Running the natural course of a monopoly...
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| Author | Content |
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| dinotrac Sep 24, 2005 11:05 AM EDT |
Monopolies are a bad thing.
They quash competition and unbalance the economy. But...They are not immortal. Monopolies tend to get fat, dumb, and happy, relying on their monopoly power to avoid the level of improvement -- and price consciousness -- that competition brings. Then, something happens to change the mix, and the monopoly is screwed. In the case of Microsoft, it's customers have gotten used to the idea of computer software. They are no longer grateful for the fact that they can type a letter or add a column of numbers. Hardware have plummeted from the days when a decent IBM PC setup cost more than $3,000 -- and I'm talking 8086 with 640K of memory!!! In non-adjusted dollars, today's hardware is far more than ten times cheaper, considering the power of even the lowliest systems. Software is...well, it's not cheaper. And, for all it's whiz-banginess, it doesn't do any more. Apart from WYSIWYG, I'm hard pressed to see what useful things the latest and greatest Word, for example, does that I couldn't do with Word for DOS back in 1986. I take that back -- it does manage to be a lot buggier than the old stuff. At any rate, today's customers have become sophisticated enough and frustrated enough to appreciate choice and lack of lock-in. Microsoft will have to drop prices, open up, do something. Or, it could continue business as usual, and reap dwindling revenues that still yield huge profits until the well runs dry. |
| richo123 Sep 24, 2005 11:52 AM EDT |
Dino, I wish I shared your optimism about monopolies eventually self-destructing. One of the features of Microsoft's business practices is ruthlessness. I expect them to play the game very hard, both politically and commercially, when they feel threatened. In the end I suspect the only way to bring this parasite to book is through the antitrust laws. That was the only way Rockefeller was controlled in the gas market. |
| dinotrac Sep 24, 2005 2:27 PM EDT |
richo123 - Patience. Even ruthlessness works against you after a point. You spend all that energy creating ill will instead of making better products that people want. Add to that, you make people actively want to dump your products, thus lowering the threshold that any competition needs to meet. The Rockefeller monopoly would have crumbled on itself eventually. However, some resources are so important, to the economy, to the health and well-being of the people, to the national security, that antitrust action is called for, or, in the case of so-called "natural" monopolies, state regulation or ownership. I'm still not sure that Microsoft fits in that category. |
| tuxchick Sep 24, 2005 2:49 PM EDT |
I think Microsoft owes a huge part of its dominance to the fact that most people regard computers as demon-possessed black boxes. It's always amazed me that business owners who negotiate to the death over the cost of paperclips roll over and accept software licenses without a quibble. I've known people who forced car dealerships to take back cars because of minor flaws; who returned sacks of spuds if they found one bad one; who haunted and pestered tough mean contractors until a job was done to their satisfaction. But when it comes to computers they turn into groveling ninnies. It seems like the worse the bullying gets, and the worse the quality, the more Microsoft's customers toil to please massah. I can't think of anything else that compares- it's bizarre, sick, and freakish. It's like abuse victims, or people with Stockholm Syndrome. It wouldn't bother me that much if Microsoft weren't so danged evil. They lie, extort, bribe, and they get away with it. They directly contribute to attacks on our civil liberties, and our rights as citizens and customers. They have done more to damage computing than all the evil crackers and malware authors that were ever born, and ever will be born. They are anti-choice, anti-consumer, anti-quality, anti-security- if anyone can name a single positive virtue that they possess, I will buy you the beverage of your choice. |
| dinotrac Sep 24, 2005 4:11 PM EDT |
Quoting:if anyone can name a single positive virtue that they possess, They make Oracle look good. |
| tadelste Sep 24, 2005 4:30 PM EDT |
Dinotrac: I wish I shared your optimism too, but I still don't believe you understand the difference between an oligopoly and a monopoly. Your assertions about monopolies and how they evolve appear to have you as the authoritative source. I've seen no studies anywhere that confirm your points: They are not immortal. Monopolies tend to get fat, dumb, and happy... Microsoft will have to drop prices, open up, do something. What's your source? I've studied economics for a few decades and these are not conclusions I've seen anyone make with the exception of you. This isn't criticism but I'd really like to get to the basis of your axiom. Please explain how you have come to your conclusions or not. Thanks |
| dinotrac Sep 24, 2005 4:43 PM EDT |
Tom - Feel free to do what I did, which was to get a degree in Economics and a JD. |
| richo123 Sep 24, 2005 4:59 PM EDT |
Dino, My assessment would be that computer software and gasoline are of equal national importance to the US. That has become true gradually over the past twenty years as software has become an integral part of all businesses. In addition Microsoft have held a virtual monopoly in large areas of computing for maybe 15 years and I see very few signs that this is under any threat due to "market forces". Bill Gates is still by far the richest person in the world. Finally the only reason that antitrust legislation has not been applied in this most obvious of cases is because Microsoft have bought off the government through the mechanism of political contributions. Not much more to this situation than that I'm afraid. |
