The Gaming Den

The majority of utilities - often aside from water - in the US aren't natural monopolies. Consider power generation, by separating the delivery infrastructure (which is a natural monopoly), from power generation (which isn't), you can abandon most regulation of power generation, which, as I understand it is the US approach. You can do the same thing with gas, which just leaves water which is a bitch, but I'd submit to you that regulation of drinking water has resulted in clear efficies, i.e. having drinking water that isn't heavily contaminated.

Gelare wrote: Can't really argue with that. Economic theory doesn't usually take into account stuff like getting shot in the face.

And that's ultimately why the entire Chicago School fails almost as badly as the Austrian School. Because economics ultimately is about shooting people in the face. If you don't get water, food, shelter, and medical care you die. In a very immediate and tangible way. Pestilence kills more people than bullets.

So when the Chicago School say that we should allow the Free Market to find a maximum profit point for water, they are saying that we should raise scarcity until some people don't get water. And that is absolutely no different from just shooting people in the face (added bonus: these dead people are super poor and you never have to see their faces or think of them as human).

These chuckleheads seem to really believe that it is somehow acceptable, even desirable for a certain amount of people to literally die of privation when resources exist to preserve their lives. And that's just not going to go over well. When you institute economic policies like that, the people at the low end of the demand curve don't just obligingly shuffle off the mortal coil - the women of Orleans seize the armory and march cannons on Paris. The King gets his head chopped off and the crowd cheers.

When your economic system doesn't give people things they need to survive, then you have to be willing to kill those people to get them to go along with it. So if your economic theory doesn't include shooting people in the face - it's just not a model that reflects real world realities.

-Username17

Gelare wrote: If the monopoly has advantageous economies of scale, it should not surprise anybody that they are able to outcompete their less efficient competitors. That's not even a problem. Either some company needs to be started up at minimum efficient scale, which is totally possible and fine...

No. Good try, but no. Just because I have a monopoly in A doesn't mean I have a monopoly in B. If I do have a monopoly in A and I'm engaging in predatory pricing to try to get a monopoly in B, I'm wasting my monopoly profits, whereupon you can use the earlier argument against predatory pricing where the competition produces A and B.

There's no reason why every one of those things can't apply to the competition - large amounts of start-up capital, being primarily based in other markets, etc.

In essence, your argument against predatory pricing being a problem is that new entrants just have to enter every market that the monopoly owns (at the same time) to avert it. They need to begin at the minimum efficient scale is also a pretty impressive barrier to entry so they'll need a lot of start-up capital and investors that won't balk at risking lots of money on an even competition.

However! There are a number of entities with large amounts of capital to fund new entrants into existing markets. They are, uh, other... bigger... monopolies.


Whilst I'm sure it's possible that it'll have a better outcome, monolithic companies sprawling across multiple monopolies sure sounds like an even worse problem than companies that monopolise one or two markets.

Gelare wrote: By all projections, my generation is going to buckle under the absolutely ridiculous strain of all the Baby Boomers receiving Medicare and Social Security.

It's not like my situation is any different. I happen to also have to pay for whatever harebrained scheme my government has for diluting the worth of the degree I'll have at that point.

Gelare wrote: So what you're saying is that getting more government involved makes the situation worse. Glad we could establish that.

The fact that businesses are allowed to buy candidates has that effect. The fact that the businesses are allowed to manipulate public opinion into voting for a candidate does this.

Corruption makes things worse? Tell me it's a lie!

FrankTrollman wrote:Yeah, I love how these guys seriously say that we need to go back to the pre-1913 US policies. Other than the rampant corruption, the slavery, the genocide, the literal Wild-West style shootouts in the street, the starvation, and the 23 year long recessions, I'm sure it was fine.

I think you have your "pre" confused. "Slavery," not counting the corporate slavery where company expenses were higher than company wages, went out with the civil war. The gangster era was later, in the roaring 20's and was far from the Wild West where guns still weren't all that accurate and were not fully automatic. US Policies were often strongly interventionist. The 1890's was filled with the Spanish American war at the behest of the Hearst newspapers. Women dressing as men so they could go to war to avenge their brothers who died in the Maine was the stuff of all the patriotic music at the time. The potential for world wide armageddon didn't start until WWI (and even then, the thought that everyone in the world would be killed by ... mustard gas is kind of boring to post nuclear age ears).

