EvilMonopoly/Talk

SunirShah -- Mon Sep 21 17:23:29 2009

Careful now. Prejudging a monopoly as evil will narrow your own ability to understand how they are successful and where there are opportunities to disrupt them. Note that production costs are only a small fraction of total costs of a company. A typical tech company might have overhead, operations, marketing, cost of goods sold and R&D.

The R&D part is important. In tech, "stable" monopolies increase the amount of innovation in the market. ([Etro, 2004]) because tech monopolies are inherently unstable (cf the InnovatorsDilemma?).

HelmutLeitner -- Mon Sep 21 18:06:15 2009

Sunir, of course I see production costs as overall costs including all overheads. I've changed the wording accordingly.

The prime example for an EvilMonopoly is probably Microsoft (typical revenue/turnover ratio of 40%). It is very doubtful that its market-dominance increased innovation.

Of course, "evil" is used in the wiki naming tradition, should be understood with a grain of salt, like VotingIsEvil or LoginsAreEvil.

RadomirDopieralski -- Mon Sep 21 18:57:15 2009

One way to build a monopoly is to create an environment in which other businesses will benefit from your (only your) company. This way you earn a huge lobbying power, as the small companies will defend you to sustain themselves. They can be resellers or subcontractors, but also, as seen more recently, SEO specialists. In order to break such a monopoly, you first need to give those small businesses a viable alternative -- and building it as the second one is much harder.

HelmutLeitner -- Tue Sep 22 06:00:19 2009

Another example for an EvilMonopoly is Amazon, in its domination position towards book print pushlishers (taking about 55% of turnover, which is severely damaging to many publishers), and towards newspaper and magazine publishers with respect to the emerging e-book market (taking 70% of the turnover).

Rumours have it that the newspaper publishers pledge Apple to enter the e-book market to increase competition and improve their conditions of collaboration (share of turnover).

BTW I love my new Amazon kindle DX. And I'm a happy customer of Amazon for more than 15 years, currently ordering about once a week.

NathanielThurston -- Tue Sep 22 08:36:35 2009

Another example of an evil monopoly is EBay. Explaining how EBay is evil is not so easy:

I was victim to a clever kind of fraud in this community: I ordered some toner for my printer. The advertising for the toner was designed to gloss over the difference between two kinds of toner cartridge, the "full" ones that are common, and the "half-full" ones that come with HP's low-end printers. Needless to say, I thought I was ordering the full kind, and received the half-full kind.

When I complained, the seller immediately offered me a refund. I refused, as due to my remote location the shipping costs would have made a refund uneconomical for me. I took up the dispute with ebay's dispute resolution service; they mechanically offered me the same refund. I took up the dispute with SquareTrade?; they didn't take action. I left negative feedback for this person, and he left negative feedback for me; a short while later, he made an offer that we should both withdraw the feedback; I refused. I did some research into this seller's feedback, and found dozens of similar complaints from other people who had been burned when buying the same item from this seller, buried within a mountain of people who said that they thought he was "just great"

There are two evil games in evidence here. One is the seller's game: his trick depends on some observations:

people rarely notice the difference between the two kinds of toner cartridge, even when they have received it
The ebay rules insist that a reversal of the trade be accepted as sufficient compensation for deceptive or incomplete advertising.
Most people, out of concern for their own ability to do business in the marketplace, accept offers to withdraw mutual public criticism.

In other words, the seller's scam was designed to circumvent the rules. There is a simple work-around: regardless of the percentage of positive feedback your would-be trading partner has received (mine had 98% positive), scan their negative feedback for informative complaints.

EBay's evil game is simpler - they say, here are the rules, we will enforce them, while turning a deaf ear toward scams which work within the framework of their rules. It's a kind of group-think -- and in my observation GroupThink seems to be almost universal in the for-profit corporate environment. Was this the real innovative impulse by IBM: not to protect their standard? Is not-protection an innovation?

RadomirDopieralski -- Tue Sep 22 23:07:14 2009

I'm not sure it's the monopolistic feature of EBay that is "evil" in what you described. I think that happens every time you try to solve a social problem with mechanistic rules, like any kind of automated trust metric. It also happens offline, and monopolies have nothing to do with it, unless you feel that the monopolist is obliged to protect you from this somehow.

SunirShah -- Wed Sep 23 02:38:38 2009

Microsoft is a bullshit company but it has delivered the PersonalComputer? revolution they had promised. Criticisizing them for not innovating seems to me like how fish cannot see the water.

