oaf@mit-vax.UUCP (Oded Feingold) (03/05/85)
Context: nrh@inmet attributing to dmck >As it happens, I do believe that monopolies are not stable unless >given special, generally government-based protection. As Daniel McK. >points out, such monopolies leave themselves open to "cracking" >if they charge rates over their marginal costs -- if, in other words, >they get greedy. Forgive my naivete, but it strikes me that monopolies can get nice and greedy and not be destabilized. I recall stories of Standard Oil driving out competition by giving it away free until the competitor dropped dead, then raising prices. Also of Bell Telephone doing the same. Whether the stories are true is immaterial. The point is that when analyzing at anything but the surface level, monopolists/oligopolists can easily distort a "free market" to their liking. They have economies of scale, they can survive a drought (like giving it away for free), they can integrate vertically and horizontally, hence squeezing others out of starting up, etc. What am I missing, gentle readers? The flamacious economic discussions here seem based on sand, living as they do on assumptions of hypothetical societies and systems. Is this really where it's at? Cheers, -- Oded Feingold UUCP: mitvax!oaf MIT AI Lab Arpa: oaf%oz@mit-mc.ARPA 545 Tech Sq. AT&T: 617-253-8598 Cambridge, Mass. 02139
josh@topaz.ARPA (J Storrs Hall) (03/06/85)
> Context: nrh@inmet attributing to dmck > >As it happens, I do believe that monopolies are not stable unless > >given special, generally government-based protection. ... > Forgive my naivete, but it strikes me that monopolies can get nice and > greedy and not be destabilized. I recall stories of Standard Oil driving > out competition by giving it away free until the competitor dropped dead, > then raising prices. Also of Bell Telephone doing the same. > S.O. went from about 90% of the market in 1899 to 30% in 1911-- THEN the Feds stepped in and cracked it up. Several people got rich by building one competing refinery after another and forcing Rockefeller to buy them out to keep his "monopoly"--which steadily leaked away anyhow. Bell, as I'm sure you all know, was government supported from the start (first Bell's telephone patent gave them a monopoly, then when it ran out they got special legislation passed). (--Indeed, in the decade between the two events, 20000 phone companies were formed (yes, twenty thousand separate companies) and independents descended from them under grandfather clauses continue to serve about a third of the nation's telephones.) > Whether the stories are true is immaterial. However, whether the stories are *possible* isn't--and they aren't. > The point is that when > analyzing at anything but the surface level, monopolists/oligopolists > can easily distort a "free market" to their liking. They have economies > of scale, they can survive a drought (like giving it away for free), > they can integrate vertically and horizontally, hence squeezing others > out of starting up, etc. > > What am I missing, gentle readers? The flamacious economic discussions > here seem based on sand, living as they do on assumptions of hypothetical > societies and systems. Is this really where it's at? > > Oded Feingold I won't go into the rebuttals here, since they consist of examining a long list of "what if the monopoly did this" and "what if the competitors did that". I'll point you instead at two books at different levels: 1) The Machinery of Freedom, by David Friedman (a libertarian) contains a couple of chapters at a straightforward, verbal level that you can more or less read like a novel, explaining why monopolies collapse (*not* can never happen) in a free market; 2) Economic Analysis of Law, by Richard Posner (not a libertarian) contains a long, intricately detailed analysis of not only monopolies in a free market, but of the actual effect of attempted legal remedies (which, it seems, bolster as often as hinder monopolistic tendencies-- not to mention explicitly supported ones such as utilities). --JoSH
cliff@unmvax.UUCP (03/07/85)
> Context: nrh@inmet attributing to dmck > >As it happens, I do believe that monopolies are not stable unless > >given special, generally government-based protection. As Daniel McK. > >points out, such monopolies leave themselves open to "cracking" > >if they charge rates over their marginal costs -- if, in other words, > >they get greedy. > Forgive my naivete, but it strikes me that monopolies can get nice and > greedy and not be destabilized. I recall stories of Standard Oil driving > out competition by giving it away free until the competitor dropped dead, > then raising prices. Also of Bell Telephone doing the same. I remember stories about a man in a Red suit that could produce sufficient toys to give at least one to each child of the world once a year. Couldn't we find him and use his technology to solve world crisis? > Whether the stories are true is immaterial. Same here...let's divert precious resources to looking for the Red suited man. > The point is that when > analyzing at anything but the surface level, monopolists/oligopolists > can easily distort a "free market" to their liking. They have economies > of scale, they can survive a drought (like giving it away for free), > they can integrate vertically and horizontally, hence squeezing others > out of starting up, etc. As long as a monopoly is giving its product away for free there is no problem. At the precise time the monopoly raises its price above what it would cost someone else to produce the same product, the monopoly is susceptible to "cracking." While it is charging below the cost that someone else would incur in production, the cost is reasonable. > What am I missing, gentle readers? The flamacious economic discussions > here seem based on sand, living as they do on assumptions of hypothetical > societies and systems. Is this really where it's at? Talk about weasel logic. First you condemn the claims by saying you have heard stories (which are false as presented--Standard Oil has been brought up *many* times) and then say whether or not they are true is immaterial. *Then* you claim that the economic discussions are based on hypothetical societies and systems. > Cheers, > > Oded Feingold UUCP: mitvax!oaf > MIT AI Lab Arpa: oaf%oz@mit-mc.ARPA > 545 Tech Sq. AT&T: 617-253-8598 > Cambridge, Mass. 02139 --Cliff [Matthews] {purdue, cmcl2, ihnp4}!lanl!unmvax!cliff {csu-cs, pur-ee, convex, gatech, ucbvax}!unmvax!cliff 4744 Trumbull S.E. - Albuquerque NM 87108 - (505) 265-9143
nrh@inmet.UUCP (03/09/85)
>***** inmet:net.politics / mit-vax!oaf / 3:27 pm Mar 6, 1985 >Context: nrh@inmet attributing to dmck > >As it happens, I do believe that monopolies are not stable unless > >given special, generally government-based protection. As Daniel McK. > >points out, such monopolies leave themselves open to "cracking" > >if they charge rates over their marginal costs -- if, in other words, > >they get greedy. >Forgive my naivete, but it strikes me that monopolies can get nice and >greedy and not be destabilized. I recall stories of Standard Oil driving >out competition by giving it away free until the competitor dropped dead, >then raising prices. Also of Bell Telephone doing the same. Odd, then, that you DON'T recall stories of Cornplanter Refineries growing at amazing rates while competing with Standard Oil, nor of the man who built 3 refineries, knowing that Standard Oil would be forced to buy each one to try to maintain their slipping monopoly, and overcharged Standard Oil. Not a bad way to make a living, for all that it reminds me of Ex-PFC Wintergreen in Catch-22. For a very brief and very libertarian look at the Standard Oil "monopoly", consult "The Machinery of Freedom" by David Friedman. > >Whether the stories are true is immaterial. Here we agree -- anecdotes, except as counterexamples, are fairly useless in discussions about how political things work. >The point is that when >analyzing at anything but the surface level, monopolists/oligopolists >can easily distort a "free market" to their liking. It is certainly true that they have done this, but it tends to be either a very short-lived distortion (as they say in NASA, "Stressed structures have a way of unstressing themselves") or they use economic power to get political power and remove the freedom of the market. This last is the part that libertarians wish to stop from happening. >They have economies of scale, >they can survive a drought (like giving it away for free), >they can integrate vertically and horizontally, hence squeezing others >out of starting up, etc. Taking your points in turn: they also often have DIS-economies of scale. This is why large bureaucracies are a liability, but seem inevitable in large companies. They can survive a drought, but smaller companies may come and go -- leaving at the beginning of the drought and starting up again after. Further the new competition need not be all that small (AT&T vs. IBM). As for giving it away, Cornplanter came up with a nice solution for that -- they arranged it so that they could sell to a fairly large area. Remember, the large monopolist has more customers than the small one. The small one need only beat the price by a little, and lose a little money -- the large company must try and match that price, and if the price is at or below cost, the amount of money he'll lose will be much, much, greater than the small company. If he tries to support his losses locally by selling at higher prices in other areas, he runs two risks -- first that the small company he's trying to drive out of business will advertise to customers in the area he's charging more to, second that he'll encourage new companies to spring up in the higher-charged area. As for horizontal and vertical integration, this may or may not be worthwhile. Remember the diseconomies of scale problem, and one other point: once vertically integrated, the monopoly no longer has a cheap way of getting cheaper parts from "upstream" -- it must improve its own operation, rather than relying upon competition -- notoriously harder to do. >What am I missing, gentle readers? The flamacious economic discussions >here seem based on sand, living as they do on assumptions of hypothetical >societies and systems. Is this really where it's at? Hmmm..... I suspect you missed the "Standard Oil" discussions, and my challenge to find non-state-supported and stable monopolies. By the way, I don't mean to duck your suggestion that the Bell system was a monopoly, but it certainly was a state-supported monopoly, so it's covered by the phrase in my original note about "special, generally government-based protection".