Peter Thiel’s Idea of Monopoly Using Howard Stern as an Example.


Jon Rowe

Jon Rowe is a full Professor of Business at Mercer County Community College, where he teaches business, law, and legal issues relating to politics. Of course, his views do not necessarily represent those of his employer.

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16 Responses

  1. As the Chicago School was fond of noting, natural monopolies attract competition such that if barriers to entry remain open, the problem tends to resolve itself.

    I had thought natural monopolies were by definition less likely to attract effective competition. Does the Chicago School say differently? (The Bork wikipedia article doesn’t seem to address the issue.)Report

    • Avatar Kim in reply to Gabriel Conroy says:

      Any smart monopoly (Defined as: We set our prices at whatever price point we damn well feel like — “what the market will bear” rather than competitive with other providers) will allow enough small bit players into the marketplace so they can’t get sued, while keeping enough market share and ideaspace to aggressively fight off any of the small bit players getting big enough to actually cut into profits.Report

  2. Avatar Glyph says:

    Jon Rowe is an Associate Professor of Business at Mercer County Community College, where he teaches business, law, and legal issues relating to politics.

    I’m just curious why your bio leaves out “whose alter-ego is a well-known inventive alt-rock guitarist“.Report

  3. Avatar Saul Degraw says:

    I think there are a lot of factors (well a really big one called racism) that kept that Black blues musicians from getting as famous as the Stones. There is a long history from jazz onwards (if not before) of white musicians taking black music and making it “safe” for white audiences. There was a guy in the 1920s who created what he called “sweet jazz” that was the really popular stuff played on radio. He took jazz and basically defanged it. There were popular black jazz musicians like Louis Armstrong or Duke Ellington but I think a lot of the black jazz musicians did not respect many of their white counterparts with the possible exception of Bix Beiderbecke. It took until people like Benny Goodman, Buddy Rich and Artie Shaw for there to be more seriously respected white jazz musicians.

    The early blues musicians were just called “race music” and they were probably too raw and real for much of America at the time. Though you and @glyph might really like this book:

    • Avatar LeeEsq in reply to Saul Degraw says:

      This runs contrary to the Elijah Wald theory and argument that there was a lot more mixing in people’s taste in music. Wald would point out that the white musicians who brought jazz to the general audience of White America did actually listen to what African-American artists did and were influenced by it but took it in their own direction. Wald would also point out that plenty of African-Americans purchased and listened to “sweet jazz” for their own listening pleasure. Wald will also argue that African-American musicians were influenced by White jazz musicians.

      The central thesis of Wald is that a lot of popular music history is really the critics projecting their opinions, taste, and ideas back in time rather than an actual history of what the American people were listening to at any given time. For instance, Wald produced a lot of evidence that the blues artist Robert Johnston was not very popular even in hardcore blues audiences during his life and a lot of his fame was from critics making him more important than he actually was after he died. To Wald, what critics were looking for in music was stuff that required active listening rather than music you could dance or sing to. Most people of all races just wanted music that could be danced or sung to before the 1960s. That was the primary criteria for what constituted good music.Report

      • Avatar LeeEsq in reply to LeeEsq says:

        Robert Johnson, not Robert Johnston. Bellow is a link that provides a good summary of Wald’s thesis:

        What Wald would point out is that even though music critics would give Paul Whiteman the short shift today, he was very popular and influential during the 1920s and 1930s among both White and Black audiences and musicians like Duke Ellington. Wald would also point out that the standard theory of 1950s pop music is wrong, plenty of teenagers listened to both Perry Como and Jerry Lee Lewis.Report

  4. Avatar Kolohe says:

    Was Stern’s main aim to protect his brand, or was picking fights with other people merely a way to enhance his brand? (see also, Donald Trump. Or any given rap feud).Report

    • Avatar Kazzy in reply to Kolohe says:

      If Stern’s biopic is to be believed, I don’t think the attacks were an important part of his brand. But I’m not really an expert. Regardless, I think that Rowe’s points here still stand as part of protecting a monopoly is creating and defining a product that people want.

      From my vantage point, my general mindset is that I don’t object to the sort of monopolies described here. If you make the best pizza in town and everyone comes to you and avoids your competitors, well, so be it. Where I start to get twitchy is when folks attempt to use what I’ll call unnatural forces to protect their monopolies, especially if they invoke government power. I do believe in IP but if the best pizza joint in town tried to make it illegal to open other pizza joints… or sought “regulation” of the industry such that it created unnecessary barriers to entry, I’d strenuously object.

      Stern’s appeal to management feels a little unseemly but I don’t see a way to prevent it. And its impact is limited as it doesn’t apply to competitors under different management.

      All that said, I do have some discomfort because certain companies that possess these sorts of monopolies came to hold them in very problematic contexts. I’d venture to guess that the vast majority of such monopolies are held by white males because of structures — formal and informal — that privileged white males to the detriment of women and people of colors (and other groups). I’m not sure how we correct for that but it is troubling.

      This is where I enter my “Yea, I support a largely libertarian, free market approach IFF we can correct for all the legacies of very restricted markets under which our current system exists AKA blow it up and start from scratch but we can’t so we need to regulate the market somehow but don’t ask me how to do it” part of my philosophy.Report

  5. Avatar Stillwater says:

    This is interesting, since a long time ago, back when I knew even less about economics and business, it seemed trivially obvious to me that eliminating competition was sorta logically entailed by profit motive. If only I’d written about that a long time ago and monopolized the “become a monopoly” market way back when. I’d be rich!!Report

  6. Avatar Francis says:

    I’m going to be the morning grouch and say that I think this post is sloppy.