| dinotrac Sep 24, 2005 5:05 PM EDT |
Tom -- OK. I had to go to google because it's been a few, ahem, years since I was in school. If you want to find a basis for what I say -- though with an asterisk -- look up the work of Joseph Schumpeter and the idea of creative destruction. Schumpeter did not believe (correctly) that perfect competition was possible, that innovation results in a series of partial and temporary monopolies, facing competition because innovation tends to bring substitutes for existing products. Schumpeter thought that this potential tended to keep monopolies on their toes and hence providing better value to consumers. I find that hard to swallow, and Microsoft seems like the perfect example. As to your confusion WRT monopolies and oligopolies, I don't even know where to begin. The only meaningful differentiation I've ever seen is in antitrust law. Members of an oligopoly can be convicted of price-fixing. A true monopolist simply sets market prices without needing to conspire. |
| tuxchick Sep 24, 2005 6:08 PM EDT |
I think you eddicated folks are making this too complicated. If customers would quit buying crap, crap would go away. But alas, the real world functioneth not in that manner. |
| richo123 Sep 24, 2005 6:23 PM EDT |
Tuxchick, Not so sure about that. How about BeOS? Why didn't consumers buy that? From the people I talked to the reason was simply that MS had a greater number of apps and wider hardware support. Microsoft was in a dominant market position and the quality of their product was not unbearable so people voted for more apps and better hardware support. As a consumer you might consider that a better product even if it was only achieved by overwhelming market dominance. |
| dinotrac Sep 24, 2005 6:49 PM EDT |
richo123 - It gets tricky, too, because the definition of a better product isn't always as easy as it seems. Let's pick on an old standby, Microsoft Word, just for fun. To me, Word is a crappy product. I find it difficult and flaky to use, and I can't run it natively on my favorite computers because they don't run Windows. And then there's the price. However, Word is pretty good for my mother. She could use OpenOffice just about as easily as she uses Word, but it would be more trouble for her. She receives and sends out a lot of Word docs. She uses special templates and macros. The people she works for are experienced with Word and Windows and can fix just about any problem she has. I could help her with OpenOffice and/or Linux, but I'm a thousand miles away and not always easy to get hold of. Worse, because translation isn't perfect, OpenOffice would mean more work. Does that mean Word is a better piece of software? Oh, Lord no!!!! It just means that it works better for my mother with the set of facts she faces at the moment. You could even make the argument that those crappy early versions of Windows were decent products because they let people compute who couldn't afford a McIntosh and couldn't afford to even pretend to think about a Unix workstation. Crappy software, maybe a decent product. As to BeOS... They were screwed from start by Microsoft business practices. The untold story of the antitrust suit is how the lame-brained prosecutors managed to decide that Microsoft's reseller agreements that forbade selling dual-boot machines were not an abuse of their monopoly power. It is a testimony to Microsoft's arrogance and malevolence that those chuckleheads were able to get a conviction. |
| dinotrac Sep 24, 2005 6:52 PM EDT |
tuxchick - Yeah. The rise of FIrefox gives me hope. I think larger numbers of computer users -- and their employers -- are less impressed by software than they used to be. With so much open source stuff popping up in corporations and elsewhere, it's only a matter of time before more people start trusting it to do more things. |
| tadelste Sep 24, 2005 9:13 PM EDT |
Dino: Thanks for doing the refresher. I don't think we need to compare CV's since we're close enough. I chose to practice in a CPA firm instead of going with the bar. Would you agree that Schumpeter was a theorist? You also wrote: "As to your confusion WRT monopolies and oligopolies, I don't even know where to begin. The only meaningful differentiation I've ever seen is in antitrust law. Members of an oligopoly can be convicted of price-fixing. A true monopolist simply sets market prices without needing to conspire. " I see we're on two different neuro pathways here. I don't generally think of Microsoft in terms of price fixing but in omnipotence in the market. I'm thinking in terms of the '32 and '33 Acts with regard to efficient markets (my specialty). Microsoft has an unfair advantage in the market - not the stock market - but in regulation of the digital market, influence of regulation and how they control Justice and the FTC. While Oligopolies like tobacco companies conspired to fix the regulatory environment, they at least ate each other on occassion. I'm concerned that Microsoft owns the regulatory environment. So, I applauded he guys in Massachusetts for taking a government action to break something. That's why I want an intervention. With regard to your belief, I believe it too or I wouldn't be fighting the good fight. I just don't think Linux will become the dominant player through attrition. |
| mvermeer Sep 24, 2005 10:46 PM EDT |
