The status quo *is* monopoly

By Rick Jelliffe
June 7, 2010 | Comments: 5

May was an interesting month, where the press' narrative finally caught up that the competitors to Microsoft who so robustly co-opted the anti-market-domination argument have found themselves now as market dominators.

Of course, some of this will be Microsoft pushback. But behind the blinkered corporatism of the suits, the same kinds of concerns that accrue to Microsoft in its success also accrue to other market dominators in their success: whether Apple, serial patenter IBM or Google.

I think it goes beyond what Googler Tim Bray says in Feelings about Companies — which is excellent as far as it goes — but with size needs to come regulator scepticism and extra scrutiny. And efforts to ameliorate that success, when it comes to market-domination. The elephants must not ignore the mice in the room.

At the moment, it seems that regulators have given up trying to stop market domination and monopoly in individual markets, and are more concerned with practices where domination in one market is used to drive success in another market: Microsoft's bundling. The claims that Google manipulates its PageRank ranking systems to boost YouTube surely will be of interest.

If anyone doubt's that governments are rather cheesed off by what they see as Google's self-righteous stance and poor record, the comments from Australian Minister of Communication Sen. Conroy are unusually strong:

This has been worldwide. Google takes the view that they can do anything they want-- they do not evil to themselves. ... It is possible that this has been the largest privacy breach in history across Western democracies. ... At an Abu Dhabi media summit in March 2010, Google CEO Eric Schmidt said, 'Google sees itself really differently from other companies, because we see ourselves as a company with a mission about information and not a mission about revenue or profits.' ... Mr Schmidt was asked about the company's worrisome stash of private data on its users: 'All this information that you have about us, does that scare anyone in the room?'

The response from Mr Schmidt was: 'Would you prefer someone else? Is there a government that you would prefer to be in charge of this?' Frankly, I think the approach taken by Mr Schmidt is a bit creepy.

This is a company that says 'do no evil', but tries to pretend that it is not motivated by profit and that it knows best and 'you can trust us' when it comes to privacy. Unfortunately there are no safeguards. You are dealing with company policy. ... When it comes to their attitude to their own censorship, their response is simply, 'Trust us.' They state on the website, 'Trust us.'

It is not good enough to say that this is just strategic talk by Conroy, on the larger debate on national government firewalls, which seems to be one response. Google's good record in pulling out of China (if they actually have) because they don't wish to become tools to an totalitarian regime having a good decade (if that is the reason) has nothing to do with these issues of privacy, and illegal data collection. If Google is growing too fast to implement proper procedures, there is a solution: don't grow so fast.

I have gotten into a lot of flack from people who want to have black hats and white hats in the corporate world in recent times. Indeed, when it is the central marketing position of a company "Buy us, we are not evil Microsoft" everyone should know they are setting themselves up for a fall. The larger a company is, the more successful it is in any market, the more it can dominate even a limited market, the more that it needs to question its own motives and procedures.

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There is a common economic misconception which is reflected in this post. It is the notion that competition is a state (measurable by number of competing companies in a domain), as opposed to a process (competitive forces).

The problems associated with monopoly power, such as lower quality and higher prices, only appear when a company is shielded from competitive pressure. And normally that pressure exists regardless of the marketshare distribution; even a dominant company in a domain (like Microsoft or Google) cannot afford to give consumers a bad deal, otherwise they would quickly loose to smaller or new players.

The main anti-competitive advantage which Microsoft is the legal protection on "intellectual property", which grants the creator a monopoly on some idea or information for some duration.

As a side note, another problem with the definition of monopoly as "small number of companies competing in a given area" is that the designation of an "area" is arbitrary. Any product is a monopoly if you define the market narrowly enough...

Julien: I usually try to talk in terms of "market domination" to avoid quibbles over the use of "monopoly". But I don't see anything in the blog that requires monopoly to be either a state or a progress. Are you really claiming that we don't have a succession of dominated markets?

I certainly don't believe that anyone can claim "we are not a monopoly today because we could lose market share tomorrow" without looking foolish. Nor "we are not a monopoly because some other companies sell other unrelated products that people could spend their money on", to reduce your last paragraph to the absurd.

Your employer clearly dominates multiple markets, as Apple, Google and IBM clearly dominate some other markets. Once you reach 75% or 90% penetration, you can call it what you want, but it will operate under different rules to theoretical perfect competition.

Finally, the point of the article is not to denigrate large US companies, or their employees. It is to point out that employees who think that their organization is somehow immune from major fails against community standards are prime candidates for being disillusioned. (Ditto with employees who think their organization gets a bad rap, by the way!) The more that major markets are dominated by large corporations, the more opportunity that these individual fails will be amplified.

