Posts Tagged ‘Monopoly power’

Monopoly power on the feudal Internet

June 21, 2017

Maciej Ceglowski, a writer and software entrepreneur in San Francisco, spoke at a conference in Berlin last May about monopoly power on the Internet: –

There are five Internet companies—Apple, Google, Microsoft, Amazon and Facebook.  Together they have a market capitalization just under 3 trillion dollars.

Bruce Schneier has called this arrangement the feudal Internet.  Part of this concentration is due to network effects, but a lot of it is driven by the problem of security.  If you want to work online with any measure of convenience and safety, you must choose a feudal lord who is big enough to protect you.

Maciej Ceglowski

These five companies compete and coexist in complex ways.

Apple and Google have a duopoly in smartphone operating systems.  Android has 82% of the handset market, iOS has 18%.

Google and Facebook are on their way to a duopoly in online advertising.  Over half of the revenue in that lucrative ($70B+) industry goes to them, and the two companies between them are capturing all of the growth (16% a year).

Apple and Microsoft have a duopoly in desktop operating systems.  The balance is something like nine to one in favor of Windows, not counting the three or four people who use Linux on the desktop, all of whom are probably at this conference.

Three companies, Amazon, Microsoft and Google, dominate cloud computing. AWS has 57% adoption, Azure has 34%. Google has 15%.

Outside of China and Russia, Facebook and LinkedIn are the only social networks at scale.  LinkedIn has been able to survive by selling itself to Microsoft.

And outside of Russia and China, Google is the world’s search engine.

That is the state of the feudal Internet, leaving aside the court jester, Twitter, who plays an important but ancillary role as a kind of worldwide chat room.  [1]

There is a difference between the giant Silicon Valley companies and Goldman Sachs, Citicorp and the big Wall Street banks.   The Silicon Valley companies have created value.  The Wall Street banks, by and large, have destroyed wealth.

I depend on Google; I found Ceglowski’s talk through Google Search.   I use Apple products; I’m typing this post on my i-Mac.  I don’t use Facebook or Windows, but many of my friends do.  I try to avoid ordering books through Amazon, because I disapprove of the way Jeff Bezos treats Amazon employees and small book publishers, but I use subscribe to Amazon Prime.

I don’t deny the achievements of the founders of these companies, nor begrudge them wealth and honor.  But I do not think that they or their successors have the right to rule over me, and that’s what their monopoly power gives them.

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The things that President Obama could do

August 18, 2014

butwewon'tThe excuse given by supporters of President Obama is that he is stymied by the Republican control of the House of Representatives and by Republican obstructionism in the Senate.   It is true that the congressional Republicans are determined to block the President’s programs by any legal means necessary.

But as Thomas Frank pointed out in his latest Salon article, there are many things the President could do on his own authority that would be both popular and beneficial to the nation.  They are:

Frank noted that Obama also could tell the Federal Communications Commission that Net Neutrality is the policy of his administrationHe could reclassify marijuana so that it is no longer a Class I narcoticHe could reform the federal contracting system so as to discourage outsourcing and promote good labor practicesHe could encourage whistle-blowers instead of punishing them.

So why doesn’t the President do any of these things?  It can’t be because he is worried about corporate donations for his next campaign.  He is not eligible to run again, so that is not a factor.

I see three possible explanations.  The most likely is that he genuinely believes in what he is doing.  My guess is that he thinks that the status quo, with some minor modifications to file off sharp edges, is the best that is possible in today’s world.

Another possibility is that he doesn’t want to do anything to jeopardize the kind of lucrative post-Presidential career that Bill Clinton enjoys.  And the third, which I think highly improbable, is that he is afraid, that the powers-that-be know some guilty secret or have some sort of leverage on him.

 

The reality of monopoly power in the USA

June 30, 2014

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Yesterday I commented on Thomas Frank’s interview with Barry Lynn, author of Cornered, an important new book about business monopoly in the USA.   I intend to read the book and review it on this web log, but, in the meantime, here are some highlights of the interview, touching on the surprising (to me) extent of monopoly power.

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Amazon now essentially governs business within the book industry.  Amazon has so much power that it virtually gets to tell really big companies like Hachette, the French publisher, what to do.

You’re gonna sell this book at this price. You’re gonna sell that book at that price. That means Amazon pretty much has the power to determine how many copies of a book a publisher might sell.

That’s not citizens trading with one another in an open market setting those prices, that’s a giant corporation setting those prices.  Which means what we are witnessing in the U.S. book industry, I think, is a form of top-down government.

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Some years back a company named Tyco decided to take over the business of making plastic clothes hangers. It went out and bought at least four companies, and that gave it the power to jack up prices to clothing retailers. That’s the pattern in pretty much every industrial activity in America.