FrankTrollman wrote:Ask a Chicago School proponent whether Unions are a self correcting problem. Let's use exactly the same logic:

I would probably use a different argument (in as much as unions can suffer the same problems as governments with cycles of success spurring growth which in turn becomes excess and then in turn drains on the system which then diminishes the leverage of the unions). The same is true in a vague way to a monopoly. Only a monopoly is more like an despotic empire; easy to establish in the sort term but hard to maintain in the long term.

I think a better way of looking at these things is to compare it to the body's normal immune system. Normally a lot of problems (disease) are self correcting. Sometimes things foreign to the body are necessary for the body (as in all the bacteria we need to digest food). While there are some conditions that the body does not respond to well and in fact can be fatal to the body in general the cycles of the body work ... only they suck in doing so. So we supplement the system with the knowledge that overregulation (in other words overusing antibiotics) will only result in more methods to avoid that overregulation.

FrankTrollman wrote:They will literally just have you killed. Whoever has the monopoly of force will be able to use it against anyone who competes with them. If that's the government, then it is very difficult to overthrow the state by force of arms. If that's not the state, then you get to live in a shiny new Banana Republic. Whether you like it or not.

But once again, the monopoly of force is not something that one can easily hold on to in the long term. The more force you exert the more the opposition evolves to that force and adjusts to it. Banana Republics rarely last long as a result; to be placed by a different banana. I think in the long term the only sure way for the despot is not force but despair, because that spreads apathy and a lack of opposition in general. It also gives you one sucky economy. Cuba is a great example of this approach as is North Korea.

If you study the stars you will find two types; the small blue stars burn the brightest but have the shortest lifespans while the larger red stars burn cooler but longer. Monopolies are a lot like this; either their monopoly becomes redundant, or an alternative effectively breaks their monopoly or they collapse because of their own greed. This economic life cycle, however, sucks and for the average person who is stuck in space and time, better alternatives need to be in place other than letting these natural forces take over.

Heath Robinson wrote:In essence, your argument against predatory pricing being a problem is that new entrants just have to enter every market that the monopoly owns (at the same time) to avert it. They need to begin at the minimum efficient scale is also a pretty impressive barrier to entry so they'll need a lot of start-up capital and investors that won't balk at risking lots of money on an even competition.

However! There are a number of entities with large amounts of capital to fund new entrants into existing markets. They are, uh, other... bigger... monopolies.

Whilst I'm sure it's possible that it'll have a better outcome, monolithic companies sprawling across multiple monopolies sure sounds like an even worse problem than companies that monopolise one or two markets.

Generally speaking, monolithic companies sprawling across multiple monopolies are an exactly as bad problem (not more, not less) as one company per product.

Forcing companies to start at minimum efficient scale is not a problem from any point of view, because you're forcing the company to be efficient. Bear in mind, the entire reason monopolies are bad is that they are inefficient, so forcing entrants to be efficient (or close to it) is a feature, not a bug.

Furthermore, other, bigger monopolies are not the only people with piles of cash, and bear in mind, minimum efficient scale usually requires much less capital than operating at the level of these big monopolies. Minimum efficient scale means owning, like, a factory. That's it. Monopolization requires lots of resources spread over a vast area. It's really not that big a deal.

Companies that are becoming victims of predatory pricing can also "play dead" - reduce output, reduce costs, while forcing the predator to soak losses. Really, there's a lot of reasons it doesn't work. There are functioning ways to maintain a monopoly, but predatory pricing isn't one of them.

Gelare wrote:The first is called "predatory pricing", and has occurred many times in the history books, but rarely, if ever, in reality.

I just couldn't let this go. Maybe there's no court-admittable evidence for this but can we really believe that Walmart doesn't engage in predatory pricing to drive local competitors out of business?

And even if you believe that Walmart doesn't do that, we do know of a company that has (that means it has occurred in reality) -- Standard Oil.

Or Telstra.

It happens a far bit, and playing dead doesn't work except for monopolies that produce commodity goods.

Playing dead won't help linux vs Microsoft, because MS will actually become stronger when linux is palying dead, as linux cannot incentivise developers to use its platform.

