Category Archives: Monopolies

ESPN Power Struggles

This post was originally posted at The Unrepentant Individual, where I’ve been posting about college football a lot lately. It drifted over into the territory of monopolies, so I thought I’d cross-post it here.

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Over the past few years, cable companies have been battling ESPN over the cost of carrying the ESPN channel. It’s long been part of the “standard” cable offerings, but ESPN, knowing their status as the “WorldWide Leader in Sports”, have steadily been raising their costs to the cable providers. It’s gotten to the point where cable providers have been threatening to make it a pay channel.

ESPN, though, rather than taking their foot off the throttle, have kept the pressure up. ESPN GamePlan was understandable, because they were offering pay content for games that wouldn’t normally ever be broadcast nationally. That works well for fans who have left their alma mater’s locale, like I have. For a cost of $99 per season, you can subscribe to ESPN GamePlan and get all the games you desire. But ESPN decided to take it to the next level. They created a new channel, ESPNU, which is dedicated to college sports. And they’ve used this to exert more pressure on cable providers.

You see, ESPN GamePlan games are often available through local affiliates. I have had situations where I’ve caught Purdue games on CSS (Comcast Sports South), which normally would have required a subscription to GamePlan. Those games are usually broadcast locally to the school on ESPN+ channels. But ESPNU is different. It’s a channel like ESPN or ESPN2, in that games broadcast on ESPNU are only available on ESPNU. And they want all cable providers to carry ESPNU. Many have chosen not to, at this point.

Games carried on ESPNU require me to head out to a sports bar to watch. It’s actually been a little tougher than normal, because one place I would normally go to watch games doesn’t even carry ESPNU. So it requires going to certain sports bars. Granted, since I’m a fan of Purdue, a mid-level Big Ten team, I understand that it’s going to be a little tough for me to always find my team on TV. But ESPN knows that if they really want to get cable providers signed up for ESPNU, they must piss off fans of bigger programs. So earlier this year, Ohio State played a conference game on ESPNU, much to the chagrin of Columbus residents. OSU fans seem to think it’s a god-given right to watch Buckeye football on basic cable. Last weekend, I believe (I could be mistaken) that the Michigan – Ball State game was on ESPNU. ESPN is trying very hard to use their “monopoly” power to ensure local cable providers will add ESPNU to their lineups.

I use the term “monopoly” in quotes for a reason. ESPN is the “WorldWide Leader in Sports” for a reason, and that’s because they’ve done it better and cheaper than anyone else for quite some time. But they’re not a state-enforced monopoly, they’re a natural monopoly. And they’re pissing off their customers. You know what the result of that will be? As I pointed out before the season started, the result will be the Big Ten Network. In a natural monopoly, competition will arise which forces the monopoly power to change its ways, or lose its monopoly status. The Big Ten Network is the first attempt at doing just that, offering the games not carried by ESPN, ESPN2, or a major network, and putting on its own channel that may carry less of a price tag than ESPNU.

This is a real-life example of the natural breakup of a natural monopoly. And I’m not going to guarantee it’s going to be a clean fight, and I’m not going to guarantee everything will come up roses. But I think it will work itself out, and it will do so without the power of government. Not that anyone will pick up on the lesson, but I feel like someone has to point it out.

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I Can’t Believe I’m Saying This

But, I actually like something that Markos Zuniga Moulitsas a.k.a “Daily Kos” has written:

The Case for the Libertarian Democrat

In this article, Kos attempts to describe why he thinks there is a more natural alliance between those with libertarian principles, and the Democratic party; as well as why the Republican party has been losing so much of it’s traditionally libertarian center…

…and but for two important points, I’m agreeing with what he’s written (which by the way isn’t what I think he truly believes. I’ve read enough of his stuff over the years that I know he’s way more to the left than he’s presenting himself here).

The first principle that I utterly disagree with, is that corporations are the ultimate evil in this world; and that capitalism must be strictly regulated and monitored by government or it will inevitably become a totalitarian evil.

The funny thing about that one is; it’s not too far wrong. Oh it is completely wrong in reality; but the difference between reality, and this socialists paranoid dystopian fantasy future isn’t very large. Mercantilist fascism is a distinct posibility if certain elements get tweakend in certain ways.

The irony of this principle, is that this result is exactly what we KNOW to be true, and will ALWAYS happen with an unfettered government; which brings us to the second issue I have…

The second principle he espouses here that I completely disagree with, is the core philosophy which separates Liberals, Democrats, Libertarians, libertarians, Republicans, and Conservatives alike.

