Latest / Words & Numbers / Episode 420: Monopolies Hiding in Plain Sight

Transcript

Episode 420: Monopolies Hiding in Plain Sight · Words & Numbers

0:00
Hi, I'm James and I'm Anthony. And this is words and numbers.
0:08
The following is a talk I gave recently for Liberty Con 2025 in
0:13
Washington DC. I'm here to talk about
0:18
monopolies, but I'll be using the word monopoly much more
0:23
loosely than any economist should.
0:26
When it comes to speaking English, economists cause more
0:29
confusion than a libertarian arguing for privatized roads.
0:34
We take perfectly reasonable words that come with all the
0:38
nuanced baggage that well used words accumulate.
0:42
We redefine them to mean something completely new and
0:47
then wonder why no one understands what we're talking
0:50
about. For example, the word benefit,
0:54
something that promotes well-being we redefine to mean
0:58
the dollar value of the utility gained from consuming a specific
1:02
quantity of a product or service.
1:05
For those of you studying economics, This is why you don't
1:09
get invited to parties. Monopoly is one of these words.
1:14
To the economist, it means a single price setting seller.
1:19
To everyone else on the planet, it means a big and likely bad
1:23
company. Notice the emotive words in the
1:26
common definition. In the minds of most real
1:30
people, monopolies are the Dragons of the marketplace.
1:33
Their power is both feared and legendary.
1:37
Our elders pass on tales from their elders about monopolies
1:41
that swept in and devoured entire towns.
1:45
But as with Dragons, you'll be hard pressed to find someone who
1:49
has seen one. Also like Dragons, that's
1:52
largely because natural monopolies don't exist.
1:57
Picture a spectrum. On one end sits a natural
2:00
monopoly, a single rent seeking, profit generating, inefficient
2:05
behemoth. On the other end, perfect
2:08
competition, a bustling bazaar of equality, homogeneity and 0
2:13
economic profit. Part way along this continuum,
2:17
people draw a blurry line and worn beyond here there be
2:21
monopolies. But in casually applying the
2:25
term to any large company they don't like, people have lost
2:29
sight of what a monopoly is and when it should and should not be
2:34
feared. Take Apple for instance.
2:37
Is it a monopoly? It is the only company that
2:40
makes Apple products. In that sense, it's a monopoly.
2:44
But that sense is meaningless because we don't buy iPhones,
2:47
iPads and Macs because we want Apple products.
2:51
We buy them because we want smartphones, tablets and
2:54
computers, things also made by Google, Samsung, Xiaomi, Oppo,
3:00
Vivo and many others. If we cared only that products
3:06
were made by Apple, regardless of what they did or how well
3:10
they did it, then Apple would be a monopoly.
3:13
Since we care more that the products are specifically
3:17
smartphones, tablets, and computers, then Apple is really
3:21
one among many competitors. And the numbers speak clearly.
3:26
Globally, iPhones represent only 1/4 of the world's smartphone
3:30
market. Love them or hate them, Apple is
3:33
much less a dragon than it is one among a flop of squabbling
3:38
pigeons. What about Google?
3:41
The European Union recently fined Google $2.7 billion for
3:46
monopolistic behavior. Google handles almost 90% of the
3:51
world's Internet surges. Certainly Google is a monopoly.
3:56
Not so fast. The whole point of being a
3:59
monopoly is that you can charge those sweet, sweet high prices.
4:03
Yet Google prices its search service at the not so
4:07
stratospheric point of 0. Yes, Google records all of our
4:12
information, but despite the fact that most of us would be
4:16
horrified if our searches were made public, we go on happily
4:19
giving up our data in exchange for cat videos and to creep on
4:23
our ex's. Our behavior says that we place
4:28
no value on our information. Therefore, to us, Google's price
4:33
is 0. Despite its 90% market share.
4:37
Google looks even less like a dragon than the squabbling Apple
4:41
Pigeon. What about Amazon?
4:45
If there is a modern day exploiter like the company towns
4:49
of old, surely it is Amazon. But Amazon faces competition
4:54
from Walmart, Target, Best Buy, Costco, and via eBay, Every
4:59
person with an Internet connection looking to unload
5:02
their grandmother's China. Amazon not only faces
5:06
competition when it sells, it also faces competition when it
5:10
hires. In Seattle, Amazon employs
5:13
90,000 workers who complain about their working conditions.
5:18
But there are alternatives. Boeing, Microsoft, the
5:22
University of Washington, and thousands of other businesses
5:24
collectively employ 25 times the number of people that Amazon
5:30
employs. I make no comment as to whether
5:33
Amazon is a good employer. I merely point out that in
5:37
employing less than 5% of Seattle's workers, Amazon faces
5:42
fierce competition in the labor market.
5:46
Apple, Google, and Amazon aren't even close to what economists
5:49
consider natural monopolies. But Apple, Google, and Amazon
5:54
are very large and very dominant companies, and that's what
5:58
people mean when they call them monopolies.