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The Supreme Court [in the mid-1960s] forced Pabst to unwind a merger with Blatz because their combined market share [of beer sales] would have been 4.49 percent.  … …

Well, now there’s two foreign companies, Anheuser-Busch InBev, which is controlled out of Brazil, and MillerCoors, which is controlled out of London.   And those companies control about 80% of the US market.  And until recently they controlled about 90% of the market.

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It’s not all that hard to manufacture eyeglasses. But there’s a single company, Luxottica, an Italian company, that controls most of the business in America. You go shopping for eyeglasses.

You go to a place called Lenscrafters. You go to a place called Sunglass Hut. You go to a place called Pearle Vision.  You go to Target Optical.  You go to Sears Optical. You go to Macy’s Optical.

You’re comparing quality, comparing prices, imagining you live in an open and competitive market.  And yet all of these stores and most of the product in them are controlled by Luxottica.

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The real problem is monopoly

June 29, 2014

Jeff Bezos

Monopoly power is the real enemy of both free enterprise and economic justice in the USA today.

In industry after industry, a single company or handful of companies dominates the market, and they act like little miniature governments, determining who can participate and how much they are paid.

Barry C. Lynn, a senior fellow at the New America Foundation, and author of Cornered, a new book about monopoly, wrote that the cause is simple.

Starting with the Reagan administration in the 1980s, the government decided to stop enforcing the anti-trust laws when it was argued that monopoly offered greater economic efficiency.

The solution also is simple (although, Lynn admitted, extremely difficult politically to do).

Resume interpreting the anti-trust laws as they were understood prior to 1980.

LINKS

Free markets killed capitalism: Ayn Rand, Ronald Reagan, Wal-Mart, Amazon and the 1 percent’s sick triumph over us all, an interview of Barry C. Lynn, author of Cornered: The New Monopoly Capitalism and the Economics of Destruction. Strongly recommended.

Printing controversy:  Amazon’s latest plan to harm publishers and consumers under the guise of customer satisfaction by Nathaniel Mott for PandoDaily.

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The argument for monopoly is the same as the argument for state socialism, which is that it offers greater economic efficiency and less duplication than a competitive free enterprise system.

It is true that Amazon, like Wal-Mart, achieved its domination of its markets through a superior business model in which costs were passed on to the consumer.  Once dominance was achieved, however, Amazon, like Wal-Mart, was in a position to use its position to drive down wages, drive down prices of suppliers and deny customers any alternative by squeezing out competition.

Under business monopoly, the only competition is between individuals and localities as to how much they are willing to give up.

 

Amazon, the Walmart of the Internet

February 17, 2014

615_Bezos_Amazon_Kindle_Reuters

Amazon is well on its way to monopolizing book distribution.  Its strategy is like Walmart’s.

First you gain an initial advantage through economies of scale and introducing new efficiencies.  So far, so good.  That is how free enterprise is supposed to operate.

Then you leverage your initial advantage in the marketplace to squeeze suppliers and lower your costs.  This enables you to keep prices low so as to knock out small competitors and keep new competitors from emerging.

Meanwhile you treat your rank-and-file employees like dirt.

The parallel is not complete, because the current Walmart owners are destroying their company through their short-sighted greed and stupidity, while Jeff Bezos, the founder and CEO of Amazon, may be greedy but he is anything but short-sighted and stupid.

And he is just getting started.  According to one analyst, 93 percent of Amazon’s $75 billion in annual revenues come from products other than books.

George Packer, writing in the New Yorker, says that 50 to 60 percent of the price of a book sold through Amazon goes to Amazon itself.  Another 10 to 15 percent goes for sales, warehousing and shipping.  What’s left over covers printing, editing, publicity and, oh yes, royalties to the author and, oh yes, any profit the publisher may earn.

This is new.  Historically retailers got 30 to 40 percent of the price of a book.

It is illegal for retailers to demand special discounts from publishers, but, according to Packer, Amazon gets around that by charging “cooperative promotion fees.”   Amazon charges publishers this fee for placement of a book title on its page.  Most of the ranking of books on Amazon’s lists are determined by these fees.  The few publishers who have been brave enough to refuse to pay this fee have found there is no longer a “buy” button on Amazon’s page.

“The only point at which Bezos enters the chain is to take all the money and the e-mail address of the buyer,” Colin Robinson, a publisher, told Packer.  “There’s an entire community of people and Bezos stands in the middle and collects the money.”

While Amazon offers bargain prices, its squeeze on publishers is bad for literature in the long run.  Bezos seeks to transition from physical books to digital books, from which Amazon has 90 percent market share.  If traditional book publishing dies out, Amazon will step into the gap, with book selection based on focus groups, surveys and computer algorithms rather than editors’ judgments of literary value.

