“All Restaurants Are Taco Bell”

What Kind of Monopoly?

Drudge is linking the story about Google considering joining in on a bid for Yahoo.  Some are already beginning to raise a flag about monopoly, as the two Internet giants certainly occupy some of the same market space.  Of course, they might be interested in acquiring it just to slice it up and sell it off, or it could be that like so many things, Google has gotten so large that it wants multiple big-name brands to capture more of the market.  Either way, it’s not necessarily a monopolistic move, but many will already see it as such.  Part of the thing that makes a monopoly is government authority.  You may remember the silly, poorly-made movie starring Sylvester Stallone titled “Demolition Man,” in which the recently defrosted hero discovers that “all restaurants are Taco Bell.”  This was something enforced on the culture by government.  That is a coercive monopoly, which is the only sort that should cause you concern.

One of the problems is that people don’t understand the concept of monopoly, because what the popular culture tells them is that all monopolies are bad. Far be it from me to defend Google here, or in any instance, but I think it’s important that we understand what truly constitutes a coercive monopoly, as well as understanding how the concept has been oversimplified into the more generic and misleading term “monopoly.”

A monopoly is said to exist when a specific person or enterprise is the only supplier of a particular commodity.  For instance, if you patent a new device, and have sole rights to produce or license the production of the device, you have a monopoly.  If you own the last ham sandwich on Earth, with no expectation of there ever being more, you have a monopoly.  Look down at your keyboard. If you own it,  you have a monopoly on its use.  In this very obvious sense, a monopoly isn’t necessarily bad at all.  Copyrights are another form of monopoly, as are trademarks.  We could not long function as a society if there was no concept of property and no attendant “monopoly rights” of ownership.  As you can see, the concept is an important a vital part of a capitalist society.

Now let us turn to the much more specific and problematic concept of coercive monopolies.   This form of monopoly is a good deal different, and it’s the sort of which we should generally disapprove. Like patents, trademarks, and copyrights, coercive monopolies are granted and enforced by government, however, with these, there is nothing to prohibit another person from providing a substitute product or service.  When government creates a legal coercive monopoly, it freezes out substitutions, and it reduces the provider of the goods or services to one entity.  Consider the municipality that provides a public water utility, but prohibits the drilling of water wells.  Consider the public garbage collection service, while the city that provides it prohibits the use of alternative collection services, or requires that you pay the fees irrespective of your usage of the service.

Think of the public school system that collects your money, in most places based on the value of your property, whether you have children or not, and without rebate if you send your children to a private school at your own expense.  Notice that in this case, they are able to extort the money from you on the basis of seizing your property.  These are the sorts of monopolies with which governments empower themselves, but they also empower others as well.

Consider Major League Baseball, that gets a specific exemption from the anti-trust statutes under the law.  You can’t simply go set up your own baseball league.  This institution is protected by exemption from anti-trust laws, in specific legislation by Congress, under the assumption that it’s somehow too fundamental to American culture to permit competition.  Let me suggest that the idiotic legislators who passed this exemption failed to recognize something much more fundamental to American society: Competition.  The irony of protecting a competitive sport from external competition is mind-boggling.  If you’re a pro quality baseball player, you can either accept their rules or give up your career. This has been done in the main to restrict players from being able to negotiate.  If there was another league paying better, or willing to allow the player to decide the cities with which he would negotiate, the value of baseball players would escalate.  Some people think they’re paid too much already, but the fact is that they should earn whatever they can negotiate that the market will bear.

Of course, there are other sorts of monopolies that government rigs all the time.  Back in the 1990s, Bill Clinton put a huge swath of territory in Utah off-limits to coal mining, allegedly on the basis that it was to protect the environment.  It was also one of the only known sources of clean-burning coal in the world, the other being offshore.  Guess who had been buttering Mr. Clinton’s bread?  Yes, this sort of game is played all the time in Washington, where effective monopolies are created by legislation, and it’s part of the entire universe of crony capitalism that so many have been lamenting recently.

The government has enacted anti-trust laws advertised as being used to break up monopolies, or to prevent their formation, but all too frequently, this is just an excuse for intervention in the markets used to extort money from companies.  The most egregious cases of this are when government imagines a monopoly into existence so that they can squeeze money out of them.  Consider the case of Microsoft, that in the early 1990s became the dominant player in desktop operating systems.  At the time, Microsoft didn’t have a massive lobbying operation, and Bill Gates ran his company, but once he started to really beat his competitors badly, his competitors cried foul and turned to government for relief.  The problem is that Microsoft wasn’t really doing anything illegal, despite all the posturing by its competitors, and such laws as could be stretched to cover its actions were miserable ideas born of crony capitalism.

Several companies, all competitors, went to politicians and lobbied them to take steps against Microsoft.  It was a bi-partisan lynching, and after the affair, I believe it signaled the beginning of Microsoft’s market-share decline.  Bill Gates learned from the experience, as did his successor, and you can believe that Microsoft now employs plenty of lobbyists to plead its case before government. Did consumers benefit?  No.  So who did?  It didn’t save Netscape, which had been one of the complainers, and the truth is that Microsoft’s market share had been the product of great marketing, a very good product, and good, old-fashioned competition.  In the main, it had been what is termed a “natural monopoly.”   People simply preferred their products.  In the end, the only beneficiaries of this fiasco had been government and its officials, its regulators, and of course, all the lobbyists who now rake in cash.

When somebody complains to you about the monopoly some company allegedly enjoys, you’d be right to consider just what it is that the term means in the context proposed.  Not all monopolies are bad, and some are even vital parts of our economic system, but the ones with which we ought to be most concerned are those created in the cloakrooms in Congress, in the old executive Office building, and in the White House.  It never fails to be the case that it is this sort that subjects us all to the greatest perils.

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  • SkyShark

    Mark,
    The insight I am getting from reading your Blog is priceless. You publish information that would take me hours to accumulate, if I could even find it. I am able to take the information and further educate myself, or just use it as it is to bind the thoughts alread running around in my over-stimulated brain.
    I am sure that I am not alone in reaping the benefits of your tireless efforts.
    You are a blessing to us. Keep up the good work.

  • Charlie R

    Wow! What a weekend for you. I think I'm becoming an actual fan of yours. Seriously, like a laser, you inform with such clarity of principle and purpose.
    Am I to understand that you only have 153 signed up for your e-mail alerts?
    Would you share the stats on your readership – if you have them?

  • http://www.facebook.com/kellsbella Kells Bells

    This brings to mind the whole AT&T merge. I think the govt. was trying to put a stop to that…. don't know what happened there. The govt. definitely stepped in for the unions in the case of Boeing…… haven't heard if they will get to move to S.C. or not.
    You make a great point using Bill Gates. If govt. stays out of the market, the "big fish" will eventually succomb to a competitor……I'm thinking Steve Jobs.

  • SeanStLouis

    There are at least a few non-coercive monopolies that I can think of that are terribly dangerous. The worst of all is Monsanto (here in St. Louis). They control up to 100% of the commercial seed market in the United States. They've gobbled up virtually every seed company in existence.

    It's a little ironic that this mega-corporation, which started out manufacturing chemicals and drugs (things like bovine growth hormone), now supplies the world with it's patented genetically-modified seed. Or is it?