6:03
So are monopolies a bad thing? Turns out the answer is, it
6:07
depends. It depends on why the monopoly
6:11
is a monopoly. And here something interesting
6:14
emerges. There are two reasons a company
6:18
might become a monopoly. One is that someone, somewhere
6:23
is using force to prevent competitors from selling or to
6:26
push consumers into buying. Let's call this a coercive
6:31
monopoly. For example, pharmaceutical
6:35
companies employ strategic patenting not to protect their
6:39
intellectual property, but to make it too expensive for
6:42
competitors to compete. Many states protect car
6:46
manufacturers and dealerships by prohibiting manufacturers from
6:50
selling directly to consumers. This makes it impossible for a
6:55
new competitor that doesn't have a dealership network to sell to
6:59
the public. Local laws require residents to
7:02
pay for public schools regardless of whether their
7:05
children attend. Coercive monopolies arise
7:10
through the violation of consumers or competitors
7:13
property rights. We're told that coercive
7:17
monopolies are examples of market failure.
7:20
In fact, they're examples of government failure.
7:24
A coercive monopoly exists either because the government
7:28
failed to protect people's property rights or because
7:33
someone has influenced the government to violate people's
7:36
property rights. Either way, it is a government
7:40
failure, not a market failure, that is to blame for coercive
7:44
monopolies. But there's another way a
7:47
company might become a monopoly. A company might produced such
7:53
high value at such low price that consumers don't want to buy
7:57
anywhere else. Let's call this a cooperative
8:01
monopoly. A cooperative monopoly exists
8:05
only by the grace of consumers. So long as the cooperative
8:09
monopoly continues to provide what consumers want at prices
8:13
they're willing to pay, consumers will voluntarily hand
8:17
over their money, and this company will remain the dominant
8:21
seller. But the moment the cooperative
8:24
monopoly falters, consumers will choose a new champion.
8:30
For example, Sears pioneered mail order retailing.
8:35
Four times a year, Sears would mail catalogs to homes
8:39
throughout the country. These thousand page tomes
8:44
contained listings for kitchen utensils, clothing, furniture,
8:49
appliances, tools, toys, cars, and even entire houses.
8:54
Over the course of 1/2 century, Sears came to account for almost
8:59
1/3 of all US retail sales. At its height, Sears by itself
9:07
constituted 1% of the entire U.S. economy.
9:12
People became concerned about Sears dominance because they
9:15
forgot why Sears was dominant. Sears was not a coercive
9:20
monopoly, it was a cooperative monopoly.
9:23
This became clear in the 1980s when Sears quality fell and its
9:28
prices rose, and along came Walmart.
9:32
Like Sears, Walmart offered a wide selection of products, but
9:36
whereas Sears periodically offered low prices, Walmart
9:40
promised everyday low prices. Customers withheld their dollars
9:45
from Sears and offered them instead to Walmart.
9:49
Sears, once the largest retailer on the planet, begin a decade
9:54
long slide into bankruptcy. At first, people cheered as
9:58
Walmart brought them more value and lower prices.
10:02
Then their cheers turned to gasps as they watched Walmart
10:05
become the new dominant retailer.
10:08
People saw a greedy Walmart driving out mom and pop shops in
10:13
pursuit of profit. They clamored for the government
10:16
to do something. Except Walmart wasn't to blame.
10:21
In all its history, Walmart hasn't forced a single small
10:26
shop to close. We did that.
10:30
We forced the mom and pop shops to close when we chose to
10:35
abandon them in pursuit of lower prices and wider selection.
10:41
Yet we thought Walmart a predator because we forgot that
10:45
the reason Walmart was dominant was because we chose to make it
10:49
so. And then came Amazon.
10:54
When Amazon arrived, offering still lower prices, a wider
10:58
selection of products and home delivery, we withheld our
11:01
dollars from Walmart and offered them to Amazon.
11:05
Today people complain that Amazon is a monopoly.
11:07
Yet if it is, it is a cooperative, not a coercive 1.
11:12
And that means that somewhere, right this moment, there is an
11:17
entrepreneur designing an even better service that in five
11:21
years will challenge Amazon and intend replace it as the
11:25
dominant retailer. Cooperative monopolies are good
11:30
because they arise from choice. Coercive monopolies are bad
11:35
because they arise from force. The first thing to know about
11:41
monopolies is that almost all of the examples people point to
11:45
aren't. The second thing to know about
11:47
monopolies is that it doesn't matter that there's one dominant
11:51
company, it matters why there's one dominant company.
11:57
The third thing to know about monopolies is that the coercive
12:00
ones represent missed opportunities.
12:05
There exists today government protected coercive monopolies
12:10
that had they not been protected for decades, might well have
12:14
evolved to solve two of our most pressing problems.
12:19
These monopolies are labor unions.
12:23
There's nothing wrong with or anti market about a labor union.
12:26
If it's OK for investors to come together to form a corporation.
12:31
If it's OK for worshippers to come together to form a church,
12:34
if it's OK for nerds to come together to form Star Trek fan
12:38
clubs, then it must be OK for workers to come together to form
12:42
unions. Unions aren't the problem,
12:47
government protection of unions is.