    The difference between de jure and de facto monopolies is the difference between state power and a better product. The differences so outweigh the similarities that the same word should not be used to describe both.

    What barriers to entry exist for a radio personality? Actually, probably quite a few. There is only so much spectrum and opening a new station requires a FCC license. So Rush and Howard probably have quite a bit of power to keep competitors off the air by demanding that any station that carries them not carry a competitive voice.

    But a browser, or a search engine? The only thing that keeps Firefox from going the way of Netscape is product quality (plus user fatigue / ignorance).

    And natural monopolies are not correctly described. (FWIW, the word ‘natural’ is not to be found in the linked article.) Natural monopolies are things like retail municipal water service, where the most efficient production is in a single distributor. (The manufacture of low-volume pharmaceuticals may also be another natural monopoly.)

    Sure, you should try to become a monopoly. Down that road lies inefficient profits. But it’s very odd for a libertarian to be advocating for that goal. If the word ‘monopoly’ is going to continue to have useful meaning, it needs to be something more than ‘better’, and for most people that means some measure of state support and/or protection. Which, last I checked, was anathema to libertarians like Thiel.Report

    • Avatar Jon Rowe in reply to Francis says:

      I didn’t use the term “natural monopoly” as is used in economic jargon but rather as a plain speaker might. As in, I offer a product or service that naturally monopolizes market, as in it just “naturally” happened that I’m now the only game in town. The Wiki article on Bork’s Antitrust Paradox could be better written. While his book argues many things, its main point is if a firm has a monopoly, the circumstance will naturally resolve without the need of government intervention. That is, provided barriers to entry remain open a leaner meaner competitor will come and take market share.

      Thiel’s point is capitalism and competition are not synonymous because if there is perfect competition the profits evaporate. And he uses the term “monopoly” to describe what ventures should seek.Report

      • That was probably meant for me and if so, thanks for the response. If not, well, you answered my question anyway, so thanks!Report

      • Avatar Francis in reply to Jon Rowe says:

        Extending my morning grouchiness into the afternoon…

        It’s really not the end of the world to admit that you weren’t clear and used sloppy language. But digging in your heels about a hypothetical plain speaker’s use of the term natural monopoly is just silly. How many plain speakers ever talk about natural monopolies? To whom are they talking? Is this plain speaker trying to clarify the complex topic of monopolies or create confusion?

        Of course, many monopolies don’t resolve themselves without govt intervention. Water and power companies are regulated by state utility commissions because there is no market for a second provider. Trusts can wield such immense political power that they can prevent competition from ever gaining a foothold. “provided barriers to entry remain open” is such a large exception as to swallow the rule.

        Another point: If Bork is correct then Thiel is wrong. Per Bork, the moment that a company becomes a monopolist and a price-setter, competition will naturally (to use your word choice) come in to drive down the price to competitive levels. If, however, Thiel is correct that monopolies exist and should be sought, then he has just justified the need for an activist government to regulate and root out the market failures which allow monopolists to acquire excess profits.

        And a final point: this claim — ” if there is perfect competition the profits evaporate” is just wrong, or is using economic jargon. (which is precisely your complaint about my comment.) My class in Econ 101 was over 30 years ago, but I still remember that competition eliminates excess profits, not all profits. Just look at the real world! There is enormous competition in the restaurant industry, and yet people still invest in restaurants. The risk-adjusted return on capital may be very low, but it is still non-zero or people would just leave their money in T-bills.

        “Police your monopoly” does not equal “say nasty things about one’s competition”. That is abusing language to the point of creating confusion, not clarity.Report

  7. Avatar SEBoston says:

    A couple of thoughts: first, business don’t compete in “the market”, they compete in industries in “the marketplace”. Facebook or Apple can create barriers to entry and dramatic economies of scale by the nature of the industries they compete in; a restaurant is constrained by limited barriers to entry, geographic limitations in terms of customer access and product perishability, and intense and necessarily local labor costs.

    On the “market equilibrium where there is no profit” idea. Hypothetically, an industry with pure open competition will drive the costs of production down to the point where there is a $.01 profit per transaction (or even a fraction of a cent profit, if you want to go there). At the point where there is no profit, competitors will drop out and use the capital (resources) to do something else in a different industry. If the industry still can’t make a profit with fewer competitors, producers will leave to do something else and the industry will disappear (see buggy whips).

    Where does the capital go? That’s where the consumer preference signalling comes in. You can make the point that with “big things that change the world” like a Facebook, consumer preference signalling is more of a yes/no decision, and if yes you can take over an industry due to high barriers to entry. Daily consumer preference signalling is very applicable for restaurants, grocery stores, apparel and a whole host of other industries providing products that meet consumer’s more immediate needs.

    An anecdote about sweeping generalizations. I was working with a world famous professor of competition on inner city business development. We were discussing industries and how you want to place your bets on companies outperforming their industry growth. I raised the point that if you keep outperforming the industry and growing, at some point you are so large that your growth rate is in fact the industry growth rate. I was looked at blankly. Realistically, this won’t happen in most markets. But it does highlight the point that investment and resources will go where there is a profit to be made relative to other competitors in that industry, so the “be a monopoly” mantra is not particularly useful for most business owners.Report