nrh@inmet.UUCP (08/06/85)
>/* Written 1:15 am Aug 5, 1985 by umcp-cs!mangoe in inmet:net.politics */ >/* ---------- "Re: Supposed monopolies: Standard O" ---------- */ >In article <9561@ucbvax.ARPA> fagin@ucbvax.UUCP (Barry Steven Fagin) writes: > >>The following table shows Standard's >>difficulty at holding a monopoly on oil refining: > >>date market share >>1899 90% >>1904-1907 84% >>1911 80% > >I dunno, 80% seems pretty damn large to me. That's okay -- 80% is hardly a "monopoly", especially when independents are growing quickly. >>... >Which goes to show another reason why monopolies are undesirable; they can >do a lot of damage when they collapse. The current distress in the auto >industry is a prime example. I don't see that a large company has to be a monopoly to cause problems when it collapses -- all it has to do is employ enough people and resources. Of course if the government tries to help out the problem can get worse in two ways: 1. The government can succeed in saving the company, which amounts to rewarding incorrect allocation of resources. (At this point the company may (like Chrysler) do somewhat better, but the lesson becomes clear -- if you've the clout, and you're in trouble -- don't bother fixing things -- it's easier to yell for help). 2. The company can fail despite the aid -- and guess who gets the bill for delaying the inevitable? Do you think the executives don't get paid? One of the odd public misperceptions of corporate collapse is that the resources owned by (say) the automobile companies would simply disappear if the automobile companies were to fold. Not so! Those factories, furnaces, office buildings, computers, (and yes) employees become available for other purposes. Among them the formation of new and better (as well as new and worse!) automobile companies, and the general lowering of price of these items (supply increased). Nat Howard.
mangoe@umcp-cs.UUCP (Charley Wingate) (08/11/85)
In article <7800366@inmet.UUCP> nrh@inmet.UUCP writes: >>>The following table shows Standard's >>>difficulty at holding a monopoly on oil refining: >>>date market share >>>1899 90% >>>1904-1907 84% >>>1911 80% >>I dunno, 80% seems pretty damn large to me. >That's okay -- 80% is hardly a "monopoly", especially when independents are >growing quickly. Apparently I am using the language more loosely than others. Absolute monopoly isn't the question for me. It's a question of relative influence. As I recall, classical economics of perfect competition requires, among other things, relative parity in the various competitors market influence. Now a company which has an 80% share of the market has, I submit, more influence than one with 2%. >>Which goes to show another reason why monopolies are undesirable; they can >>do a lot of damage when they collapse. The current distress in the auto >>industry is a prime example. >I don't see that a large company has to be a monopoly to cause problems >when it collapses -- all it has to do is employ enough people and >resources. Of course if the government tries to help out the problem >can get worse in two ways: > 1. The government can succeed in saving the company, > which amounts to rewarding incorrect allocation of resources. > (At this point the company may (like Chrysler) do somewhat better, > but the lesson becomes clear -- if you've the clout, and you're > in trouble -- don't bother fixing things -- it's easier to yell > for help). > 2. The company can fail despite the aid -- and guess who gets > the bill for delaying the inevitable? Do you think the > executives don't get paid? And the third is, of course, to let the thing collapse anyway. For all intents, the American car makers before 1972 could be considered a near- monopoly; they all acted in the same way (ignoring Jeep for a minute), and commanded all but a fairly small fraction of the market (most of the rest being VW). It is rather interesting that the only group capable of penetrating the market were the Japanese, who are a monopoly in their own country, and the Germans, who share a certain vision of cars. No maker not of comparable size to the Big Three has been able to increase its share against them; the smaller american makers in the mold of GM and Ford had to be rescued by outside capital. >One of the odd public misperceptions of corporate collapse is that the >resources owned by (say) the automobile companies would simply >disappear if the automobile companies were to fold. Not so! Those >factories, furnaces, office buildings, computers, (and yes) employees >become available for other purposes. Among them the formation of >new and better (as well as new and worse!) automobile companies, and >the general lowering of price of these items (supply increased). This is too simple; it ignores the loss of income (and thus demand), and it ignores the fact that these assets must be acquired by the new companies. Let us suppose that Chrysler had been allowed to collapse. The first effect of this would have been a drop in both the local spending and investment around the plants, as the laid-off workers lost income and burned their savings. If sufficiently prolonged, the locals economies would begin to be depressed. In addition to this, there is all this unused equipment lying around, most of which is suitable only for making cars. To put it to use, someone has to collect together enough capital to purchase it. This takes time; in the meantime, the displaced employees have to find new work. As the Depression showed, this can be a sufficient shock to cause the economy to continue to collapse. Apparently Mr. Howard doesn't see this to be a problem, but I sure do. C WIngate
nrh@inmet.UUCP (08/14/85)
>/* Written 12:08 am Aug 11, 1985 by umcp-cs!mangoe in inmet:net.politics */ >/* ---------- "Re: Supposed monopolies: Standard O" ---------- */ >In article <7800366@inmet.UUCP> nrh@inmet.UUCP writes: > >>>>The following table shows Standard's >>>>difficulty at holding a monopoly on oil refining: > >>>>date market share >>>>1899 90% >>>>1904-1907 84% >>>>1911 80% > >>>I dunno, 80% seems pretty damn large to me. > >>That's okay -- 80% is hardly a "monopoly", especially when independents are >>growing quickly. > >Apparently I am using the language more loosely than others. Absolute >monopoly isn't the question for me. It's a question of relative influence. >As I recall, classical economics of perfect competition requires, among other >things, relative parity in the various competitors market influence. Now >a company which has an 80% share of the market has, I submit, more influence >than one with 2%. Just relax and think about it. The ASSUMPTIONS of classic perfect competition are merely illustrative of what happens in a real market. Invalidation of those assumptions doesn't destroy the equilibrium of supply and demand, any more than realizing that atoms are not "little balls bouncing around" invalidates the universal gas law. In other words, that a free market doesn't match classical microeconomic school-textbook examples doesn't mean that the free market won't share the important characteristics of the textbook example. As I recall, Daniel Mck. responded rather tellingly to someone else who made the same stupid mistake and attempted to foist it off on people. Yes, a firm with 80% of the market has more "influence" in certain ways than firms with 2%. The firm with 2% will quickly grab more market shares if the 80% firm tries to do anything that its customers don't like, though. >>>Which goes to show another reason why monopolies are undesirable; they can >>>do a lot of damage when they collapse. The current distress in the auto >>>industry is a prime example. > >>I don't see that a large company has to be a monopoly to cause problems >>when it collapses -- all it has to do is employ enough people and >>resources. Of course if the government tries to help out the problem >>can get worse in two ways: > >> 1. The government can succeed in saving the company, >> which amounts to rewarding incorrect allocation of resources. >> (At this point the company may (like Chrysler) do somewhat better, >> but the lesson becomes clear -- if you've the clout, and you're >> in trouble -- don't bother fixing things -- it's easier to yell >> for help). > >> 2. The company can fail despite the aid -- and guess who gets >> the bill for delaying the inevitable? Do you think the >> executives don't get paid? > >And the third is, of course, to let the thing collapse anyway. Bad choice of words. I said "if the government tries to help out". Letting it collapse would seem to be outside this assumption. >For all >intents, the American car makers before 1972 could be considered a near- >monopoly; they all acted in the same way (ignoring Jeep for a minute), and >commanded all but a fairly small fraction of the market (most of the >rest being VW). I occupy a monopoly of all programmers wearing a Harvard '79 tee-shirt and typing a netnews article in the Fresh Pond area in Cambridge. Does this mean much? Nope. The fact that the big 3 before 1972, neglecting Jeep, commanded "all but a fairly small fraction of of the [US] market" does not impress me as that important or useful a fact. It's too qualified -- like saying that "Ivory soap has a monopoly on Ivory soap". So what? That they all acted the same way makes sense -- they're all trying for the same market. Cheap cars were sort of invented here. It took a while for the rest of the world to catch up, and a while longer for it to make sense for middle-class people here to buy foreign cars (our auto-working class had to start