Category Archives: Monopolies

Does Microsoft Violate Your Rights ?

In the course of our exchanges yesterday about markets, monopoly, and morality, Eric made this comment on the impact that scarcity and monopoly power have on individual liberty:

Monopolies do impact Life, Liberty and Property. Specifically liberty and property. You argue that you can always choose not to buy from Microsoft. I argue that you no longer have that choice. And that PC’s are such an integral part of US culture and economy that it is impacting your Liberty. Monopolies never price things in response to market demand (i.e. scarcity) because the monopoly now controls scarcity. The monopoly artificially manipulates scarcity to increase their profit. Since money is a representation of wealth and property, it seems clear to me that artificial scarcity leads to an infringement on my property. If I have a choice, then you trying to maximize your profits doesn’t do that. If I don’t have a choice, it does.

This leads to what I think is an important question for those of us who believe in the free market; when talking about third party conduct as oppposed to state action, what exactly constitutes a violation of my rights ?

On the surface, this seems like a pretty simple question. If someone steals my property, they’ve violated my property rights. If they imprision me against my will and without authority, they have violated my right to my liberty. If they kill me, they’ve violated my right to live. Often, whether these actions constitute a crime, or determining what kind of crime they comprise may depend upon whether the act was intentional or accidental, but for the purpose of determining if a rights violation has occurred, it doesn’t matter if you intended to violate my rights or not.

So, does a monopoly or dominant market player violate my rights due to the fact that it has, allegedly, cut off competition and created scarcity that would not exist if competition had been allowed to play itself out ? I think the answer is clearly no.

If a corporation seeking to maximize its profits constitutes a violation of individual liberty, then doesn’t that mean that the entire capitalist system is one big violation of human rights? If Microsoft violates individual liberty by creating artificial scarcity in the market for PC operating systems, then can’t the same thing be said of Apple, which has retained exclusive control over the operating system for Macs ?

The existence of a company that sells something people want is the definition of capitalism. Unless you’re asserting that we all have a right to whatever products we want at the price we choose, then I think its stretching the definition of individual liberty to contend that my rights are violated because Microsoft charges “too much” for Windows or Office.

Corporations can violate individual liberty as easily as individuals can, but if all they are doing is selling a product that people want and trying to maximize their profits (which is, after all, what they are supposed to be doing), then the fact that they aren’t selling it on terms that we would prefer does not constitute a violation of anyone’s rights.

Markets and Morality

Eric, Brad and I have been having quite a lively exchange (see here and here and here) over the issue of monopolies, the market economy, and morality.

While we’ve covered several topics, one that keeps recurring is the question of whether it is appropriate to think in terms of “right” and “wrong” when it comes to evaluating the outcome of the operating of a free market economy. As I’ve said in the comments to all three of these posts, I think the answer to that question is no.

As Mises and Hayek taught us, the free market is, in reality, nothing more than a reflection of the decisions made on a daily basis by untold numbers of consumers and business people reacting to factors ranging from price to taste to whatever happens to be in fashion or popular at a given point in time. As such, I think its entirely mistaken to speak of market outcomes in terms of whether they are “good” or “bad”, “right” or “wrong”, they just *are*. They are not moral judgments, they don’t reflect artistic merit (the fact that Britney Spears outsells Diana Krall doesn’t mean she’s more talented), and they don’t necessarily mean that one product is objectively suprior to another (because sometimes an obviously inferior product ends up beating superior competitors in the marketplace). Assuming that they either can or do reflect any of these things leads inevitably to the idea that its possible for one person or group to know better than consumers and that something must be done to fix the “wrong” choices that consumers make.

Much of our discussion today has centered around Microsoft and its allegedly negative impact on the market for operating systems. But do we really know this to be true ? It would be impossible for any one of us to second guess the market bercause there isn’t any way we can know that things would be better if Microsoft had “played fair” (although I don’t concede the argument that they’ve done anything inherently unfair). A market economy is made up of hundreds of millions of players, each of whom acts based on the information available to them. To say that one person, or group of people, knows better than the people who make up the economy is to adopt the same premises as the central planners. The reason that the free market economy works, though, is because it recognizes that no single person or group can know enough to control the economy in any rational sense.

