Cafe Hayek - Latest Comments in If This Is Monopoly In Action, Bring It On

Re: If This Is Monopoly In Action, Bring It On

Bill — Tue, 30 Oct 2007 13:27:10 -0000

The amazing thing about the Internet is that its young enough that one needn't employ secondary sources. If you're familiar with Usenet then you should feel free to hit up groups like comp.lang.c, comp.unix.programmer, and various other pre-blog forums. There you'll find many of these same people you quote; certainly people they worked with.

Ultimately, what birthed the Internet is insight into the nature of cooperation: packet switching shares wires, "Internet" shares networks. Unix was developed at AT&T, but what made it the "Internet" operating system was shared labour at Berkeley and around the world. TCP, DNS, SMTP, FTP, HTTP, et al were originally designed and implemented as freely available, unencumbered software, and remains so, more-or-less. MS Windows, for instance, took the BSD Unix TCP/IP code and embedded it in its own OS. Internet Explorer, similarly, came from Mosaic, a freely available application.

Indeed, by "free" I don't mean "no price" (though often its concomitant when there's insufficient potential for value-add exploitation). I mean freely re-distributable, with unencumbered access to the source code. There's no better way to develop interoperable systems then to see the code of the other systems, as opposed to parsing an obtuse technical document.

Abstractly, this comes down to free movement of information. The Internet moves bits-and-bytes. But the real value is in fostering movement of bits-and-bytes which convey substantive information--knowledge--which enhances the capabilities of market actors in ways unimaginable to the previous walled garden structures.

Indeed, that knowledge is more accessible and mobile than ever before is the material support for anti-anti-trust positions. If economic actors were stymied by structural hinderances to free, *shared* information (so one cannot be defrauded--little "l"--by asymmetrical access to knowledge) there would be no ground to stand on.

Re: If This Is Monopoly In Action, Bring It On

Bill — Tue, 30 Oct 2007 12:31:29 -0000

The interesting thing about Intel and AMD is that AMD is the only other competitor who can compete with Intel unencumbered by patents. If AMD went under, then Intel would have a government enforced monopoly.

Fact of the matter is that (1) Intel makes most of its money from flash and (2) IBM sells more high-end chips. For historical reasons the global economy is highly dependent on Intel "x86" chips, though in quantity they're quite rare. No amount of academic hand-waving would easily extricate the market from Intel's grip if AMD went under. AMD until the past few quarters was actually incredible competitive, and profitable, despite amazing odds against them. Intel can subsidize their low prices with flash sales. When the economy downturns--like it is at the moment--AMD catches a worse cold.

If the capital markets were really so smart, AMD would have had more access to capital to expand their flash production (they are quite good chips producers, after all). Instead, they remain under the tutelage of Samsung, the largest manufacturer. And Intel has a large enough economy of scale to muscle through the extreme peaks and troughs in the flash and CPU markets.

These anti-trust arguments are better to make with widgets than at the bleeding end of the economy. If we're all so anti-government lets get rid of patent encumbrances. I'd vote for that, and in return would vote for dismantling the anti-trust machinery.

Or are we instead going to make the same tortured arguments people having been making for anti-trust: "Its complicated. We need them for the market to function properly. blah blah blah".

Re: If This Is Monopoly In Action, Bring It On

holymoly — Tue, 30 Oct 2007 10:45:46 -0000

John Dewey --

Thank you for a cogent and convincing argument. You caught me employing hyperbole, and I accept your gentle correction. Clearly, the Internet as we know it has been a joint public-private sector development with a complex history.

Cheers.

Re: If This Is Monopoly In Action, Bring It On

John Dewey — Tue, 30 Oct 2007 10:38:01 -0000

holymoly,

The origin of the internet is a subject of great controversy. The one book you cite is not the only opinion that matters.

Bob Taylor was one of two people at ARPA who decided to launch ARPANET. Here is Taylor's opinion:

"The ARPAnet was not an internet. An internet is a connection between two or more computer networks."

ARPANET was also not the first implementation of a packet switched network. Donald Davies in the UK first implemented a packet switch connecting a network of host computers.

Some historians credit AT&T with playing a key role in developing the internet. Certainly it was AT&T and not the government that developed digital switching. It was AT&T that developed UNIX, the operating system for both ARPANET and the internet. It was AAT&T that developed the C programming language that is basic to much interent software.