In the teleco space, until the challenger actually reaches the minimum efficent size it cannot play dead otherwise it just loses harder.

In Australia, breaking of the natural monopoly on telecommunications took government regulation AND the backing of a national government behind the challenger company.

Surgo wrote:

Gelare wrote:The first is called "predatory pricing", and has occurred many times in the history books, but rarely, if ever, in reality.

I just couldn't let this go. Maybe there's no court-admittable evidence for this but can we really believe that Walmart doesn't engage in predatory pricing to drive local competitors out of business?

And even if you believe that Walmart doesn't do that, we do know of a company that has (that means it has occurred in reality) -- Standard Oil.

Noooooo. No no no no no. These are two of the most common examples given for predatory pricing, and they're easy to pick up and accidentally accept as canon, but they're really not.

First, Walmart. It is absolutely true that when Walmart moves into a neighborhood, local competitors get driven out of business. Absolutely, cause-effect, no doubts about it. But the reason for this is not predatory pricing, it's competition. We call it competition for a reason: some people win, and some people lose. Walmart is able to offer low prices simply because of the way their company and business plan is set up - I'm sure you've heard about how they don't pay their employees a living wage, give them crappy health benefits, monopsony power, all that stuff - and it translates into savings for you, the customer. Congratulations. It also translates into driving all their competitors out of business, but that's not because they're engaging in predatory pricing, it's because they can simply afford to price low as part of their business.

The second one, Standard Oil, is why I said

Me wrote:has occurred many times in the history books, but rarely, if ever, in reality.

It's the example in every textbook that mentions the subject, and to be fair, Standard Oil did try to do it; the question is, did it work? There's an example of a manager for Standard Oil going to this smaller company and threatening them with predatory price cuts to drive them out of business, and the owner of the smaller company laughs and answers that if that's what they want to do, he will make them sell the stuff, and soak those losses, and Standard Oil backed off. Results, overall, were mixed, as they often are in these cases. As far as ways to protect your monopoly goes, it basically sucks compared to, say, bribing bureaucrats.


EDIT:

cthulhu wrote:Playing dead won't help linux vs Microsoft, because MS will actually become stronger when linux is palying dead, as linux cannot incentivise developers to use its platform.
...
In Australia, breaking of the natural monopoly on telecommunications took government regulation AND the backing of a national government behind the challenger company.

Microsoft is a special case because Windows is a platform, and platforms have network externalities. I have typed way too much in this thread to want to go in depth on this, but yes, you're right: there are, as always, special cases and exceptions.

In America, breaking of the natural monopoly on telecommunications took massive government action and the entrance of a competitor using completely new technology. What's your point?

cthulhu wrote:In Australia, breaking of the natural monopoly on telecommunications took government regulation AND the backing of a national government behind the challenger company.

That isn't an especially accurate portrayal of the whole Telstra thing.

Telstra was a big government monopoly. That wasn't so bad a thing, it wasn't massively efficient but it was cheap, subsidised, regulated and all profits (and they were significant) went into government coffers.

The era of "privatise everything bitches!" arrived and it was no longer cool for the government to own anything, provide any services or earn money. Everyone suddenly cared that it was an evil monopoly solely because the government owned it and a fortunes could be made in the corporate boys club by swindling the public out of their hard earned telecommunications network.

I'm pretty sure they started with phoney "corporatisation" of Telstra management (like what they currently have with NSW state electricity right now) along with regulating to let small private companies into the market.

Oddly the small private companies didn't do too well. (duh). And the corporatised "independent" leadership of Telstra brought in numerous unpopular and unhelpful policies and constantly whined about not being a real private corporation.

So the solution was to make Telstra into a PRIVATE monopoly. Because those are better (as we all know) and the government would sell it for a mere couple of years worth of profits.

Oddly this was massively unpopular so they had to sell in pieces to pretend that maybe at any minute they wouldn't REALLY go through with such an insane policy.

And every time they sold a bit the semi private corportised telstra CEOs and such would whine that the reason they still provided shit services and did every bad thing they ever did was because they weren't yet private ENOUGH.

Apparently the last publicly owned shares in telstra are now part of a fund that pays public servants pensions. Just as half the Liberal party federal leadership retires.

