Antitrust/Media Consolidation Bleg

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Mark of New Jersey

Mark is a Founding Editor of The League of Ordinary Gentlemen, the predecessor of Ordinary Times.

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  1. Avatar James Hanley
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    Mark, an unbearably long answer, but you stumbled onto one of my favorite subjects. The public choice school has a lot to say about anti-trust. You can start with the classical/neo-classical economic argument that in a free market barriers to entry will normally be low enough to prevent monopolies from forming or persisting. If they do manage to develop, their monopolistic behavior (raising prices, reducing innovation, etc.) that creates monopoly-level profits will result in competitors eyeing them jealously and jumping into the market, destroying the monopoly and competing prices back down. That’s all basic textbook stuff. I would add that if in fact a monopoly doesn’t behave like a monopoly, shooting for the extra profit by screwing consumers over, then most likely people will not recognize it as a monopoly, and from a consumer perspective it won’t matter, so who cares (think Kingsford charcoal, which is very near to a true monopolist). The prevalence of barriers to entry is a very big point of disagreement between opponents and supporters of anti-trust, in my experience

    But our anti-trust legislation stems from the late 19th/early 20th century, when the U.S. really industrialized, which required larger capital outlays and less reliance on sheer manpower. Capital intensive businesses have greater economies of scale than do labor intensive ones, so businesses were suddenly getting much larger than ever before, and there was a lot of consolidation that had never been seen before. So much of our antitrust legislation was simply a fearful response to a rapidly changing world (a pretty common mode of response, really).

    So the theory on which it is predicated is a theory that has comparatively little support among economists (although I’ve met a number of lawyers who swear by it, so I suspect those who study anti-trust in law school are getting a rather brief and perverted economics education in their law school courses–lawyers who’ve actually studied economics seem far less likely to support anti-trust). Few actual monopolies are prevented by antitrust, but many businesses are attacked on political grounds. Microsoft, for example. Much of the attack on it was spearheaded by Sen. Orrin Hatch, who just happened to be chair of the Judiciary Committee (which has oversight on anti-trust) and whose home state just happened to be home to a couple of companies that were not competing successfully with Microsoft. The legal attack on them was separate, but just as bad. The judge who declared them a monopolist in operating systems explicitly excluded Apple from the relevant market. (It reminded me of a guy I knew in grad school, who insisted Microsoft was a monopolist and no other operating systems were available, so he refused to use their system and ran a free Linux-based operating system–try to parse that logic; it’s essentially the logic of anti-trust).

    Even the anti-trust supporters great case study, Standard Oil, turns out to be less persuasive when studied closely. At it’s peak, immediately after it’s formation, Standard Oil had something less than 90% of the market, and it’s share began falling almost immediately. When the government declared it a monopoly and broke it up, it’s market share had already fallen into the 60s. And rather than acting like a monop0list, Standard Oil actually reduced the cost of oil, by something like 80%, and found uses for the fractions of the petroleum that had previously just been burned off or dumped (back then it was only the kerosene fraction that was widely used, with most of the oil product being waste, but Standard pioneered uses for that waste product). So Standard Oil was good for consumers, which is what we ought to focus on.

    By contrast, most true monopolies exist only because of protective regulation. Local cable TV monopolies, for example, or the old Ma Bell long-distance telephone monopoly. Get rid of the protective regulation and you have competition, which benefits consumers.Report

    • Avatar Mark Thompson in reply to James Hanley
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      Thanks for this, James, which is all very helpful and has given me plenty to chew on. I’m wondering if there are any statistics that show what we’re talking about here.Report

    • Avatar ppnl in reply to James Hanley
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      says:

      As a Ubuntu user I would like to say that Linux still isn’t a viable alternative to windows for most desktop users. I still dual boot with windows 7 because many of the things I do are more trouble than they are worth to set up on Linux. It isn’t a limitation of the operating system but rather the economics of the smaller user base.

      The last time I installed Ubuntu all the hardware worked great almost immediately which is a massive improvement over the past. Again the problem was economy of scale. Hardware manufacturers had no reason to release Linux drivers soon because there were so few users and most of them were not the high end users they were after. Linux drivers were usually delayed and poorly tested.

      Linux is now actually much easier to install than Windows and unless you need some program that only runs in windows is arguably better. The problem is that most developers aim at windows. My brother is a master tech at a large factory. Most of the stuff he does there would work much better on Linux. The problem is that the PLC’s he programs can only be programed from a proprietary development package and that package only runs on windows. The problem isn’t the operating system but the ecosystem.

      Anyway I tend to agree with Microsoft that they had the right to package their operating system with a ham sandwich if they chose. Microsoft was giving away Internet Explorer and that forced Netscape to do the same. In the end Microsoft would have been willing to given away windows as well if that is what it took. In fact in many cases they were. They were not after higher licensing fees. They wanted to control the ecosystem.

      Splitting up Microsoft always was a stupid idea. At most all they needed to do is require Microsoft to sell windows to all users at the same price. Whatever price they want. That forces them to compete on price rather leveraging for control of the ecosystem. I’m not sure it would have changed Windows dominance of the market but I think it would have driven down licensing fees. And Linux might not exist at all.Report

    • Avatar Creon Critic in reply to James Hanley
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      says:

      James, I think your comment underestimates the anti-competitive consequences of market power broadly conceived, market power beyond the ability to set market prices. This may be a longer way of saying power corrupts, but as I see it, the anti-competitive harm can can flow in additional directions beyond harms to the consumer (due to pricing or innovation stifling). A firm can harm employees and anti-competitively harm competitors.