12:51
For example, the Davis Bacon Act of 1931 prohibits the federal
12:56
government from paying non union workers less than it pays union
13:01
workers. This makes it harder for non
13:03
union workers to compete. The Wagner Act of 1935 prohibits
13:09
rivals from competing with established unions, meaning that
13:13
workers who dislike their union are unable to shop around for a
13:18
better one. In protecting unions from
13:22
competition, the government made it more profitable for unions to
13:26
please regulators than to please workers.
13:30
As a consequence, unions have become more skilled at lobbying
13:35
than at providing value. But what if unions had not been
13:41
able to rely on government for protection?
13:44
What if, like Sears, then Walmart, now Amazon, Unions had
13:48
to find ways to convince rather than to force workers to join.
13:55
If they had to compete, unions might have evolved to provide
13:59
health insurance for Americans at large.
14:02
It would have been health insurance that followed you no
14:05
matter where you worked or even if you worked, because it would
14:09
have been attached to you, not to your employer.
14:13
And unions would have had a profit incentive to push for
14:16
lower healthcare prices and price transparency.
14:20
If they had to compete, unions might have fixed the problem of
14:23
the rising cost of higher education.
14:26
You don't need a college degree to become a plumber or
14:29
electrician or a Carpenter. But you also don't need a
14:32
college degree to become an accountant, a manager, a
14:35
marketer, a financial advisor, a web developer, or a graphic
14:39
designer. You can learn what you need to
14:42
know to do these jobs in one or two years of course work.
14:47
The only reason these jobs require college degrees is
14:51
because colleges refuse to certify you as proficient unless
14:56
you pay for four years worth of courses, at least half of which
15:01
are irrelevant to your job. And colleges get away with this
15:06
because through a combination of the accreditation system and
15:10
student loan programs, colleges are also government protected
15:15
monopolies. If they had to compete, unions
15:20
might have evolved to replace many colleges by offering more
15:23
relevant and lower priced educations.
15:27
We've talked about bad monopolies.
15:29
We've talked about good monopolies.
15:32
But what about monopolies that hide in plain sight?
15:37
In 2016, many voters thought Hillary a power hungry egotist
15:42
and Trump a crazy person, but Americans held their noses and
15:47
voted. In 2020, many voters thought
15:51
Biden a doddering closet racist and Trump a crazy person, but
15:56
Americans held their noses and voted.
16:00
In 2024, many voters thought Harris an authoritarian
16:04
socialist and Trump a crazy person.
16:08
But Americans held their noses and voted in election after
16:13
election. Americans, left, right and
16:16
center have come to suspect that something about our electoral
16:21
system is broken. We point to the Electoral
16:24
College. We point to winner take all
16:26
voting. We point to campaign financing.
16:29
We point to a two party system. But these aren't the problem.
16:34
The problem is monopoly. The Democratic and Republican
16:40
parties are not governmental bodies.
16:44
They are corporations and government protected coercive
16:48
monopolies. For example, to appear on the
16:53
ballot in Georgia, third party candidates must obtain
16:57
signatures from 5% of registered voters.
17:01
Democratic and Republican candidates require no
17:04
signatures. To appear on the ballot in
17:07
Illinois, third party candidates must obtain 25,000 signatures.
17:12
Democratic and Republican candidates only need 5000.
17:17
Federal taxpayer money is readily available for Democratic
17:20
and Republican candidates, but not for 3rd party candidates.
17:25
The Commission on Presidential Debates restricts third party
17:29
candidates from participating in the televised debates.
17:34
But the Commission on Presidential Debates is also not
17:38
a governmental body. It is a nonprofit corporation
17:43
sponsored by the Democratic and Republican parties.
17:49
Monopolies aren't the Dragons we think they are.
17:52
Monopolies that arise because they provide enough value that
17:55
consumers don't want to shop anywhere else, Or a blessing,
17:59
not a curse. They exist only by the grace of
18:02
consumers. But monopolies that arise
18:05
because the government has empowered them to stifle
18:09
competition are a different matter.
18:11
They exist because the government has failed to protect
18:15
or has actively violated consumers and competitors
18:19
property rights. Coercive monopolies are a curse,
18:25
but these aren't the real Dragons.
18:28
The real Dragons are those monopolies that masquerade as
18:31
the government itself. They offer us candidates, but
18:36
only their candidates. They encourage debate, but only
18:41
with each other. They ask us to vote, but only
18:46
among those they choose. These monopolies, the Democratic
18:52
and Republican parties, are the Dragons we should fear because
18:56
they do far worse than influence the rule makers.
19:01
They are the rule makers. And that's all the time we've
19:06
got this week on Words and Numbers.
19:07
Until next time, be sure to follow us on Twitter.
19:10
Handles are in the show notes. Join Words and Numbers
19:13
backstage, the Facebook group where the conversation
19:16
continues. And.
19:17
Send us e-mail wordsandnumberspodcast@gmail.com.
19:20
Until next week, try to be nice to one person.
19:23
One person who doesn't deserve it.
19:25
Just one, and who knows, it may turn into a trend.
19:29
Give it a shot. You might feel good about
19:30
yourself. You could say you.
19:31
Tried. You tried.
19:33
That's right. Till next week.
19:34
Can't take it easy. See you next week, James.