have no problem with smaller government or reducing some regulations on economic activity, but often the advocacy of the these forms of rhetoric leads to government subsidized robber barons.

Thins like lower taxes on the rich, elimination of the estate tax for a year, and general benefits to the owning class has been the result of the small government movement.

Big companies and the wealthy have a lot easier time dealing with complex regulation with their army of lawyers and accountants. Unfortunately some poor deluded people don't even realize that the party they support for smaller government have no interest or competence in creating smaller government, and others simply back fringe candidates running with cynicism and ressentiment towards various groups on personal dislike, such as immigrants, differing races, gays, muslims, etc.

This is a problem with the government having a monopoly on the use of force.

A competitor could just as easily step in and create an even more addictive product. Or, the first company could create a retaliatory smear campaign about the competitor who is attempting to reveal the shady details. Consumers who are unhealthy and addicted may not be inclined to pay much attention to facts and reason, anyways.

I have never heard a small government advocate say that the government should permit companies to lie in advertisements.

I agree that if there is an objective (i.e. scientific) and highly influential information network that has the resources to investigate everything happening in society, then your scenario works. However, many people are prone to superstitions and wishful thinking and can't distinguish an expert opinion from disinformation. Looking at U.S. mass media, of course it is better than Ukraine and some other countries, but I don't think it is facts-based enough and independent enough of big business to fulfill the role it needs to.

I have heard several free marketers express that there are 3 things that should not be run on a capitalistic model, military, prisons, and the press.

Publicity won't do shit to their stocks if their product is irreplaceable.

Products are only irreplaceable if humans need it to live, the government mandates it, or it is addictive.

Do I have to repeat myself? It hasn't happened, because as long as there have been corporations with the potential to do such a thing, there has been government to stop them.

As long as it has not bought the government.

Why not just use a competition model to make it lose some of its monopolistic features?

We did have this in the US prior to the passage of the 17th Amendment.

The guy makes some pretty interesting points, but I have one question -- isn't the government basically a monopoly? Only it stamped out its only competition during the Revolutionary and Civil wars.

It has a monopoly on the use of force. This gives it the ability to break into your house drag you out of it in the middle of the night, throw you in prison and keep you there for as long as it so chooses without breaking the law, because the government itself determines the law.

How long does it take before a billionaire with control issues buys up all the power lines, all the grain silos, all the fiberoptic infrastructure? That's what I'm curious about.

How long does it take for a revolutionary with control issues to takeover a government and then take over the grain silos to feed an army that will beat the populace into submission?

[mu4]

This is a problem with the government having a monopoly on the use of force.

Representative governments today have a monopoly on the legitimate use of force.

Private companies and individuals also can use force, but they must be legitimized by the government.

A government without a monopoly on the user of force is non-functioning, because then there is a revolution going on.

I have no problem of revolution, it's pretty much inevitable, I just think most people fail at it due to incompetence.

[FDG]

But rules immediately imply some level of government intervention. If we're just asking "can you create a monopoly" this is irrelevant, but if we're addressing the question of free market vs. regulation in general, that's worth noting. But I still don't have a solid opinion on the subject.

Yeah, I think even the most hard-core libertarians consider as needed some basic form of core government, which caters for military, police & law. Except Rothbard, but he's a little bit extreme.

[discojoe]

Discojoe, I think some of your points are based on the premise of a free and independent press that is capable of revealing facts and spreading negative publicity. From my experience in Eastern Europe I would say that it is not too difficult for press to be controlled by government and/or big business. Even in a relatively "free" society such as the USA, mass media cannot be relied upon to provide an accurate picture of reality, since they are guided by a money motive: whatever sells. Sometimes it's the truth that sells, sometimes it's half-truths and paranoia, sometimes patting people on the back and making them feel good.

Please, tell me exactly what you mean by "accurate picture of reality" and how the government can provide an "accurate picture of reality" that the free press cannot.

You ask:

"Why wouldn't a competitor step in and reveal all the shady details about one particular medicine in order to win over the market? That's EXACTLY what would happen."

A competitor could just as easily step in and create an even more addictive product. Or, the first company could create a retaliatory smear campaign about the competitor who is attempting to reveal the shady details. Consumers who are unhealthy and addicted may not be inclined to pay much attention to facts and reason, anyways.

Why would a company risk devastating media exposure by responding to competitors with further corruption when they could simply expose the competition and take their share of the market?

I agree that if there is an objective (i.e. scientific) and highly influential information network that has the resources to investigate everything happening in society, then your scenario works. However, many people are prone to superstitions and wishful thinking and can't distinguish an expert opinion from disinformation. Looking at U.S. mass media, of course it is better than Ukraine and some other countries, but I don't think it is facts-based enough and independent enough of big business to fulfill the role it needs to.

Right, so it's better to have a big bureaucratic monopoly control everyone's lives.

[Rick]

Lumping me into the "big government liberal crowd" again?

Please, tell me exactly what you mean by "accurate picture of reality" and how the government can provide an "accurate picture of reality" that the free press cannot.

"Accurate picture of reality" = reasonably close to scientifically provable fact.

The government, IMO, is probably even less likely to provide an "accurate picture of reality" than the free press. They have more to lose than the press.

Science does not equal government. Science as an institution is the best institutional source of scientifically provable facts available, regardless of the political system of the country you are in. For instance, even in a totalitarian regime such as the Soviet Union, there was a lot more scientifically provable fact in the scientific community than in society at large. Same goes for the U.S., even though scientists receive government grants. For instance, elected politicians in the U.S. for the most part ignore environmental threats described clearly by scientists, even as government bodies fund the research that produces the results the politicians ignore. It's one of the many paradoxes of government.

Why would a company risk devastating media exposure by responding to competitors with further corruption when they could simply expose the competition and take their share of the market?

Because if there is no free press in place, telling the truth doesn't work. There are hundreds of dirty secrets out there that aren't getting the press they should either because press outlets aren't interested in printing it, people don't care to hear it, or because there is no free press to publish it in the first place.

Right, so it's better to have a big bureaucratic monopoly control everyone's lives.

Who do you think I am, a communist? I am just pointing out that your arguments are based on the presumption of an independent, objective press and that this presumption is naive.

[Jimbean]

this is what is great about the internet!