Those on the left and the right (presuming a continuous linear spectrum as presented above) both believe that government can to some degree or another, do good; and be a legitmate and positive force; either for change, or to maintain stasis.

Those who are Libertarians, or libertarians; in general believe that all government is inherently a negative thing, but that some government is less negative than the alternative.

This principle was once the guide of the centrists wings of both the Democratic, and Republican parties; however those wings are severely weakened (in the case of the republicans), or have simply been purged from the party over the past 40 years (the democrats).

This means that there is no longer a functioning constiuency for severely limited government in power today. Both major parties are operating under the principle that with THEIR guidance, government can and WILL do good (or what THEY consider to be good – which is nothing of the sort), no matter the consequences.

One thing that these types never seem to understand, is the law of unintended consequences, and it most important corolary, the corolary of intentions.

ALWAYS REMEMBER THIS:

No matter what you do, what you know, or what your intentions are; every word you say, every thing you do, will have consequences you did not intend, forsee, or understand. Good intentions matter, but good results matter more.

Oh, and I suppose there’s one other principle that Kos is espousing that I can’t take: The idea that the way to fix the country is by voting democratic; and that if enough libertarians come to the democratic party, things will be alright again (or it’s corrolary, that tactically voting against republicans will force them to become more libertarian as a reaction to their electoral losses).

I reject this concept as utter folly; and dangerous folly at that. If the democratic party is ever allowed into the kind of power position it had in the late 70s again; it will destroy America utterly, and possibly kill us all in the process.

No, I’m not being hyperbolic, I am simply doing that which is prudent: the consequences of following what democrats say are, or have proven to be, their policies; will be the utter subjugation of the west to political correctness, weakness, appeasment, “tolerance”, and “multiculturalism”; and that WILL get us all killed.

The Democratic party, and the left who have chosen the Democrats as their represntatives; are in fact not liberty oriented at all (though some individuals may be). They are controlled by totalitarian transnational “progressivists”.

If these political philosophies are given reign over the country, it will weaken us to the point where we would be unable to resist the muslim and communist assault on our society, and we would all be killed or converted.

This is not to say the Republicans are all that much better; but I do not fear for my immediate safety, or the safety of my children given Republican principles and track record. Yes, taken too far, we COULD become that totalitarian mercantilist fascist state that frothy leftists have paranoid wet dreams about… but I for one would rise in bloody revolution first, as I know would at least hundreds of thousands of my fellow citizens; and we’ve all got plenty of guns.

Of course we wouldn’t if the transnational progressivists had their way, now would we.

I am a cynically romantic optimistic pessimist. I am neither liberal, nor conservative. I am a (somewhat disgruntled) muscular minarchist… something like a constructive anarchist.

Basically what that means, is that I believe, all things being equal, responsible adults should be able to do whatever the hell they want to do, so long as nobody’s getting hurt, who isn’t paying extra

Atlanta Prefers Government Control to Results

Achieve Academy could be shut down

But Achieve Academy may close, a move that would force Zicuria and the school’s 170 or so other students from grades five through seven back to the traditional public schools they left. Atlanta Superintendent Beverly Hall is recommending against approving Achieve Academy’s charter, citing a weak curriculum, a history of financial mismanagement, low enrollment and other problems. The board is scheduled to vote today on the charter.

David Morgan, principal at Achieve Academy, said Atlanta school officials have been “unyielding in their position,” that the charter school must close, despite test scores that met state standards under the federal No Child Left Behind law.

Though Achieve met state testing goals, the school did not meet testing goals spelled out in its charter, district officials said. “The performance in fifth grade was particularly troubling, as 23 out of 41 students did not meet standards on one or both of reading or mathematics tests,” district official Sharron Pitts wrote in a letter to Achieve’s board chair, Dana Thomas.

Morgan said school officials point out weak scores while ignoring high scores. Seventh-graders performed well on the state’s Criterion Referenced Competency Test, with 87 percent passing math and reading. Achieve students generally outperformed schools such as Carson and Kennedy, where half the seventh-graders failed reading and where students will be sent back to if Achieve closes.

I realize that in their first year, fifth graders (who, invariably, were products of Atlanta Public Schools up until that point) were failing. But it certainly looks like they’ve gotten those same failing students up to an 87% pass rate by the time they hit 7th grade. That sounds like positive results.

So the students are happy, the parents are happy, and the kids are leaving with a higher pass rate than they came in. Even the fifth-graders, who didn’t meet the standards the school set for themselves, passed state and NCLB guidelines, which not all Atlanta Public Schools do.

It sounds like the school does have a bit of turmoil, between financial problems, moving every year, some leadership turnover, and losing out on one of their curriculum programs (due to a too-low enrollment number). But despite these problems, they’re getting it done.