getting those fat paychecks before it was sure to be profitable). On the other hand, Mercedes, Rolls, MG's and Alfa Romeo's were quite popular among those who didn't have to buy the cheapest cars they could get. >It is rather interesting that the only group capable >of penetrating the market were the Japanese, who are a monopoly in >their own country, and the Germans, who share a certain vision of cars. >No maker not of comparable size to the Big Three has been able to increase >its share against them; the smaller american makers in the mold of GM >and Ford had to be rescued by outside capital. And what does this mean? That the Big Three squashed everyone else by charging low rates? That's what the market is FOR -- making sure that the people who charge the least have incentives to grow. The Big Three didn't prevent DeLorean from starting, and (thank goodness) they didn't QUITE arrange for permanent, prohibitive import restrictions on their competition -- as that competition overcame the cost barriers of entry into the US, they began losing market share. This *NATURALLY* occurs first with larger foreign companies and then with smaller ones. It's not the result of "monopolies" in Japan or anywhere else. As for the Japanese auto makers being a monopoly in their own country, I suggest you look at the record -- one of the reasons that Reagan administration and outside analysts gave for ending the import limit on Japanese cars was that it was keeping the Japanese from having to compete with each other, and thus bring down prices. As for why small outfits haven't made a dent in the big 3, one reason is that it takes years to build automobile plants. Had Chrysler gone under, some marginal plants would have been available for public buy-out, and some smaller fish might have bought them, but they were denied this chance by our government. >>One of the odd public misperceptions of corporate collapse is that the >>resources owned by (say) the automobile companies would simply >>disappear if the automobile companies were to fold. Not so! Those >>factories, furnaces, office buildings, computers, (and yes) employees >>become available for other purposes. Among them the formation of >>new and better (as well as new and worse!) automobile companies, and >>the general lowering of price of these items (supply increased). > >This is too simple; it ignores the loss of income (and thus demand), and >it ignores the fact that these assets must be acquired by the new companies. I do not "ignore" these items -- I'm simply focusing elsewhere. In your posting, you "ignored" quantum mechanics -- but would an accusation that you did this carry any interest? I think not. >Let us suppose that Chrysler had been allowed to collapse. The first effect >of this would have been a drop in both the local spending and investment >around the plants, as the laid-off workers lost income and burned their >savings. If sufficiently prolonged, the locals economies would begin to be >depressed. In addition to this, there is all this unused equipment lying >around, most of which is suitable only for making cars. To put it to use, >someone has to collect together enough capital to purchase it. This takes >time; in the meantime, the displaced employees have to find new work. That's right -- meaning that the price of skilled automobile workers drops, meaning that other folks can hire them more cheaply, meaning a drop in the price of certain goods (laid-off auto workers stop demanding them because they can no longer afford them), and a certain amount of downward pressure on union contracts for the other car companies, resulting in MORE automobile workers being hired. And you accuse me of ignoring secondary impacts! Sure, a plant closure is a big deal, but for the rest of us it means saved money and more opportunity to hire or buy resources that an unprofitable enterprise was holding down. It is the obvious consequence of better opportunities opening up, and mistaken managers being "dealt with" by the market. >As the Depression showed, this can be a sufficient shock to cause the economy >to continue to collapse. Apparently Mr. Howard doesn't see this to be a >problem, but I sure do. "Mr. Howard" sees a depression as a SERIOUS consequence, but argues that if the State chooses to prop up unprofitable agencies to prevent short term pain, it will ultimately be saddled with a VERY serious depression when the State cannot prop things up any more, To say nothing of the pain to its larger interests caused by growing inefficiency in its economy. "Mr. Howard" thinks you are a bounder for attempting to create in the reader's mind the notion that "Mr. Howard" doesn't care about the creation of another Great Depression. > >C WIngate >/* End of text from inmet:net.politics */ > Mr. Howard