Monopolies: The mistake I keep seeing here (or just ignorance)

[luv2drnkbr]

In the many discussions about state v.s. free market on this forum, the one thing I keep running across is people claiming how if someone establishes a monopoly in a libertarian society, then everyone else in that market is screwed. Their reasoning is that anyone else trying to enter the field will get kicked out by the established monopoly. Recent example was oil companies (https://bitcointalk.org/index.php?topic=47747.msg568485#msg568485), where the claim is that starting your own oil company is now impossible, because established oil companies now have too much control over oil.

The mistake I keep seeing over and over and over (and over and over) is that people seem to think there is only one way to destroy a monopoly, which is to create a more competitive  business in the same market. There are actually two ways:

Outcompete the monopoly in their own market

OR

SUBSTITUTIONS

If a company has a monopoly on ALL soda (Coke, Sprite, 7-UP, etc) and prices go up too high, people substitute with drinking milk or juice.
If a company has a monopoly on all operating systems, people can substitute with built-in application platforms, like running Google Docs or Chrome apps on PCs regardless of the OS installed.
If a company has a monopoly on electricity (common, with public utilities being only options for running wires), people substitute by reducing power usage, buying generators, or using their own solar and wind generators.
If a company has a monopoly on cable TV, people substitute by buying satelite, or buying internet, only, and streaming TV through Hulu/Netflix.
If a company has a monopoly on oil, people can substitute by switching to natural gas, ethanol, or electric.

There once were monopolies on trains, typewriters, telephones, televisions, and a slew of other stuff, much of which we don't even use anymore. They were all killed by substitutions.
So, next time you want to bring up a point about how a monopoly you are thinking of is entrenched and can not be replaced by someone else selling the same stuff, PLEASE stop, remember the word "substitution," think, and see if there is anything else that people can use in place of that monopoly's product.

I've argued against the free market because my research has lead me to find many examples of its failings, but in all honestly I really really want to have my mind changed and see it work, because if it does work, it would be the best most efficient system.  I just don't know that it can.  But I really enjoyed that PDF you posted for me on the other thread, and I will be scouring the forum for your other posts.  I think I can learn a lot from you, and I will eagerly await your refutations of any points I may make arguing against you.

[luv2drnkbr]

It's like you people don't live in the real world or something.


What happens when the soda monopoly starts buying up the substitutes, running ad campaigns saying their substitutes are poisoned, etc?
How low do you think the barrier of entry for "electricity generation" is? Building and buying up solar panels and generators? Oh yeah, I've got spare parts for a turbine in my garage and several thousand dollars on hand for solar panels and batteries.
Cable TV? Really? What about companies like Comcast who have local monopolies all over the US? Do you think some entrepreneur will think to themselves "There might be some money here in starting my own ISP. Since Comcast won't let me use their network without paying, I better have a lot of cash upfront to lay my own fiber and install networking gear, plus enough extra money left over to absorb lots of losses when I have to sell my service at a loss when the previous monopoly tries to leverage their existing infrastructure and capital to price me out of the market,"

Sorry, won't happen. Business doesn't work that way. Fantasy world.
(Plus satellite, DSL/FIOS, web over electrical wires, wifi mesh, cell/4G network)

Say what!?  Yes they do!  Is this a troll joke or something?

[Rassah]

But I really enjoyed that PDF you posted for me on the other thread, and I will be scouring the forum for your other posts.  I think I can learn a lot from you, and I will eagerly await your refutations of any points I may make arguing against you.

That PDF wasn't me, it was Atlas. But thanks nonetheless for the compliment.

[Rassah]

Sorry, won't happen. Business doesn't work that way. Fantasy world.
(Plus satellite, DSL/FIOS, web over electrical wires, wifi mesh, cell/4G network)

Say what!?  Yes they do!  Is this a troll joke or something?

It sort of was. I didn't feel like debating JeffK on the details, so kinda blew him off with the least thought full and explanatory reply possible. It was kind of a retort to his almost "Nuh-uh! That's not how it is because I'm saying it's not!" replies.

[chickenado]

What if the substitute is inferior to the product offered by the monopolist?

I'm not saying this is always the case, but if if was it the utility-maximizing justification for state intervention would still be valid.

[Rassah]

What if the substitute is inferior to the product offered by the monopolist?

I'm not saying this is always the case, but if if was it the utility-maximizing justification for state intervention would still be valid.

Even if it was inferior, people switching away would force the monopolist to lower prices until they are more reasonable again, and there is a big risk that people will not switch back from the inferior product, and new support for it would give it the funds to be much better. Kodak and digital cameras is an example. Kodak had a massive market share for camera stuff (wasn't a monopoly, but was close), but people started switching to digital cameras, even if they only took 640x480 pics and stored them on floppies. Kodak really should have lowered prices to compete, or better, adopt the new digital camera technology, but they ignore it. With new money going into digital, Kodak was quickly overtaken and pretty much lost the camera market entirely.