And it appears that they’re on the right track, trying to buy a property while working with a new company, Imagine Schools. But apparently that’s not good enough for the local government:

Deputy Superintendent Kathy Augustine said the school had shown “pockets of improvement,” but she stopped short of calling Achieve a success.

She found the school’s plan for a partnership with the nonprofit Imagine Schools void of detail and full of conflicting information about such matters as whether the Saturday program would end at noon or 12:30 and whether students would be allowed a snack time. Augustine was not convinced teachers would cover the state curriculum, nor was she satisfied with the school’s plan to operate in a former church Imagine officials have said they intend to buy.

A half hour on Saturday? Snack time? These are reasons to refuse their charter? And the state curriculum hasn’t exactly made Atlanta Public Schools a success, so maybe they should stick with what actually works. I think Atlanta is searching for any reason to refuse the charter, not looking to determine if this school will actually educate children.

I think we can see through this. This school, despite its problems, is succeeding in its primary goal, educating children. If such a problematic charter school can succeed, I’ll bet the local government schools are quaking in their boots. How can they explain their failure in the face of success like this?

Hat Tip: Jason Pye

Where Markets Beat Government — and Vice Versa

I checked out Perry’s site the other day, and ran across this post on Wal-Mart. It looks like Wal-Mart is opening its doors again in New Orleans, while Congress is still pointing fingers. It got me thinking: why is it that we see for-profit businesses flocking to the area, while FEMA is still trying to figure out where to park their beautiful trailers?

I originally wanted to issue a snark-filled rant on why government is inefficient, bloated, and ineffectual. But this, combined with Massachusetts’ insanity, calls for something a little better. I’m not an anarcho-capitalist. I realize that there are places where government can get necessary things done that the market cannot. It is only when we ask it to do things it is not suited for that we run into problems.

Bear in mind, this is an off-the-cuff treatise, so I welcome comments pointing out all the places I am wrong.

I see there being a few major types of services provided by the government and markets:

1. Distributed provider, distributed user: This would fit the mold of most day-to-day interactions. When you go to buy lunch, you have a wide range of choices. Purveyors of those products can sell to anybody; there are few long-term interactions.

2. Single-provider, distributed user: This would fit things such as roads, sewers, police, military, courts, etc. In these types of interactions, there action between the provider and the user is often severed. In the case of roads/sewers/etc, it is common that an individual homeowner or driver could not contract with a provider to build a new sewer system or road to service them. Often, maintenance of these services are paid for by some sort of taxation, and only occasionally by a true “user fee” arrangement. Courts, police, and military are even more so, because there is not often a true link between what police or courts do for those who aren’t currently the victim or perpetrators of crimes, but they offer a sort of “blanket of protection” for everyone. Again, the link is fairly severed between provider and user.

3. Specialty provider, specific user: This is a tough category. In this, I place things such as medical care, which often is difficult to procure in a true competitive environment (outside of general-practitioner care), and is highly tailored to the specific user. There may be 3 hospitals in a close area, but only one specialist in the field you need. This may also include education and other services, where the relationship between a specific provider and user is difficult to break. For example, when you put your child into a school, you don’t want to have to change that school without good reason, because of the relationships your child generates with classmates/teachers/etc. Last, it includes such things as insurance, where acute costs are very high and risk may need to be pooled.

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The first case is a place where markets always beat government, hands down. Government action, nearly by definition, is one of monopoly, and monopolies are known for poor efficiency. They don’t innovate to serve their customers, they don’t bring costs down through competition, and they have no reason to do either. This one is so obvious that it needs no further discussion.

The second case is the poster child for government action. This is the one agreed upon by everyone except the anarcho-capitalists. There is a little point of distinction on things like roads (the “pure” libertarian will ask for them to be privatized), but I’m going to gloss over that. I chose sewers but left out other utilities for a reason, as well. Without getting too heavily into it, there are certain “common carrier” services that form a bit of a gray area. Electrical or gas service doesn’t lend itself quite to competition very well, due to the extremely high infrastructure costs in service. Georgia’s take on natural gas, however, is one where the actual distribution of gas is centralized, but you have your choice of “service company” to sell you that gas. It blends some of the benefits of competition without the drawback of requiring multiple companies to lay redundant infrastructure. But in most “common carrier” utilities, some sort of government action is required, as local government is typically granting monopolistic licenses to providers. The cases of courts, police, and military, however, are specialized enough where we leave government to provide these directly. This is the one case where we grant a monopoly on initiating force, and choose to keep that power in the hands of government we control with our vote.