      With regard to harming employees, the recently quashed non-solicitation agreement between Lucasfilm and Pixar comes to mind. Colluding to suppress wages is easier when fewer participants are involved. Prospective employees can be victims too, in the UK a construction industry blacklisting operation, the Consulting Association, targeted construction workers who were active union members (BBC). I’d suggest we should examine the bargaining implications for employees (and other firms) accrued by consolidations. Granted, there are legitimate uses for such bargaining power, economies of scale may be legitimate, but there are some pretty devious uses of that power as well.

      With regard to unfair competition practices by firms with large market power, I think the Microsoft case is pretty revealing (Here I’m relying on Judge Jackson’s findings of fact). Microsoft leveraged its substantial operating system clout to quash a potential rival. It wasn’t about aiming to outcompete Netscape; Netscape, having spurned Microsoft’s offer of a “special relationship” became the target of some pretty nasty business practices, for instance, delaying technical information so Navigator’s release would miss part of the back to school and holiday season in 1995 (Paras. 89, 91). Internally, Microsoft executives pledged to make using any other browser besides IE, “a jolting experience” (Para. 160, 172-174).Tying cooperation across domains to disadvantage potential rivals is pretty meaningful when you’re up against the dominant player in the field.

      I think this passage was particularly unfair to Judge Jackson’s analysis,

      The judge who declared them a monopolist in operating systems explicitly excluded Apple from the relevant market. (It reminded me of a guy I knew in grad school, who insisted Microsoft was a monopolist and no other operating systems were available, so he refused to use their system and ran a free Linux-based operating system–try to parse that logic; it’s essentially the logic of anti-trust).

      I don’t want to restate Jackson’s analysis of Microsoft’s market position, but he does review Microsoft’s position in relation to Apple: Microsoft at above 80% including Apple in the operating system market (Para. 35), Windows supporting 70,000 applications (Para. 40) compared to Mac OS’ 12,000 (Para. 47) as a barrier to entry. As to unfair competition practices more broadly, I’d suggest Jackson’s “C. The Similar Experiences of Other Firms Dealing with Microsoft” – reviewing Microsoft’s power in relationships with Intel, Apple, Real Networks, and IBM.

      Well, that was longer than intended. I guess I’ll close by saying, maybe I just see corporations as another potential abuser of power, not in precisely the same way as government, but in ways that are just as consequential. Thus concentrations of corporate power should be treated with as much scrutiny as concentrations of government power, even if a corporation’s power is acquired through wholly legitimate means: being innovative, serving customers well, discovering new technologies. To me that scrutiny manifests itself, in part, in anti-trust law. (Rereading some of the instances from news reports, the perpetrators seem to get off pretty lightly, the UK construction companies participating in blacklisting or Sotheby’s and Christie’s collusion for instance.)Report

      • Avatar James Hanley in reply to Creon Critic
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        says:

        Creon,

        When Judge Jackson defined the relevant market to determine whether Microsoft had a monopoly he excluded Apple’s products in defining that market, artificially inflating Microsoft’s marke3t share. When he did talk about Apple he made a point of noting that Apple didn’t have as many programs written for it and pre-packaged in their OS–that is, he took Apple’s failure to be competitive as proof that Microsoft had done something wrong, not of evidence that Apple was doing something wrong.

        As to your first paragraph, I don’t see that as meaningful critique. You work for a company, you sign a contract. You don’t like the contract, don’t take the job.

        And of course Microsoft tried to quash a rival–that’s what competitive businesses are always trying to do. That’s called market competition. If businesses are not trying to outcompete each other, then they’re colluding, and that’s illegal, too. Seriously, in this country it’s illegal to compete too vigorously and to fail to compete. That makes a lot of sense.

        Oh, and I’ve heard this “Microsoft stifles innovation” argument before, and it’s a complete crock. By being willing to buy out any nerd who comes up with a clever new program Microsoft stimulated a million software tinkerers to try to come up with something that would allow them to hit the jackpot.

        All the pro-anti-trust people ever really have is, “this *could* happen,” but they can never really point to clear cases of these bad outcomes actually happening.Report

        • Avatar Creon Critic in reply to James Hanley
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          says:

          James, just to clarify my point on harm to employees, here’s what the DoJ said Luxasfilm and Pixar did, <i>Lucasfilm and Pixar agreed not to cold call each other’s employees; agreed to notify each other when making an offer to an employee of the other company; and agreed, when offering a position to the other company’s employee, not to counteroffer with compensation above the initial offer.</i> (<A HREF=”http://www.justice.gov/atr/public/press_releases/2010/265387.htm”>DoJ</A>). I was trying to say that this sort of behavior harms employees and as the market share of Luxasfilm and Pixar increases the potential for harm to employees increases – were the industry a duopoly the companies’ behavior becomes monopsyny power. The consumers of Lucasfilm and Pixars products may or may not ever know about this conduct, the harm is directed at employees; the gains extracted from employees from the bid rigging “non-solicitation” agreement goes to Lucasfilm and Pixar.
           Report

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