[onesalt]

Substitutions generally don't work when they're extremely expensive to implement and use. A substitute for gasoline, for example, would involve fitting every petrol station in america with that technology, or starting competing filling stations with that technology to provide coverage to almost all of america. If it doesn't have good coverage from the outset, then people will be very reluctant to use it.

Also fyi ethanol fueled cars in Brazil are only prevalent because the government mandated and financed efforts to get the country off of oil after the 1973 oil crisis. in '76 the government then mandated that all fuel sold has to have some percentage of ethanol in it in order to reduce fuel usage further. Using Bioethanol in brazil as a marvel of private enterprise in substitution is therefore a retarded position to take since without the government of Brazil forcing companies and consumers to use bioethanol, it never would have occured.

also lol:

If a company has a monopoly on electricity (common, with public utilities being only options for running wires), people substitute by reducing power usage, buying generators, or using their own solar and wind generators.

This is hilarious since Generators are horrifically inefficient (larger plants are more efficient than smaller ones) and solar and wind generators are prohibitively expensive to build and fit and you would have extremely intermittent electricity, something which 99% of people would feel is unacceptable.

[Rassah]

Substitutions generally don't work when they're extremely expensive to implement and use. A substitute for gasoline, for example, would involve fitting every petrol station in america with that technology, or starting competing filling stations with that technology to provide coverage to almost all of america. If it doesn't have good coverage from the outset, then people will be very reluctant to use it.

Substitutions for gasoline:
Ethanol
Electric battery
Biodiesel
Compressed air
Hydrogen
Solar
Driving less
Taking the bus
Taking the train
Carpooling
Walking
Biking
Teleworking
Just not driving

Hope you get the picture. If you don't, substitution doesn't mean equivalent/similar thing. Email is substitution for paper letters through post office. The two are entirely unrelated technologies.

also lol:

If a company has a monopoly on electricity (common, with public utilities being only options for running wires), people substitute by reducing power usage, buying generators, or using their own solar and wind generators.

This is hilarious since Generators are horrifically inefficient (larger plants are more efficient than smaller ones) and solar and wind generators are prohibitively expensive to build and fit and you would have extremely intermittent electricity, something which 99% of people would feel is unacceptable.

Before you lol, ask, what is the point of having a more efficient generator or a cheaper solar/wing generator if electric power grids are good enough? No one is putting money into those technologies because everyone is happy with gov subsidised current ... uh... current (electricity). Only market for those technologies are fringe or specific needs users. If electricity goes up in price, those technologies will get a lot of cash dumped into them, and will quickly become cheaper and more efficient.
It's like, "lol! Computer mainframes are so massive, expensive, and inefficient! The idea that anyone would waste money on them instead of keeping records with pen and paper is hillarious."
Or, "lol! This is hillarious because self powered horse buggies are horribly noisy and inefficient, and are prohibitively expensive compared to a horse you just feed, plus 99% of the people don't have access to motor fuel"
By laughing without thinking, you only demonstrated how much of an idiot you are.

[DeathAndTaxes]

Substitutions for gasoline:
Ethanol
...
Just not driving

True but the point was valid.  Monopolies are more sustainable when there are high barriers to entry.  For example for a hydrogen car to be VIABLE (not just an inferior substitute for substitution sake) it would require massive infrastructure. 

Infrastructure the dominant technology (gasoline powered cars) has the benefit of decades of build out and hundreds of billions in subsidies since its inception.  That creates a high barrier to entry.  Now yes if gasoline tomorrow was $82 a gallon then barrier to entry or not you would see alternatives but when there is a high barrier to entry it allows monopolistic forces to drive prices higher but not so high as to make alternative infrastructure viable. 

For example (and these numbers are just for argument sake) lets say the non-taxed cost of production for a single gallon of gasoline at retail to be $3.00 per gallon.   However due to the need for massive infrastructure build-out the cost equivalent for hydrogen at retail would be $9.00 per gallon.  The high barrier to entry would allow the gasoline monopolies to sell gasoline at $5.00, $6.00, even $8.00 while still being superior to hydrogen car.

I agree with your OP when a free market exists but due to decades of prior subsidies and public infrastructure spending there are cases where the market isn't exactly free.   In my hypothetical example H2 needs to compete with highly subsidized (both currently and all prior subsidies) product.  Without those prior subsidies gasoline might be $6.00 per gallon and thus competition more viable.

[Rassah]

How much of a barrier to entry did email have to overcome to overtake the Post Office. How much of a barrier to entry is there for an electric plug in car you can charge at home? How much of a barrier to entry is there for Google Docs or MS Exchange to overcome for bringing your office home to you? Or for Skype or Magick Jack, or even cell phones to take out the phone land line monopoly? High barriers to entry only make sure that entering that specific technological nieche is difficult, but even then there are lots of parallel infrastructures that already exist, and many we haven't even thought of yet, that tend to allow monopolies a temporary existance at most. Actually, barriers to entry still follows the same "monopolies can only be replaced with similar stuff" thinking I was trying to address in my OP. Hell, I've been enjoying touring cities and museums around the world for free using Google Street view recently, and historic landmarks and museums are seemingly obvious monopoly infrastructures you can't move or replace. Who would've thought that Google's cameras would be a substitute for jet fuel, hotels, and museum tickets.