The general result is we have a mostly less regulated and more expensive mostly private monopoly the profits of which no longer go to the betterment of society. Telstra still owns the communications network and basically all of their "competitors" are little more than Telstra sub contractors barely protected by elderly and decaying legislation

And as part of the result of all that we have rather poor telecommunications provision ESPECIALLY in the field of internet and data services. I'm in a semi rural area so I could tell you some stories...

Anyway, most experts agree that if privatisation was ever a good idea (and it probably wasn't, but whatever, "privatise or else bitches" you know how it goes) the government should have sold and broken up all the service provision and kept the physical network in government owned hands.

Gelare wrote:Congratulations. It also translates into driving all their competitors out of business, but that's not because they're engaging in predatory pricing, it's because they can simply afford to price low as part of their business.

Except the claim is that they put prices up once the competition folds. That is predatory and that is the accusation you'd need to be refuting.

PhoneLobster wrote:

cthulhu wrote:In Australia, breaking of the natural monopoly on telecommunications took government regulation AND the backing of a national government behind the challenger company.

That isn't an especially accurate portrayal of the whole Telstra thing.

I was referring to the roll out of Optus HFC copper network - the rest of the story has happened globally when countries try to privatise their telco networks.

To my mind, they should have split the company in two - one into infrastructure and one into retail, and then just let it slide, much easier to control the 'monopoly' then because you can force the infrastructure provider to sell to everyone including the retail arm at the same price, and because they are seperate companies, you have much more transparency.

It doesn't seem to want to let me edit, so here is the revised version of that post:

PhoneLobster wrote:

cthulhu wrote:In Australia, breaking of the natural monopoly on telecommunications took government regulation AND the backing of a national government behind the challenger company.

That isn't an especially accurate portrayal of the whole Telstra thing.

I was referring to the roll out of Optus HFC copper network which was a classic example of predatory pricing and telstra got wrapped over the knuckles for it - they were coming along street by street behind optus, duplicating the servie and undercutting the prices.

Optus lost a lot of money and had to rely on Singapore picking up the tab.

The rest of the story has happened globally when countries try to privatise their telco networks.

To my mind, they should have split the company in two - one into infrastructure and one into retail, and then just let it slide, much easier to control the 'monopoly' then because you can force the infrastructure provider to sell to everyone including the retail arm at the same price, and because they are seperate companies, you have much more transparency.

As for government owned corporations being ineffectual, well, AusPost does very well in my opinion and is a good success story. ActewAGL isn't bad either. Railcorp maybe not so much, the ABC is very good, and the Sydney ferry organisation is shit.

I'm also loosely in favour of privatisation and public private partnerships, because often the government is less effective at getting the job done in some cases, and its not like we don't have a corporations tax that extracts most of the profit the government would have got anyway.

Digger Rebellion =/= United Fruit Massacre, right?

Gelare wrote:First, Walmart. It is absolutely true that when Walmart moves into a neighborhood, local competitors get driven out of business. Absolutely, cause-effect, no doubts about it. But the reason for this is not predatory pricing, it's competition.

Wallmart is an interesting example but it's not becuase of competition. Walmart wins because it changes the question. On a simple matter of who is the cheepest, economies of scale and import abilities trump everyone ... until those products prove unpopular becuase of health or other reasons.

Then again the local general store owner probably said the exact same thing to the "supermarket." "Gone with the hog's head, cask and demijohn, gone with the sugar barrel, pickle barrel, milk pan, gone with the tub and the pail and tierce."

Generally speaking when a large chain (lumber stores are great examples of this) comes in to a locale their attitude is "how long can you hold your breath." They can afford to loose money at first in order to kill the competition. They hire expert staff, they lower the prices and so on. Once the local competition is gone, the expert staff is laid off (or shipped to the next "target") and the prices return to something profitable.

The claims that Wal-mart doesn't do predatory pricing is a load of fael. Why? Because Wal-Mart doesn't eat the cost, they force their suppliers to eat the cost. Vlasic Pickles is going bankrupt because of them, and every other supplier is slowly being strangled because Wal-mart demands them sell their goods to them for lower and lower prices.


Simply put, Wal-Mart does in fact do predatory pricing, and they're so big that they can force their vendors to go out of business for them.