The previously mentioned Bob Taylor believes the internet started as a commercial application, not as a university or government funded project:

"I believe the first internet was created at Xerox PARC, circa '75, when we connected, via PUP, the Ethernet with the ARPAnet. PUP (PARC Universal Protocol) was instrumental later in defining TCP."

holymoly, I am not disputing the points you made about government-funded developments. But I do not accept your claim that the Federal Government developed the internet.

Others share this view:

So, who really invented the internet?

Re: If This Is Monopoly In Action, Bring It On

holymoly — Tue, 30 Oct 2007 10:20:53 -0000

Sam --

"Let us not forget other chip makers such a Motorola and also that many other chip companies exist that could make processors if they found it profitable."

They do, they just don't compete in Intel's territory (nor does Intel compete in Motorola's territory -- cell phone controllers). Hmmm... Maybe you should be asking yourself why the global market for logic chips seems to be so... well... "parceled" out (if you get my drift).

Re: If This Is Monopoly In Action, Bring It On

holymoly — Tue, 30 Oct 2007 10:15:18 -0000

Sam -

Since 1991, your Intel CPU has increased in speed 75-fold. Impressive!

But your RAM has increased 500-fold, and your HD storage has increased 3,365-fold.

I *love* real competition!

BTW -- I looked up muirgeo, and I'm honored to be compared to him/her.

Re: If This Is Monopoly In Action, Bring It On

Sam Grove — Tue, 30 Oct 2007 10:01:04 -0000

BTW, it is also interesting how the use of collective nouns leads people to hold 'the government' does this or that rather than actual people engaging in a process behind the curtain of 'the government' hence we can drop bombs on far off lands without ever suffering a pang of guilt or, especially, without ever having to be held accountable because 'the government' does, not actual real live people pulling triggers or punching buttons to launch armament against other people.

As far as processors, I would argue that they have become much cheaper when you consider inflation AND computing power.

I purchased my mother board and cpu in a combo deal for $130 dollars.

Let us not forget other chip makers such a Motorola and also that many other chip companies exist that could make processors if they found it profitable. Why would anyone think that only Intel and AMD have processor making capability?

Re: If This Is Monopoly In Action, Bring It On

holymoly — Tue, 30 Oct 2007 10:00:19 -0000

"I won't bother commenting on the other points, as they have been dealt with here a number of times before."

Inadequately, no doubt.

Re: If This Is Monopoly In Action, Bring It On

Sam Grove — Tue, 30 Oct 2007 09:48:24 -0000

I wondered what became of muirgeo.

Reincarnation!

Re: If This Is Monopoly In Action, Bring It On

Sam Grove — Tue, 30 Oct 2007 09:46:39 -0000

think of what a wonderful place the internet would be if AT&T owned all the fiber.

They once did own all the wire, thanks to government fiat.

I won't bother commenting on the other points, as they have been dealt with here a number of times before.

Re: If This Is Monopoly In Action, Bring It On

John Dewey — Tue, 30 Oct 2007 09:37:37 -0000

holymoly: "You know, that communications network developed by the Federal Government. "

Can you explain this, holymoly? Why do you say that the Federal Government developed the internet?

Re: If This Is Monopoly In Action, Bring It On

holymoly — Tue, 30 Oct 2007 06:17:36 -0000

wintercow20 --

"Assuredly a better place than if Uncle Sam owned it all."

Holy strawman, Batman! Who said anything about government ownership?

"And you seem to be overlooking the fact that even if AT&T owned all of the fiber, that would not prevent new companies from thinking of other ways to deliver internet services."

It wouldn't prevent them from inventing a magic time machine to go back and steal the plans for the erbium-doped fiber optic amplifier either.

Point being, any time anyone got close to investing significant capital in inventing such an alternative technology, a monopolist fiber-owner could push down the price of service enough to deter entry. Maybe 2 years down the road, someone gets lucky and invents a new magic technology that supplants the fiber -- but it may be 10, 20 or 100. In the mean-time, the monopolist earns rents by restricting supply and elevating price -- to the detriment of consumers and commerce overall.

Re: If This Is Monopoly In Action, Bring It On

wintercow20 — Tue, 30 Oct 2007 05:49:49 -0000

"think of what a wonderful place the internet would be if AT&T owned all the fiber."

Assuredly a better place than if Uncle Sam owned it all. Anyway, only a very few number of firms still own the fiber.

