[net.politics] Supposed monopolies: AT&T

fagin@ucbvax.ARPA (Barry Steven Fagin) (08/02/85)

Regarding Charley Wingate's conjecture that Ma Bell was (is?)
monopolistic:

(Taken from Gabriel Kolko's book *The Triumph of Conservatism*.  I hate to
keep repeating that, but I don't want to take credit for work that
isn't mine)

True enough, from 1877 to 1894, Ma Bell did indeed exercise a virtual
monopoly over the telephone industry.  But once its patents expired
(most libertarians, by the way, are in favor of time limitations on patents), 
independent companies multiplied like rabbits, with the result that Bell
initiated twenty-seven patent infringement lawsuits against them in
1894 and 1895.  This policy of litigation failed because many of the new
companies had important patents of their own, and were very aggressive in R
& D.  Bell also refused to allow its subsidiary, Western Electric, to sell
equipment to the new companies, but new firms like Kellogg Switchboard,
Stromberg-Carlson, and the Automatic Electric Company sprang up to sell
what W.E. would not.

These independent companies, no fools they, reliazed that mutual
cooperation was crucial if any were to survive, and organized a national
association in 1897 to establish long distance serivce between their
cities.  (Note that this is exactly the sort of thing that supposedly
can't happen without coercion).  In spite of AT&T's superior
capital position, it faced intense competition and began losing
control of the industry.  In 1902, there were *9100* independent
telephone systems, and by 1907 there were *22000*.  That same
year, AT&T had 3.1 million phones in service, while the independents had 3
million.

What halted this trend was the passage of the Mann-Elkins Act of 1910,
lobbied for by AT&T (and, in all fairness, by others as well), which
placed telephones under the jurisdiction of the ICC.  Bye-bye rate
wars.  Telephones were perceived as a public necessity, and AT&T
chairman Theodore Vail embarked on a massive public relations campaign
on the necessity of centralized regulation of the phone system, using
the standard "public necessity" arguments.  In 1914 Mr. Vail proclaimed
the virtues of regulation:

"We believe in and were the first to advocate state government control
and regulation of public utilities...there should be a centralized general
administration in close communication with and having general authority
over the whole on matters common to all or matters of general policy."

This makes the breakup of AT&T so ironic.  I personally think it was a
good idea, but what would our phone system have been like if we
had just left it alone?

--Barry
-- 
Barry Fagin @ University of California, Berkeley

mangoe@umcp-cs.UUCP (Charley Wingate) (08/05/85)

In article <9563@ucbvax.ARPA> fagin@ucbvax.UUCP (Barry Steven Fagin) writes:

>True enough, from 1877 to 1894, Ma Bell did indeed exercise a virtual
>monopoly over the telephone industry.  But once its patents expired,
>independent companies multiplied like rabbits, with the result that Bell
>initiated twenty-seven patent infringement lawsuits against them in
>1894 and 1895.

>These independent companies, no fools they, reliazed that mutual
>cooperation was crucial if any were to survive, and organized a national
>association in 1897 to establish long distance serivce between their
>cities.  (Note that this is exactly the sort of thing that supposedly
>can't happen without coercion).

Isn't the threat of being forceably put out of business coercion?

>  In spite of AT&T's superior
>capital position, it faced intense competition and began losing
>control of the industry.  In 1902, there were *9100* independent
>telephone systems, and by 1907 there were *22000*.  That same
>year, AT&T had 3.1 million phones in service, while the independents had 3
>million.

>What halted this trend was the passage of the Mann-Elkins Act of 1910,
>lobbied for by AT&T (and, in all fairness, by others as well), which
>placed telephones under the jurisdiction of the ICC.  Bye-bye rate
>wars.  Telephones were perceived as a public necessity, and AT&T
>chairman Theodore Vail embarked on a massive public relations campaign
>on the necessity of centralized regulation of the phone system, using
>the standard "public necessity" arguments.  In 1914 Mr. Vail proclaimed
>the virtues of regulation:

   [quotation omitted]

Bringing us again to the $64 question: what is going to prevent this from
happening in Libertaria?