That will long term cost wal-mart though, because by busting their suppliers they will create a monopoly, driving their prices up and making 'full service' much more competitive again.

Edit: Wtf, how can you even know the Pinnacle group is going to go bust because they're owned by the Blackstone group, i.e. a private equity company - but more importantly, if they were, it would be most likely because the debt load was unsustainable, not anything Wal-mart was doing.

Bigode wrote:Digger Rebellion =/= United Fruit Massacre, right?

Digger Rebellion is in 1649 on St. George's Hill, England - as the song goes.
The Matanza de las bananeras is in 1928 in Ciénaga, Columbia - so sayeth the history books.

Tzor wrote:Generally speaking when a large chain (lumber stores are great examples of this) comes in to a locale their attitude is "how long can you hold your breath." They can afford to loose money at first in order to kill the competition. They hire expert staff, they lower the prices and so on. Once the local competition is gone, the expert staff is laid off (or shipped to the next "target") and the prices return to something profitable.

That's the predatory pricing issue, and it's a big one.

The other part of course is the exclusive contract. That is, the big names will often make contracts that are large with suppliers and service providers on the condition that the contract is exclusive - that the supplier or provider does not also sell to competition. In this way they force suppliers to choose between making a lot of money and allowing the competition to survive. Guess which they choose?

But for the company that is not merely large, but actually a monopoly, it becomes even worse. They make exclusive contracts with or outright own everything on the supply chain all the way up to the raw materials. You couldn't compete with Standard Oil. They owned or ad exclusive contracts with the oil pumping, the oil shipping, the oil refining, and the gasoline sales. An independent gas station had no one to purchase gasoline from. An independent refinery had no one to sell gasoline to and no one willing to send them oil or sell it to them in the fist place.

-Username17

Since I started this tangent on monopoly power...

@ Galere,

The example of Wal-Mart is not a good one, but there are plenty of examples of the exercise of monopoly power in reality rather than just textbooks. Frank alluded to the exclusive contracts problem, which can also be a manifestation of monopoly power.

The 3M case from a few years back (anyone know how that case was resolved? -- I'm several years out of date with antitrust law) was a combination of these problems (predatory pricing and exclusive contracts). http://www.law.com/jsp/article.jsp?id=1032128864161

But there are a host of anti-trust cases with clear and egregious examples of the exercise of monopoly power going back decades. Just do a search of a major legal database.

But beyond controlling the price of outputs, monopolies also have power over labor markets, especially in our era of specialization. If you are a particular expert in a market in which there is a monopoly company, your wages are controlled by that company's price demand for your labor. The monopsony problem is not insignificant.

I think a good case for union power can be made simply on the grounds that in our time of heavy oligopoly power across major industries (show me a major american market segment where a few companies don't control most of the services or production), unions can help counterbalance the downward pressure on wages caused by a lack of robust competition for labor.

EDIT: Since it came out in the discussion, the solution to monpoly power isn't always to break up a company, since the problem isn't always as simple as they are pricing too high and we need to create competition. Sometimes, monopoly power is abused in other ways. One of the problems with Microsoft wasn't simply the fact that they probably overpriced some of their goods and therefore reduced supply and created societal deadweight loss, but that they bundled their browser and engaged in other behavior designed to harm Netscape and other would-be competitors by using their monopoly power in one market to prevent competitors from competing in other markets. It's a cross-domain problem, and looking at a single domain will obscure the full scope of the problem.

Walmart selling medicines at a price lower than their competition can buy them from the same suppliers (because of Walmart's pressure) isn't predatory, it's competition?

WTF, man.

Microsoft's monopoly, for instance, has created millions of computers which were hijacked in ways that could not happen with the competition or previously existing software. They had no need to address these issues, because it did not impact their market.

-Crissa

Smmenen wrote:The example of Wal-Mart is not a good one, but there are plenty of examples of the exercise of monopoly power in reality rather than just textbooks. Frank alluded to the exclusive contracts problem, which can also be a manifestation of monopoly power.

The 3M case from a few years back (anyone know how that case was resolved? -- I'm several years out of date with antitrust law) was a combination of these problems (predatory pricing and exclusive contracts). http://www.law.com/jsp/article.jsp?id=1032128864161

But there are a host of anti-trust cases with clear and egregious examples of the exercise of monopoly power going back decades. Just do a search of a major legal database.

