Category Archive: Economics

  1. Why America’s Monopoly Problem Isn’t Really a Problem

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    Senator Elizabeth Warren recently delivered a speech in Washington entitled “America’s Monopoly Problem,” and it could completely change the way we live our lives.

    That’s because if she is chosen by Hillary Clinton to be the Vice President and if Clinton defeats Trump, this could be a signal of what is to come with respect to antitrust activity by the Department of Justice and the Federal Trade Commission.

    I want to dig a little deeper into why, exactly, this matters.

    In her talk, she accuses Apple, Google, and Amazon of using anticompetitive practices and “monopoly power” to stifle competition—squash the “little guys.” Warren notes:

    Google, Apple, and Amazon provide platforms that lots of other companies depend on for survival. But Google, Apple, and Amazon also, in many cases, compete with those same small companies, so that the platform can become a tool to snuff out competition.

    Let’s go ahead and analyze her argument, starting with the definition of true competition and real monopoly.

    True competition is basically rivalry—the struggle to come out on top of everyone else. And yet, there are rules. The test of real competition is if new firms can easily enter the sector they want to be in and at least have a chance to engage in the competitive process.

    Legitimate competition might involve a company rising to the top and “killing off its competition” to become the lone survivor. That’s fair because it is the customers that make that happen—they choose to support the product that works best for them, after all.

    In contrast, a monopoly occurs when government prevents new firms from entering the market or if the government legislates that only a single firm can be the legal seller of a good or service—these scenarios are both unfortunate and unfair.

    Senator Warren accuses Apple of making it difficult for competitors to offer their own unique services. But it only does so through changes to its own technology. Apple should be able to do whatever it wants on its own platform.

    The whole thing is reminiscent of Microsoft’s supposed play a few years ago to use its dominant position to negatively affect the performance of competitors’ software on Windows.

    Actually, even if Microsoft—or now Apple—was to purposely interfere with or deny competitors’ services on its own platform, this is still legitimate competition.

    That’s because in a true free market, the customers would have to choose to use Apple services (despite not being able to use those of Apple’s competitors) for this to happen. Even if Apple is the only provider of streaming music, it cannot force anyone to buy its service. (The caveat, of course, is that Apple would have to make it very clear to potential customers that they would not be able to use competitors’ products.)

    If you really want to argue against the terms and conditions you must accept for voluntarily using Apple’s services, you’re presuming that Apple owes you and other customers a service.

    That’s an arrogant position at best.

    Of course, Spotify, Apple’s main competitor in the music streaming business, disagrees. Spotify argues that Apple uses its dominant position unfairly in its pricing and product support, pushing the prices of its competitors up and placing obstacles to market entry and basic operations.

    This is where government officials at the Department of Justice, bureaucrats at the Federal Trade Commission, and many economists (even those who label themselves as “free market economists”) support antitrust legislation to “level the playing field” and ensure “true competition.”

    All I’ll say in response is that I suspect that if Spotify had a one-hundred-percent market share, I guarantee it would not voluntarily go to Washington D.C. and ask antitrust officials to break up their “monopoly.”

    A purely free market view of competition would support any business or corporation in its ability to do whatever it wanted to become the sole provider of a good or service—as long it does not violate the property rights of other competitors.

    And to be clear, keeping competitors off your platforms or making computers that don’t support your competitor’s software is perfectly legitimate. Not allowing someone else on your private property (and Windows is Microsoft’s property and Apple Music is Apple’s property) is not the same as harming someone else.

    Back to Warren and her speech. As it turns out, Apple isn’t the only company enduring the senator’s fiery criticism.

    • Warren also has a lot to say about Amazon for directing its customers to books published by Amazon to the disadvantage of other publishers.
    • She also criticizes Google for using its dominant search engine to unfairly direct searches toward its own products. (In this case, Google does have the responsibility to be up-front about this and let its user know. If it’s doing this, however, the government should not interfere.)

    Finally, Warren attacks Walmart: a favorite target of populists and liberals. She says:

    Walmart’s gigantic size gives it a competitive advantage over small businesses. And often, when Walmart moves into town, small businesses collapse because they can’t compete with the price leverage Walmart has built with its suppliers.

    In essence, she charges Walmart with killing “mom and pop” shops. However, it is consumers who are doing the killing by voluntarily choosing to shop at Walmart rather than supporting small, privately owned stores. The real questions she should be asking, then, should be why customers are rejecting local business in favor of big business.

    It’s time to come full-circle.

    The only right a business or corporation has is to try to sell products or services in order to make a profit. Jealous companies use antitrust legislation to do for them what they cannot do for themselves—namely, to beat the competition by getting customers to use their product or service over that of a competitor.

    This sort of behavior is what really violates the spirit of a free and fair market.

    We are left with one conclusion: America’s only true monopoly problem is the government itself—or businesses that are given special government privileges.