> I'm still not sure that Microsoft fits in that category. Eh, I would add "to the feeling by ordinary, non-powerful, non-rich people of living in a minimally fair society". You know, it's lack of same feeling that can create some ugly things in society as we have seen. I'm not sure that MS fits in this particular category either, but believe that there is another compelling reason for having an effective anti-trust regime where software -- at least infrastructural, platform, software -- is concerned: it forms a network. In the same sense as, e.g., the telephone network. You have these so-called "network externalities", where people are using Word, not because it is good or even decent, but only because everybody else is using it too. In such an environment you will never get a market economy to function without some stiff regulation. Even if a monopolist stumbles and falls, the next monopolist is already waiting in the wings. Think Commodore 64, IBN PC, IBM mainframe, Windows, ... Natural monopolies. (And no, a "market" in which the only competitors are a predatory sociopathic corp and well motivated but penniless volunteers, is not what I would call a functioning market economy :-) Well I suppose you know all that; just wanted to clarify this viewpoint. BTW see my propaganda product at http://www.hut.fi/~mvermeer/habit.jpg . I had a t-shirt printed of it... (It contains one factual error, do you spot it?). |
| dinotrac Sep 25, 2005 12:59 AM EDT |
Martin, Tom - First and foremost, let us remember that Microsoft IS a monopolist who abused its monopoly power, was found to be one in federal court and that finding was upheld by a unanimous Court of Appeals. Whether or not you agree that Microsoft will eventually wither under its own weight makes no difference to that basic fact. I was never sure that the antitrust case made sense, but the suit did happen and the finding was made. As a conservative, I remain sorely disappointed by the current administration's refusal to act accordingly. There is one solid legal and economic basis to justify significant action against Microsoft, and the notion of controlling a "gateway" resource. A gateway resource is one that gives or blocks access to other resources. This was, by the way, one of the winning theories used in the Microsoft antitrust case. In the case of Microsoft, that gateway would be control of the OS on desktop (defined to include notebooks and the like) PCs. By keeping private APIs and by giving preferential treatment to its own application developers, Microsoft could effectively castrate competitors trying to compete in the same product space. Another potential gateway -- sadly discarded by the original prosecutors -- was control of the resellers. If, for example, BeOS had any chance of getting somewhere with its OS, the Microsoft reseller contracts which forbade dual booting killed it. |
| mvermeer Sep 25, 2005 1:41 AM EDT |
> a "gateway" resource Ah, like in "gateway drug"? That makes sense ;-) Seriously, it shows that US legislation/jurisprudence in the field is sane and sensible. The problem is the executive, and the propagandistic conflation of free markets and government non-interference. |
| dinotrac Sep 25, 2005 4:15 AM EDT |
Martin -Quoting:Ah, like in "gateway drug"? That makes sense ;-) Yeah. A lot like that. And yeah to the executive. There is always a serious question of whether a monopoly is worth pursuing. It takes time and costs money that could be spent for other things. Once you've gone to the trouble, spent the resources, and gotten the win, there is no sensible argument against removing the monopolists's ability to wreak havoc. |
| tadelste Sep 25, 2005 7:22 AM EDT |
Dino: Let's also consider what Bjorn Stadil articulated as an interesting model of business - where businesses have a Core, Context and Fringe. Core is what one makes money doing; Context is what they don't make money doing but they need to do, e.g., legal compliance, accounting, HR; fringe being how they communicate with others like customers, supply chain, etc. Microsoft definitely interfers with the fringe. If they stuck to providing services to organizations at the core and context, then I wouldn't care that much what they do. But when they mess with the ability to communicate, coordinate, share and work together - that's intereference with a business and lands them in the domain of restraint of trade. They have no rights to dictate de facto standards and interfere with the middle of the economic model i.e., distribution. That by itself begs for a breakup. I promise to tease that out in a feature article. |
| dinotrac Sep 25, 2005 7:56 AM EDT |
Tom - Hard to argue with you regarding Microsoft. Bad actors, for sure. As to interfering with the fringe, that gets you into sticky territory. Remember the big IBM antitrust suit that IBM CEO Tom Watson, Jr settled? That action was filed during the tenure of his father, Tom Watson, Sr. Watson, Sr refused to settle the suit because he didn't see that IBM was doing anything differently from IBM's pre-monopoly days. In other words, the only difference was that IBM had acquired a monopoly. Lots of businesses do the same thing without undue attention. Intuit, with its Quicken and Quickbooks franchises come to mind. The difference is that, in the absence of monopoly power (WRT to Intuit, try telling that to small business owners who hire accountants), the economic disruption of these activities is small, and, after all, competition implies a constant fight for survival. |
| tadelste Sep 25, 2005 8:16 AM EDT |
Dino: Points well taken. |
| dinotrac Sep 25, 2005 8:35 AM EDT |
Tom - I gots to admit, it's fun being forced to shake out the cobwebs now and then. |
| tadelste Sep 25, 2005 5:08 PM EDT |
Dino: Ditto :) |
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