Personally, I have no idea if we’d all be better off if Microsoft wasn’t the dominant player in the OS market. While there might be more choices, a large number of choices could arguably have impeded the adoption of the PC as a mass market commodity. Furthermore, there are alot of reasons to believe that if Windows didn’t exist, someone would have to create it, or at least some kind of standard operating system that vendors, consumers, and software writers could work with. Imagine what the auto industry would be like if every manufacturer’s cars needed fundamentally different types of fuel. The likelihood that anyone of them would acheive “critical mass” is unlikely, unless one of them came to dominate the others for some reason or another and became the de facto standard. That’s precisely what happened in the OS market.

Scarcity

I’m reading The Undercover Economist by Tim Harford, as I mentioned over at Eric’s Grumbles yesterday. The interesting thing, and Harford makes a compelling case for it, is that scarcity is the driving factor in all markets. If the cost of a product is high, yet it seems like the cost to produce it is low, look for the scarcity in the market, whether natural or artificial. The more scarcity, the higher the price that the consumer will pay, regardless of the production cost.

For example, suppose there were some sort of boundary around a city that would prevent the city from growing. As the number of people seeking to rent/own property in the city increased, the scarcity of the land would also, because the city couldn’t acquire more land. The landlord may have bought the land for $1,000 and be able to sell it for $10,000, for example, because there are more people who want the land than there are pieces of land to sell. In the real world, London has a so-called Green Belt around the entire city that acts as a boundary to the city’s growth. It also has the highest commercial and residential rents in the world, higher than Tokyo, San Francisco, Hong Kong and Manhattan, even though all four of those cities have natural barriers causing scarcity.

Scarcity of a resource, whether that resource is buyers or sellers, drives the cost. But so does the marginal value. That is, if it costs more to acquire the resource than it would cost to create it yourself, then buying the resource is not worthwhile. The example used in the book is farmland. If there is a lot of undeveloped land and only a few farmers, the rent will be low. The resource is not scarce and the marginal value is very low. If there is a lot of farmers and no undeveloped land, the rent will be high. The resource scarcity is now reversed and the marginal value is high.

Why bring all of this up? Well, in the debate over whether Microsoft is a monopoly and whether that is good or bad, I mentioned scarcity and was asked what that had to do with anything since we clearly don’t have a scarcity of operating systems. Since there are a multitude of operating systems and, comparatively, not that many buyers, the buyers should be able to drive the price down. They are scarce, not the resource. However, Microsoft and the OEM’s (Dell, Compaq, etc.) created artificial scarcity, so that there were fewer operating system choices for the same number of customers. At this point I’m not arguing whether this is good or bad. Just pointing out why the operating system market is artificial.

Security executive, work for Core Security, veteran, kids, dogs, cat, chickens, mortgage, bills. I like #liberty #InfoSec #scotch, #wine, #cigars, #travel, #baseball

Microsoft & the Market Monopoly

I got in a nice email debate today, and I’ll post below the email exchange between myself and a friend. Of all my friends, she is one of the two that I truly enjoy debating. She’s a lawyer, and did her undergrad as an in economics & poli sci (I think poli sci) dual major. She was also very close to libertarianism back in her younger days, so she understands where I’m arguing from. She’s left our fold to become a pretty strong liberal, but her knowledge of economics and general pragmatic attitude generally make our debates quite productive.

I sent out an email today to alert friends & acquantances of my email address change. I’m changing for no other reason than Microsoft’s deliberate efforts to annoy FireFox users, and as a former Hotmail user, I was feeling the brunt of those efforts. In past debates, we’ve often sparred about Microsoft’s monopoly power, and monopolies in general, so she used my email as a reason to start a sparring match. Not being one to back down, I took the bait, and I think the exchange was pretty strong on both sides. When I asked her approval to post the exchange, I offered her the ability to have the last word (and unlike Bill O’Reilly, I will stand by that offer). So I don’t plan to address her final points in my post, although if my commenters would like to have a go, I may play along.

Below is the exchange. I’ve tried to clean up some of the spelling errors and typos along the way, as this was intended as an email exchange and not proofread during the debate. If I missed anything, my apologies. My comments will be in italics, and prefaced with a “B:”. Her comments will be blockquoted, bolded, and prefaced with an “R:”. The exchange is placed below the fold, as it’s quite lengthy.
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