And you seem to be overlooking the fact that even if AT&T owned all of the fiber, that would not prevent new companies from thinking of other ways to deliver internet services ... perhaps wirelessly.

Re: If This Is Monopoly In Action, Bring It On

holymoly — Tue, 30 Oct 2007 04:01:09 -0000

Sam Grove:

The true counterfactual is unknown. Just think of what you'd actually be using now if there were real competition in the microchip industry. The hard-drive and memory industries are much more competitive -- and there's where the major gains have come. Sure, processors and memory controllers are faster now -- but I would argue that it's the advances in memory and storage that have propelled computing productivity.

BTW -- I'm guessing that in 1991 you probably weren't using the Internet as much as you are now. You know, that communications network developed by the Federal Government. Oh yeah -- the browser you're using to surf the internet is based on government-funded research. Oh, one more thing -- think of what a wonderful place the internet would be if AT&T owned all the fiber. Thank you Judge Greene!

Re: If This Is Monopoly In Action, Bring It On

vidyohs — Tue, 30 Oct 2007 02:16:49 -0000

HolyMoly,

I lost traction and careened off, but I am hanging tuff on the supply bend.

Gil,

Oh my Gawd! We agree. That is kind of what I was trying to say. In my view most of what we would call monopolies will exist in areas where desire or want is the ruling motivation for buying. Needs can be taken care of with relative simplicity and relatively cheaply (IMHO).

It matters not in the least if Norwegian Cruise lines is the only cruise line and can set its prices at whatever they want.....if you don't care about cruising and can live without it. The same holds true of Reliant Stadium and its fees for seeing a football game.....I have never gone and will never go....so the prices are irrelevant to me and I laugh at the people who bitch but still buy and go.

But we disagree about it being dangerous. Reliant stadium or Norwegian Crusie lines hold no power over me, they can only advertise. I am impervious to the inticements of advertising. I suggest that advertising is only dangerous to weak and uneducated minds, so don't fear monopolies in areas where you only have desire and not need.

Re: If This Is Monopoly In Action, Bring It On

Gil — Mon, 29 Oct 2007 22:00:25 -0000

Actually I thought the most dubious and dangerous monopoly (where the businesses in question are price-makers rather than price-takers) is that of an isolated locality. E.g., cruise ships, sports stadia, mountainous regions, etc., not so much the large-scale multinational corporation.

Re: If This Is Monopoly In Action, Bring It On

Sam Grove — Mon, 29 Oct 2007 21:06:31 -0000

When I got my first computer, way back in 1991, I spent $1,800 for a 33 MHz cpu, 4 MB of RAM, and 208 MB hard drive, and a 15" crt monitor. After years of minimal government interference in the computer technology market, my current system consists of a 2.5 GHz dual core cpu, 2G of RAM, two HDs totalling 700G of storage, a video card more powerful than my original computer, and an LCD monitor, all together which cost less than $700.

This enormous reduction in price despite the monopoly government's inflation induced devaluation of the dollar.

It's just amazing to hear people warn about the dangers of business monopoly, calling for our salvation by the one true monopoly, political government.

What a disconnect.

Re: If This Is Monopoly In Action, Bring It On

holymoly — Mon, 29 Oct 2007 18:36:36 -0000

Ladies and gentlemen... Vidyohs has just left the demand curve.

Re: If This Is Monopoly In Action, Bring It On

vidyohs — Mon, 29 Oct 2007 18:30:40 -0000

Don't know guys, you all talk over my head because I am just a simple guy that learned his economics in the street.

Predatory pricing, monopolies, etc.; Lions, Tigers, and Bears, oh my.

I discovered long ago that there are things I want and there are things I need.

The things I need are very damn few, and the things I want do not constitute a very long list. This simplifies my view on life and the world a whole lot.

I learned some time ago that when I go into a store, any store, I am not seeing prices. I am seeing offers.

There is a difference, and that difference is determined by me. It doesn't become a price until I accept it. This is true of a can of peas on the shelf of Walmart or that Mercedes on the showroom floor. What I found was that generally there is very little firm offers, virtually all is negotiable......oh yeah some people refuse to bend....but I have the choice of walking away because my needs are few and simple.

In fact I just laugh in a lot of cases and pull the money out of my wallet and wave it while telling the merchant, "See this, it is going down the street to someone else who will treat me the way I want to be treated." Some pretend they don't care, but most become more flexible, especially if their product, if sold, puts a lot of profit in their pocket.