SunirShah -- Wed Sep 23 03:17:37 2009

I think the real problem with monopolies is their power to shape the market to suit their needs and thereby further consolidate their power. Longstanding monopolies have managed to structure the market to necessarily flow through them. For instance Elsevier owns the major journals like Science and Nature. Because every university needs these journals Elsevier can bundle them with oodles if undesirable journals and charge a hefty subscription for the privilege. Further the whole of academia is addicted to journals as the means to achieve tenure. That's why Elsevier keeps buying journals. If they own everything they can charge what they like.

Unfortunately the SarbanesOxley? act in the United States has made it prohibitively expensive to go public which in combination with the stench of the DotBomb? has wiped out the IPO market. This means that venture backed companies are highly pressured to sell to the large (often already public) incumbants as their only means of exiting. This situation has distorted the whole economy to further entrench monopolies and stifle renewing innovation. I do not see the US fixing this problem soon but they will pay for it by the trillions of dollars.

HelmutLeitner -- Wed Sep 23 05:38:44 2009

Sunir, it's easy to extend this naturally using PatternTheory. A monopoly can be considered a pattern, that solves problems in a certain context (for example it creates a reliable standard, it can create a solid market foundation) but that can (and often does) turn into an AntiPattern, when the time advances. So one could talk about the Monopoly-Pattern, a Good-Monopoly and an Evil-Monopoly.

Microsoft is an endless story and I won't delve into that. Probably there is a lot of myths and misinformation. As an old dog I was actually at the pulse of that development, working projects on Apple II and Commodore PET (the last predecessors of the PC) and on the IBM PC and the Sirius (the superiour competitor to the PC of the first two years). At that time, you were probably just born. We could discuss this endlessly to no effect. We just have no tools to measure and attribute innovations. The Sirius was technically better and much more innovative than the IBM PC, but lost due to the Power of IBM and maybe WorseIsBetter. Both ran MS-DOS. And MS-DOS ran many, many years. MS-DOS was not innovative, it was the right product at the right time. Microsoft neither made the PC, nor did it create MS-DOS. Basically it rode on the monopoly of IBM, and the only reason that this way possible (and Microsoft not inhaled by IBM), was that Bill Gates mother, who had tight relationships to the head of IBM, kept his back free. IBM, having a monopoly on the "big iron" at the time, subdued and delayed the PC innovation, not to hurt its own products. So it was InnovationOverdue?. Bill Gates wanted to see his product on every desk, and he was the marketing man to get the message heard. Is that the fundamental innovation of Microsoft, a vision? WhatIsInnovation? ?

By the way, even the success of Microsoft and the PC revolution can be seen as having an EvilMonopoly as background: the unsound 70% market domination of IBM probably 1950-1985. One fault ruined their empire, they didn't protect the IBM PC sufficiently by patents, so that clone PCs became first possible, then dominant. This was the biggest impulse for innovation: neither to protect the PC architecture nor its operating system. Is this innovation?

NathanielThurston -- Wed Sep 23 07:37:30 2009

Perhaps a better way to regulate monopolies would be to be on alert for attempts to shape the market to consolidate their power; and when such an attempt is confirmed, to offer the leaders of the company (executives and board members) the choice between:

a period of public scrutiny
resignation from the company

The period of public scrutiny would also apply to newly-appointed executives and trustees.

The idea is that the enforced period of public executive scrutiny would directly address the company's ability to repeat their monopolistic behavior, without damaging its ability to provide the services needed by its clients.

RadomirDopieralski -- Wed Sep 23 22:49:47 2009

That's not really possible. First of all, there are millions of areas where innovating companies are creating an environment for their future business. They are necessarily monopolies, because they do what nobody else did before. And they get to decide how to do it -- to shape the market to their advantage. The ones that don't manage to do that fail and bankrupt, or are bought by the larger ones that do. You simply don't have enough public to scrutinize them all. Second, they create a new market, they have to shape it somehow. It's terra incognita, you can't really tell if the way they have chosen to shape it (thorugh guessing, intuition, vision, whatever) is really the best, or just the best for their monopoly. It often is both. The history knows a lot of suboptimal choice that were forced on companies by anti-monopoly laws. As Helmut says, monopoly is a pattern for solving a certain set of problems, and introduces another set of problems as a result. A tool. Depriving yourself of an important tool just because it can be dangerous doesn't look like a smart move. Fortunately it's beyound our control.

NathanielThurston -- Thu Sep 24 13:45:18 2009

Radomir, I didn't mean to change the way in which monopolistic activity is detected and confirmed. The important idea is about what to do about it when monopolistic activity is confirmed by a jury.