A company like Google has its "Do no evil" slogan: so how many staff do they have in their ethics department to make sure that this happens? What procedures or concrete processes do they have to back up the fine words? When this current scandal occurred, was their first reaction to deny or to soberly investigate?

A couple of years ago, I caught out an IBMer making up some comment, putting words into the mouth of Microsoft: I pointed this out, and because IBM has a clear ethics policy on this issue the fellow knew he had gone too far in the heat of the moment and he pulled back IIRC. (His was only over-excited rhetoric anyway, nothing illegal or immoral IMHO.) It must needs be that offences come: it is part of the human condition, but to an extent organizations (expecially market dominators) can amplify individual fails (due to tribalism, scale, anonymity, etc).

The main points I was addressing is "... but with size needs to come regulator skepticism and extra scrutiny" and "... it will operate under different rules to theoretical perfect competition."

The reason the definition of terms is important is that there are well understood negative consequences of monopolistic situations (lower quality and higher prices) where competitive forces are neutered.

The flawed theoretical definition of "perfect competition" used by some economists (the neoclassical ones) is not useful in any sense to understand the world and it leads to misconceptions of the role and value of regulators.

I agree that there is frequently dominant players, but with some caveats:
-that situation is only a temporary advantage (unless there is use of force or abuse of law against competitors) and antitrust regulation does not improve on such a situation,
-the definition of an "area" is artificial in the first place. Only Microsoft produces Windows, but many competitors provide communication and content processing, each at different price points and feature sets, including a variety of analog technologies.

Julien: In the long term, *every* advantage is only temporary. An unfair advantage that lasts five, ten or fifty years may be temporary to you, and it may be fine when you are working for the company which is advantaged, but it may be less than fine for the rest of us.

'Analog technologies'??? Are you seriously suggesting that the existence of pen and paper, or calculating machines, somehow means that (say) Microsoft's greater than 95% adoption in my country's government offices does not make for a dominated market?

Hi Rick,

You may want to define "unfair", in "unfair advantage".

This is actually a deep ethical question, which goes back to when is it ok to use the force of law to literally force a certain behavior by the owners of a company.

I would differentiate between the almost century-long advantage which DeBoers gets in the diamond business, where it controls the mines and regulations thru the power of the state, as opposed to the advantage Microsoft has which involves almost no use of coercion (only voluntary deals, except relative to patents) and may have lasted a decade at most. Microsoft seems to always have been under pressure from competition (Apple, IBM, Netscape, AOL, Google, and many more), even as it was ahead of the pack on some fronts.

I would distinguish between "lock-in" by Microsoft by means of creating a technology and not completely opening it up, and "lock-out" by Microsoft by means of actively using the IP laws to block competitors from reverse engineering their products.
So I would say it is unfair to force Microsoft to unbundle or release documentation for APIs, and it is unfair to force Microsoft competitors out by means of patents. Note that in both instances, the term "force" is used literally (ie. guns/prison).

My argument regarding analog technologies was provoking on purpose ;-) Pen & paper is the extreme, although certainly a viable alternative for many uses.
The point it illustrates is that substitutes for Windows are not just digital solutions or even operating systems, such as MacOS, Linux (various flavors), Unix (various flavors) BeOS, Minitel (internet precursor in France), etc.
Substitutes also include phones, faxes, snail mail, etc.

Of course, different solutions have different trade-offs (benefits and costs).
A Windows PC is not just-a-better-solution. It has some drawbacks: a heavier upfront investment, requires electricity, maintenance, training and space, involves a dependency on a given technology provider (Microsoft, a US company), lacks some features which competitors offer, etc.

Saying that Microsoft is dominant is assuming a certain (arbitrary) definition of a market. But the value of a good or service derives from its usage. If I buy a Windows PC, it is to solve some problem (communication, content creation, research, entertainment). A Windows PC is not the only way to solve those problems.

Along the same lines, you can say that Whole Foods is dominant in the healthy/organic food supermarket business. But that is looking at a narrow set of goods and services, for which there exists many substitutes (ie. non-organic foods).

Also, judging marketshare by market penetration in government is a flawed approach. Who knows how technological decisions are made in government? What are their motivations and incentives? Are they the same incentives as yours and mine?


"Let me suggest an experiment. [...] [In one year] don't buy or use any of Microsoft's products. [...] At the same time, send the government no money. That is, don't pay your taxes. Then wait. Watch who comes after you for your money and how and with what weapons."
-- Richard M. Salsman

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