So I think we can all agree that communist Russia showed us how dangerous it is to let the first case be provided solely by government. And I think we can look post-communist Russia to see how lack of infrastructure and legitimate courts/police/military to protect the rule of law will lead to anarchy and rule by the strong.

But the third case is problematic. This is a case where it is easy for politicians to advocate government action, and easy to dupe unsuspecting voters into agreeing to it. Usually, they play to emotions. It is always hard to watch people go without adequate medical care or education. It is far too easy to go from watching this to thinking that it simply shouldn’t happen, and therefore the government should take over and provide the service. But while this is different than the first case, it is still not a place where government monopoly works. Our current educational system is evidence of that. In the case of medical care, nobody wants to see people lose their entire livelihood due to high medical costs. But the proper way to pool risk is with insurance. Just as we would not ask the government to provide flood insurance, car insurance, or homeowners insurance, medical insurance is not for the government to pay. It would help, of course, for the government to end its policies which make it nearly impossible for individuals to provide their own coverage reasonably cheaply, but that’s a whole different debate. Again, look at education. Education would be much better provided in this country if we returned to a competitive market, with parents paying for school directly, and (at best) a safety-net program to help the poor. When even the NYT is realizing that vouchers work, it is obvious that we need to change our strategies.

As I said, there are times when government action is the best way to get something done. Those cases are few and far between, and in all of them I suggest making the services controlled as locally as possible, to allow a “market in governments” to form. Just as people choose which business to patronize, and should be able to choose which school to patronize, the experience of federalism and local control allow people to choose which local government to patronize. This will allow people to choose local government based upon the ability of government to provide necessary services, and allow competing localities to learn through competition how to be more efficient. You can ask states like Massachusetts (the only state in the union to lose gross population year-to-year) just how important this is.

But where government action is not efficient (almost everywhere), we need to make sure our policies are designed to facilitate the working of a market, not impede it.

Thoughts Along The Same Lines

Sean Lynch has an interesting discussion at Catallarchy in a post called Connecting The Political Circle. He puts quite a few words into discussing the differences, and similarities, between libertarians (aka anarcho-capitalists) and anarchists (aka anarcho-syndicalists) and socialists.

It’s occurred to me that the main difference between libertarians or anarcho capitalists and socialists or communists is beliefs about what is likely/possible rather than what is desirable. I think the main reason anarchists say anarcho-capitalists are “not anarchists” is that they think anarcho-capitalists just want to eliminate government and want/expect the existing corporations to stay as they are, with the end result being that the corporations become the new government (hence calling us not-anarchists).

I think the last sentence is clearly how Libertarians are perceived. It is, in fact, one of my primary issues, as has been evident in the discussion between Doug Mataconis and I here on The Liberty Papers (see this, this and this for examples). Yes, I believe in individual rights and liberties and the power of markets, I detest the idea of “positive freedoms”, and agree with much else that libertarians believe in. But, I’m not a libertarian, and rarely describe myself as being one. Then it is usually because I’m closer to that position than anything else. The thing I think that libertarians and anarcho-capitalists basically lose sight of is that all concentrations of power are destructive to individual liberty, whether they are formal governments, or not.

Speaking of collusion, this brings up another issue that keeps people on the socialist side of the fence: monopolies. We’re all taught in school that artificial monopolies (i.e. those that are created intentionally by monopolists) can be created and sustained, that they harm the consumer, and that they must be broken up or controlled by government. In school, these were simply called “monopolies” and natural or state monopolies simply weren’t addressed. In actuality, it’s not hard to show that historical monopolies have always failed except when the state has intervened to support them, and that even where natural monopolies persist, they do not harm the consumer (at least not more than a state monopoly) and advances in technology eventually make them competitive anyway.

I think there’s some important thoughts in here, one of which Sean sort of glosses over. First, I agree that artificial, legal and natural monopolies are not permanent things. Second, I agree that government intervention does much more harm than good. In my opinion, the anti-trust lawsuit against Microsoft actually helped to sustain the monopoly they currently have over consumer operating systems and the desktop office suite markets, rather than breaking it up. If nothing else, it convinced people that they had to buy Microsoft products because they were the only viable product. It also convinced competitors to come to terms with Microsoft in a way that favored MS when the government failed to do anything meaningful (from their perspective). Probably the most important thought is downplayed, in a deprecatory sort of fashion. And that is that non-government monopolies hurt consumers. Of course they aren’t worse for consumers than legal monopolies, but that doesn’t mean that Microsoft being able to artificially control scarcity in the office suite market is good for consumers.