Packer reported that  Bezos doesn’t care about books as such.  He started Amazon (named for a river into which all things flow) in 1994 because he had vision enough to foresee the importance of Internet marketing, and he chose books as his entry point because they are “easy to ship and hard to break.”  Now he uses the information on customers he gained through book selling to market a wide array of products.

The saving grace of a well-ordered free enterprise system is that when big business executives overreach themselves, there is an opportunity for a smart entrepreneur to jump into the gap they leave.  Such is Colin Robinson, who has started a publishing firm called OR Books, which bypasses Amazon and sells directly to consumers.  OR Books gives up sales but earns a higher profit which, presumably, can be shared with the author.

Robinson is able to stay in business because of Net Neutrality—the law that says Internet service providers have to provide service to all customers on the same terms.  There’s currently a legislative drive to abolish Net Neutrality (and some say the proposed Trans Pacific Partnership Agreement has an anti-Net Neutrality provision).  If that were to happen, dominant businesses such as Amazon could squeeze out small competitors by demanding special terms from IPPs, just as Amazon does with publishers.

Another public policy favorable to Amazon is anti-trust policy.  Historically anti-trust laws were directed against “the curse of bigness.”  But in the Carter-Reagan years, policy-makers decided that it was all right for a company to dominate its market if there was some benefit to consumers.  The problem with this reasoning is that the benefit to consumers is likely to last only so long as the dominant company has effective competition.  Without competition, the benefits of efficiency and economies of scale don’t necessarily flow to consumers.

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Click on Cheap Words: Is Amazon Bad for Books? to read the whole article by George Packer in the New Yorker.  It’s long, but packed with good information.

Click on a review of Brad Stone’s The Everything Store by Deborah Friedell for The London Review of Books for more.  Her review has additional good information that’s not in the Packer article.

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Labor unions and small business, unite!

July 11, 2011

The strongest and most dependable supporter of the Democratic Party is the AFL-CIO.   The strongest and most dependable supporter of the Republican Party is the National Federation of Independent Business.  Yet the top elected leaders of both political parties are serve the interests of monopolistic corporations which are driving down the incomes of working people and small business owners alike.

Barry C. Lynn, in an interesting article in The Washington Monthly, wrote that the time has come for a political alliance of labor unions and small business owners against the big corporations that are squeezing them both.

Last August, on a blazing-hot Nebraska evening, I sat in a cool hotel bar in downtown Omaha and listened as a team of Dockers-clad union organizers joked, drank, and argued their way into an alliance with a group of southern and western ranchers.  The organizers, from the United Food and Commercial Workers (UFCW), made a simple argument: Meat-packing houses like JBS and Smithfield— their already immense power swelled from years of mergers—are using their dominance of cattle markets to hammer down what they pay for beef and for in-house unionized meatcutters.  So rather than “scrap over nickels,” perhaps the ranchers and workers should lock arms and fight for bigger stakes.

Cowboys and labor? Plotting together? Polo shirt and bolo tie? …  Half a year on, it’s evident that the alliance was no momentary fling, no mere “enemy of my enemy” excuse to clink a few beer bottles before stumbling back to opposite ends of the political corral. When the Justice Department held a series of hearings last year on concentration in agriculture markets, including cattle, the UFCW helped to pack the room for the cattlemen’s testimony, one of the only times in recent decades that an American labor union has promoted stronger enforcement of anti-monopoly law.

And in exchange? While in that room, the UFCW got a chance to make the case that the trustbusters should take on Walmart.  The union views the retailing goliath as the main force smashing down the wages and benefits of the retail workers the union represents.  More to the point, the union has also come to view Walmart as the real power driving the big meatpackers’ assault on both cattlemen and packinghouse workers. 

The basic thinking here is that Walmart now controls such a giant swath of the U.S. marketplace that it can dictate prices even to the biggest of suppliers, which leaves less money in the system for the people who actually produce goods and provide labor.

via The Real Enemy of Unions.

Most small business owners regard labor unions as the enemy and big businesses such as Walmart as larger versions of themselves.  Labor unions historically have favored big business because they think it is easier to organize workers in one giant corporation than many small businesses.  But Walmart shows the falsity of both ideas.  Walmart’s monopoly power enables it to dictate low prices to suppliers and low wages to workers.

There is an inherent conflict between the interests of employers and employees, no matter whether the employer is a large business, a small business, a non-profit organization or a government.  But in the United States in the present era, workers and small-business owners have in common that their fates are tied to the future of the United States and to the localities in which they live.  The largest corporations and banks can operate anywhere in the world.  They don’t need the United States.  Workers and small business owners do.

Clyde Prestowitz, who was U.S. trade negotiator in the Reagan administration, once illustrated this point with a story of how his son invited him to invest in a snow removal company.  Why a snow removal company? he asked.   “Dad,” the son said, “they can’t move the snow to India.”

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