You can say that they can predatory price me out of the market or monopolize so thoroughly that I can't help but buy from them, and I tell you it isn't true. There will always be an enterprising person willing to risk to bring me what I need cheaper than the monopolizers.....always.

The consumer has the money and therfore always has the ultimate power....so many people forget that or never learn it in the first place.

Modern electronic devices are wonderful and I enjoy them immensely, but I lived without them in the past and can still do so if necessary.

Re: If This Is Monopoly In Action, Bring It On

holymoly — Mon, 29 Oct 2007 18:25:59 -0000

M. Hodak -

I have no law credentials, so take with a grain of salt. But, my understanding is that since the Brooke Group case established the standard, there has not been a single instance of recoupment proven in a court of law in the U.S. There seem to be other Section 2 violations that are much easier to prove, so why should a plaintiff risk summary judgment by alleging predation? In Europe, I think they use the price-cost test (or per se standards in the case of a firm with established market power) in lieu of recoupment, so there would be no reason for a plaintiff to go that route (though I think arguments were made in the French Telecom case).

Does the failure to prove in a court of law mean that predation does not exist? No. The "beyond a reasonable doubt" standard applicable in a court of law is not applicable as a test of reality. Just ask O.J. Simpson.

"If you can't recoup, your case is poop."

Re: If This Is Monopoly In Action, Bring It On

True_liberal — Mon, 29 Oct 2007 18:20:27 -0000

It's well known that CVG (Cincinnati) has some of the highest to/from airfares in the US.

It's also well known that Delta has a near-monopoly on airline flights at CVG, and has been able to undercut any "pretenders" that have attempted to start up there.

But travelers also know that at least four other airports within 120 miles have much more competition, and lower fares; thus the long commute is often worth it.

Re: If This Is Monopoly In Action, Bring It On

M. Hodak — Mon, 29 Oct 2007 18:02:42 -0000

BTW - I'm aware that holymoly has also offered the argument of those who have given up on straight recoupment, i.e., "strategic" predation. But, I'd like to at least get agreement that the original theory of predation, i.e., recoupment after losses, i.e., the theory behind Don's post, is dead.

Re: If This Is Monopoly In Action, Bring It On

M. Hodak — Mon, 29 Oct 2007 17:54:44 -0000

"It's a toy-model argument..."

No, it's a testable hypothesis. Notwithstanding the arguably limited applicability of Don's airline industry example to microprocessors, Section 2 of the antitrust code has been around for over a century. That's plenty of time for an example of monopolistic recoupment to have been surfaced somewhere.

So, holymoly (or anyone else who'd like to show off their econ/law credentials), show me one example in the history of antitrust law--U.S. or European--where it was proved in court that a company even had a hope of recouping predatory losses. Just one, please.

Re: If This Is Monopoly In Action, Bring It On

holymoly — Mon, 29 Oct 2007 17:30:57 -0000

Chris -- so, when Intel launches its latest Xeon processor at $1100 per, is *that* their marginal cost? If so, when they cut their prices for that chip by 30% the following quarter (because AMD undercut them), is that their marginal cost too? Or do we see the p=MC in the next quarter, when Intel introduces a new high end chip and cuts the (formerly) latest and greatest Xeon price again?

Or did you mean long-run average cost?

Look, I would agree that there is competition between Intel and AMD. But they are dancing the dance of some lovely 3-player game (3rd player being the nascent competition) whose equilibrium hasn't been given a name yet. But I can pretty safely say that such equilibrium, when compared to a well-functioning market, entails higher total profits and (possibly -- I'm not as sanguine here) lower total innovation as well.

Re: If This Is Monopoly In Action, Bring It On

holymoly — Mon, 29 Oct 2007 17:20:40 -0000

Billy --

Seriously? You think that testimony is a persuasive "debunking" of predatory pricing? It's a toy-model argument about the airline industry (full of assertions and completely devoid of empirical content). First off, the argument does not consider predatory pricing as a threat/deterrent to entry. Second, it's a wee bit easier to purchase a bankrupt airline's equipment and gates than it is to reassemble (or assemble in the case of potential entrants) the R&D brainpower of a chip manufacturer. So, the testimony -- even if persuasive, would be completely inapplicable to this argument.