So, what does all this make me? I’m clearly neither a socialist nor an anarcho-syndicalist. But, my perspective on corporations, monopolies and concentrations of power seems incompatible with libertarians, conservatives and anarcho-capitalists. I usually describe myself as a rational anarchist. I believe in the sovereignty and responsibility of the individual, and oppose the concentration of power aimed at coercing the individual. I think that is, ultimately, the disconnect between libertarians and I.

Update: A thought struck me, and I think it’s one worth exploring, on this whole issue of libertarians, corporations and monopolies. I think that what is happening is that libertarians are stepping over a line that they should reconsider. They go from defending the market against government intrusion to defending the actual entities within the market that are the proximate cause of the desired intrusion. While government intervention and/or intrusion into the market is something we don’t desire and should actively work against, that doesn’t mean that the target of the intrusion, Microsoft for example, is something good that needs to be defended. In fact, neither Microsoft nor Wal-Mart are shining examples free market practices to hold up to the world. We have a tendency to defend the target of the government intervention, which is a mistake.

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

A Final Word On Monopolies

About two weeks ago, we had quite a spirited debate here about the question of monopolies in a free market system, and specifically the question of whether Microsoft, or any other supposed monopoly was a problem that libertarians and classical liberals needed to concern themselves with. For a recap of those arguments, you should start here and then go here, and then here, then here, then here, and, finally, here. Be sure to read the comments along the way.

On several ocassions during our discussion I started, then stopped, writing a more detailed post discussing what a monopoly actually is in economic terms and whether a monopolist in a free market economy, should one exist, would be a problem worth worrying about. For many reasons, I never got around to it, and now it looks like someone has beat me to it.

Over at Liberty Corner, there’s an excellent post titled Monopoly And The General Welfare that puts the issues forward fairly succintly. The post goes into detail to explain why, in a free market economy, a monopolist would be no different than any other market player and would still be subject to the same free market forces that any other company would be, with the added benefit that the monopolist would not be able to appeal to the state for protection from competition.

The only kind of monopoly that harms consumers is a legal monopoly, one that is operated or regulated by government. Such a monopoly isn’t harmful per se, it’s harmful because the government’s operation or regulation of the monopoly ensures that it cannot and will not respond to price signals. A natural monopolist (like Jack the breadmaker) must bargain with his customers, and must be alert to the possibility that his customers will turn to substitutes and near-substitutes if he doesn’t bargain with them. But when government operates and regulates whole sectors of the economy (e.g., telecommunications and health care), price signals are practically meaningless — there is no bargaining — and substitutes are hard to come by (near-substitutes will be regulated, of course).

The only real monopoly, then, is one that is operated or regulated by government. It is that kind of monopoly — not Microsoft or Wal-Mart (for example) — which ought to be broken up or fenced in by the trust-busters.

As usual, the real harm comes from the state.

Monopolies, Markets and Microsoft

Okay, we’ve had an ongoing discussion here at the Liberty Papers about monopolies, markets and Microsoft. The position presented on one side, a position taken by many libertarians and libertarian-conservatives, is that monopolies that are not directly created by government fiat are okay and we shouldn’t see them as bad. They are, in this line of thinking, natural and arise out of very good business practices and market forces. I’m going to argue that this is not the case and that all monopolies, of whatever origin, should be viewed with suspicion and distrust by those who describe themselves as libertarians, classic liberals, anarcho-capitalists, etc. There are, essentially, five types of monopolies.

  1. The government created, or legal monopoly. AT&T was a legal monopoly, as are the police and fire departments in most cities. When the government directly intervenes and legally creates a market where only one competitor is allowed, that is a legal monopoly.
  2. Natural monopolies are ones that arise because economies of scale, economic efficiencies and capital costs for competitors are such that one one competitor is able to satisfy the demands of the market. In a perfect free market this is impossible.
  3. Monopolistic competition occurs when a single competitor in the market is powerful enough to act as a de facto monopoly. For example, at its height, Standard Oil controlled 64% of the oil market although there were more than 100 competitors in the market. Microsoft, today, is a monopolistic competition with control of 90% of the PC operating system market and more than 90% of the desktop office suite market. Companies in this position are able to take actions to maintain their position that a non-monopolistic competitor could not.
  4. Coercive monopolies occur when competitors use activities that violate the principles of free market. Coercion is aimed at hiding information from the market or influencing consumers and competitors in order to maintain a dominant position in the market. It is often difficult to distinguish between good business practices and coercive practices.
  5. Local monopolies exist when only one resource for a specific product exists in a given area, but not within the market as a whole. For example (and I’ll discuss it further down), Starbucks is a local monopoly at the Sacramento International Airport.

» Read more

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

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.

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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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