C Wingate

berman@psuvax1.UUCP (Piotr Berman) (08/07/85)

> Regarding Charley Wingate's conjecture that Ma Bell was (is?)
> monopolistic:
> 
> True enough, from 1877 to 1894, Ma Bell did indeed exercise a virtual
> monopoly over the telephone industry.  But once its patents expired
> (most libertarians, by the way, are in favor of time limitations on patents), 
> independent companies multiplied like rabbits, with the result that Bell
> initiated twenty-seven patent infringement lawsuits against them in
> 1894 and 1895.  This policy of litigation failed ...
> 
> These independent companies, no fools they, reliazed that mutual
> cooperation was crucial if any were to survive, and organized a national
> association in 1897 to establish long distance serivce between THEIR
> CITIES.  (Note that this is exactly the sort of thing that supposedly
> can't happen without coercion)...
> 
> What halted this trend was the passage of the Mann-Elkins Act of 1910,
> lobbied for by AT&T (and, in all fairness, by others as well)...
> 
> This makes the breakup of AT&T so ironic.  I personally think it was a
> good idea, but what would our phone system have been like if we
> had just left it alone?
> 
> --Barry
> -- 
> Barry Fagin @ University of California, Berkeley

Not only Ma Bell was monopolistic, all local companies are.  Therefore
I stressed "THEIR CITIES".  Each local telephone network is a local
monopoly, as such subject of (local) goverment regulation.  The "market
process" there is a bargaining between company and representatives of
population.  The breakup of AT&T merely split the representation of
the consumer in the process, what resulted in continuus rate hikes.
For each of the companies local network is a "cash cow" to produce
funds to develop new services.

Piotr Berman

fagin@ucbvax.ARPA (Barry Steven Fagin) (08/24/85)

>> Me
> Charley Wingate
>
>>These independent companies, no fools they, reliazed that mutual
>>cooperation was crucial if any were to survive, and organized a national
>>association in 1897 to establish long distance serivce between their
>>cities.  (Note that this is exactly the sort of thing that supposedly
>>can't happen without coercion).
>
>Isn't the threat of being forceably put out of business coercion?
>

No, it is not.  This question has been raised often on the net; perhaps
it's worth another look.  Putting someone out of business, if it does not 
involve acts of violence or fraud, is not coercion.  It is simply charging lower
prices and/or offering better goods in an attempt to change the economic
behavior of third parties.  Consider two people who want to sell you
widgets.  For whatever reasons, you habitually purchase widgets from
A.  Then, one day, you notice that B is selling better widgets for
10% less than A, or that B's store is air conditioned, or something that
makes you change your mind and start buying widgets from A.  Has coercion
occured?  Surely the answer is no.  You made a decision as a free human
being to control your actions according to your will.

Now multiply this scenario by N buyers, and M sellers, then reenact it.
Has coercion occured?  Most who accept your definition would say yes,
at least for certain values of N and M.  But how did the coercion
creep into things?  At what point did it happen?  Are there critical
numbers of buyers and sellers that make economic activities coercive,
below which they are not? Clearly further discussion along this line 
is absurd.

The reason this is so important in political discourse is that twisting
"coercion" to include the results of the economic transactions of third
parties implies that coercion is in turn justified in influencing these
transactions.  In my opinion, interventionists reason backward: they
want coercion to be justified in influencing economic transactions, so 
they define coercion to include economic transactions.  I believe 
libertarians, by contrast, are not guilty of the same crime; by accepting their 
definition of "coercion", one is not forced (:-) to accept self-evidently absurd
propositions that follow from it.

Later on ...

>> [My examples of how the government became involved in the telephone 
>> industry]
>
>Bringing us again to the $64 question: what is going to prevent this from
>happening in Libertaria?
>

Now Charley, you're not playing fair.  You're original claim was:

>>>The historical [record] rather plainly shows that markets tend to drift away 
>>from perfect
>>>competition towards monopolies and oligopolies as a result of natural
>>>forces, unless there are restraining forces to oppose this.  

When I attempt to refute this with examples, you shift gears and assert
instead that the *political* forces that lead to monopolies and
oligopolies are inevitable, even in Libertaria.  This claim is *very* different 
from your original one.  I'll address it in another posting to 
net.politics.theory.

--Barry

-- 
Barry Fagin @ University of California, Berkeley