I completely agree with all of that. I never said that monopolization doesn't happen, or that monopoly power can't be exercised, because that all totally happens all the time. I was specifically talking about how predatory pricing is a crappy way to do it. Horizontal restraints is a much better (but more detectable) way to do is, which is what happened in that 3M case you mentioned. Neat case, by the way.

Crissa wrote:Walmart selling medicines at a price lower than their competition can buy them from the same suppliers (because of Walmart's pressure) isn't predatory, it's competition?

WTF, man.

Half right. I mean this with all due respect, but I think you're mixing up your terms. Predatory pricing is pricing below cost and soaking losses in order to drive out competitors with smaller cash reserves. The fact that Walmart gets stuff for super cheap from suppliers is not an example of predatory pricing, it's an example of them exerting their monopsony power. It's far from perfect competition, and it sucks for folks that aren't Walmart, but it's not predatory pricing.

Count Arioch wrote:Because Wal-Mart doesn't eat the cost, they force their suppliers to eat the cost. Vlasic Pickles is going bankrupt because of them, and every other supplier is slowly being strangled because Wal-mart demands them sell their goods to them for lower and lower prices.

Well then maybe Vlasic Pickles needs to find some other folks to sell to.

I mean, you're right, this happens, because Walmart is able to exert monopsony power on its suppliers, but really, do you expect them to play nice? Do you expect Walmart to throw money away to their suppliers when they could be both not doing that and keeping prices down for their shoppers? It's not Walmart's job to keep their suppliers in business, it's the suppliers' job to keep themselves in business. If they're that upset about it, they're welcome to not sell to Walmart. They'll shrink tremendously and have to lay off a bunch of workers, but since when did it become Walmart's responsibility to keep that from happening?

Gelare wrote:but since when did it become Walmart's responsibility to keep that from happening?

It's everyone's responsibility to prevent the consequences of Walmart's practices from happening, Walmart just happens to be in the best position to do so. The federal government should be able to sue them for actively causing the dollar to massively decline. Walmart has fucked the country up the ass with no lube with their practices, many of which are borderline illegal. They have a fucking responsibility to NOT do that. The idea that acting in your own best interests absolves you from responsibility for the consequences of doing so is complete bullshit.

Neeeek wrote:

Gelare wrote:but since when did it become Walmart's responsibility to keep that from happening?

It's everyone's responsibility to prevent the consequences of Walmart's practices from happening, Walmart just happens to be in the best position to do so. The federal government should be able to sue them for actively causing the dollar to massively decline. Walmart has fucked the country up the ass with no lube with their practices, many of which are borderline illegal. They have a fucking responsibility to NOT do that. The idea that acting in your own best interests absolves you from responsibility for the consequences of doing so is complete bullshit.

Oh, get over yourself. It sure as hell isn't my responsibility to stop Walmart from doing whatever it is you think they're doing, and I somehow doubt it's your responsibility either. The federal government can sue them, and so, I'm betting, can many of you; if any of you live in a town in which there is a Walmart, I entirely seriously encourage you to file suit against them under section 1 of the Sherman Act, and accuse them of engaging in conspiracy in restraint of free trade, because if it's really as open and shut a case as some people seem to think, you could very easily get actual billions of dollars from a verdict against them, since monopoly cases award triple damages for no reason (I'm serious), and even if you settle out of court you're looking in the eight, maybe nine figure range.

If Walmart's practices are illegal, someone should sue them. If they're, as you say, borderline illegal, then either make them illegal or stop complaining. To blame Walmart for the relative cheapness of overseas labor is straight up nonsense. To blame them for the decline of the dollar is complete and total nonsense. These guys aren't saints, that's for sure, their treatment of their workers is deplorable and their exercise of monopsony power is inefficient, but they've also received this title of corporate antichrist that they don't really deserve any more than any other big companies.

If they're, as you say, borderline illegal, then either make them illegal or stop complaining.

So then the defence of Walmart as an example bad monopoly as an example of the bad effects of deregulation happens to be...

That it isn't Walmart's fault because it's the fault of the deregulation?

Isn't that the whole damn point in the first place? Are you forgetting that or are you making some weird "This is the best of all possible worlds" argument?