Posts Tagged ‘Monopoly’

How much equality do we want?

January 9, 2017

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Grant that extreme economic inequality is a bad thing.  Grant that ever-increasing economic inequality is a bad thing.

Grant that complete equality of incomes is not feasible and maybe not desirable.  How much equality is enough?

The economist Friedrich Hayek wrote in The Road to Serfdom (as I recall) that it is impossible that people could reach a consensus on what each and every person deserves.   Once you reject complete equality, he  wrote, the only acceptable distribution of income is what results from the impersonal working of the free market.

A democratic government could never determine a distribution of income that is satisfactory to everyone, or even a majority, Hayek thought; if it tries, the result can only be gridlock and a breakdown of democracy.

But there are ways to reduce inequality that neither set limits on any individual’s aspirations nor give some group of bureaucrats the power to decide who gets what.   Some that come to mind immediately are:

  1. Prosecute those who get rich by lawbreaking.
  2. Set limits on unearned income.
  3. Break up monopolies.
  4. Empower labor unions and cooperatives.
  5. Provide good public services to all, regardless of income.
  6. Provide decent jobs for all who are willing and able to work.

What are your ideas?

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Monopoly power and what to do about it

July 2, 2016

The trouble with the U.S. economy is monopoly power.

Concentrated business power means less consumer choice, less opportunity for entrepreneurs and greater concentration of wealth.

Senator Elizabeth Warren

Senator Elizabeth Warren

Senator Elizabeth Warren described the problem very well in a speech on Wednesday.  If you care about this issue, I strongly recommend that you click on the first link below.

She noted that five banks have been designated as “too big to fail” by the Federal Reserve Board and the Federal Deposit Insurance Corp.

But that situation is not limited to the banking industry.  Four airlines (down from nine in the past 10 years) control 80 percent of all airline seats.  If American, Delta, United or Southwest were to be in danger of ceasing operations, could there be any doubt that the government would want to keep them flying at all costs?

There’s another problem with concentration in the transportation industry, and that is the incentive to abandon small and remote communities and concentrate services in a few hubs.   The second article linked below describes how concentration in the airline, railroad and trucking industries has harmed small cities in the Heartland.  “Flyover country” wasn’t always flyover country.

Concentration means less consumer choice.  Warren pointed out that more than half of Americans who with Internet or cable television service use Comcast.  Yet, she said, a third of U.S. citizens who theoretically have access to high-speed Internet service can’t afford it.   Americans pay more than Europeans for Internet service and get worse service.

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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

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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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Earthquakes, monopoly and supply-chain risk

April 26, 2011

Barry C. Lynn, a senior fellow at the New America Foundation, says the Japanese tsunami shows the vulnerability of the global corporate economy.  The tsunami and earthquake destroyed factories that make a high proportion of essential components for the world’s industry – 60 percent of a resin used in making semiconductors, 90 percent of copper for lithium batteries, 50 percent of a microprocessor used to control automobile transmission and brakes.  The result is a domino effect that has hit not only Japanese industry, but industry worldwide.

Before globalization, he said, industry wasn’t this vulnerable.  Industrialists such as George Eastman and Henry Ford sought to make their corporations as self-sufficient as possible.  Eastman Kodak Co. processed the wood pulp for its photographic paper; Ford Motor Corp. operated rubber plantations to have raw material for tires.  Supply disruptions might affect one corporation, but not a whole nation, let alone the world.

Now companies are tightly linked to independent suppliers located all over the world.  To avoid the cost of maintaining inventory, they rely on just-in-time delivery.  So they are vulnerable to any interruption in the supply.

Lynn said the problem isn’t really globalization, outsourcing or just-in-time delivery.  The problem is monopoly.  Companies are not vulnerable if they have many suppliers, spread all over the world.  But when they come to depend on one company at one location, they are at risk.

The problem, Lynn said, began under the Reagan administration, which abandoned a commitment to promoting business competition, and adopted the philosophy that monopoly is all right if it promotes economic efficiency.  Lynn said the Reagan administration at least fought for the interests of American business against foreign monopolies.  He said it was the Clinton administration that abandoned economic nationalism and adopted the gospel of efficiency on a worldwide basis.

The problem is that economic efficiency increases risk.  If you squeeze all slack and duplication out of a system, you make it more efficient, you save money and time, but you have nothing to fall back on if the system fails.

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