[DeathAndTaxes]

How much of a barrier to entry did email have to overcome to overtake the Post Office. How much of a barrier to entry is there for an electric plug in car you can charge at home? How much of a barrier to entry is there for Google Docs or MS Exchange to overcome for bringing your office home to you? Or for Skype or Majick Jack, or even cell phones to take out the phone land line monopoly? High barriers to entry only make sure that entering that specific technological niece is difficult, but even then there are lots of parallel infrastructures that already exist, and many we don't know about, that tend to allow monopolies a temporary existance at most. Actually, barriers to entry still follows the same "monopolies can only be replaced with similar stuff" thinking I was trying to address in my OP. Hell, I've been enjoying touring cities and museums around the world for free using Google Street view recently, and historic landmarks and museums are seemingly obvious monopoly infrastructures you can't move or replace. Who would've thought that Google's cameras would be a substitute for jet fuel, hotels, and museum tickets.

Email had a high barrier to entry but it was so MASSIVELY superior to post office that it was able to overcome that barrier to entry. If it had only been slightly better it wouldn't have displaced the entrenched and heavily subsidized competitor.  Which isn't exactly a free market.  H2 cars, or tele-pressence technology could overcome the artificial barrier that gasoline has, but just because it does doesn't invalidate that barrier and the reality that the barrier helps to insulate monopolies from technological advances.

High barriers to entry only make sure that entering that specific technological niece is difficult, but even then there are lots of parallel infrastructures

That is a false statement.  The rest of your examples have nothing to do w/ public infrastructures and the barrier gained by them.  I thought you were willing to be open minded and expand upon your original position.  I see you are simply an absolutist.  The world is made up of gray not black & white.

[Rassah]

It's true that there are barriers that can't be invalidated, but I don't see why we should care about those monopolies when much alternatives arise.
Phone land lines we're government controlled/subsidised monopolies. Other large infrastructure monopolies I can think of (and things disrupting them): Cable TV (Web based tv, satellite), Railroads (trucks and highways), MS Windows and IE (browser based OS independent cloud services and Chrome)... actually, I'm having trouble thinking up of any actual true monopolies. Even the US Military is out sourcing to private mercenaries. I can't think in black&white of monopoly or not. Every "monopoly" I can think of isn't one really.

[ALPHA.]

There is no middle. A service is either subsidized by force or it isn't.

[onesalt]

Substitutions generally don't work when they're extremely expensive to implement and use. A substitute for gasoline, for example, would involve fitting every petrol station in america with that technology, or starting competing filling stations with that technology to provide coverage to almost all of america. If it doesn't have good coverage from the outset, then people will be very reluctant to use it.

Substitutions for gasoline:
Ethanol
Electric battery
Biodiesel
Compressed air
Hydrogen
Solar
Driving less
Taking the bus
Taking the train
Carpooling
Walking
Biking
Teleworking
Just not driving

Hope you get the picture. If you don't, substitution doesn't mean equivalent/similar thing. Email is substitution for paper letters through post office. The two are entirely unrelated technologies.

All of which require either a massive change in lifestyle (which a lot of people would find annoying, especially if suddenly the bus service was overloaded by millions of other people doing the same thing) or such a massive investment either from you or infrastructure wise that it would unsustainable (Eg, every petrol station would need to provide ethanol, and the charging technology for electric cars which isn't a tremendous hassle (refueling a car is about equivilent to a 10MW power line running into it) hasn't even been invented yet). Substitution doesn't have to mean an equivalent or similar thing but it does however have to the same outcome as before you started.

also lol:

If a company has a monopoly on electricity (common, with public utilities being only options for running wires), people substitute by reducing power usage, buying generators, or using their own solar and wind generators.

This is hilarious since Generators are horrifically inefficient (larger plants are more efficient than smaller ones) and solar and wind generators are prohibitively expensive to build and fit and you would have extremely intermittent electricity, something which 99% of people would feel is unacceptable.

Before you lol, ask, what is the point of having a more efficient generator or a cheaper solar/wing generator if electric power grids are good enough? No one is putting money into those technologies because everyone is happy with gov subsidised current ... uh... current (electricity). Only market for those technologies are fringe or specific needs users. If electricity goes up in price, those technologies will get a lot of cash dumped into them, and will quickly become cheaper and more efficient.
It's like, "lol! Computer mainframes are so massive, expensive, and inefficient! The idea that anyone would waste money on them instead of keeping records with pen and paper is hillarious."
Or, "lol! This is hillarious because self powered horse buggies are horribly noisy and inefficient, and are prohibitively expensive compared to a horse you just feed, plus 99% of the people don't have access to motor fuel"
By laughing without thinking, you only demonstrated how much of an idiot you are.

[/quote]

The maximum possible thermal efficiency you can get for most diesel engines (no one uses gasoline for generators because gasoline is less energy dense and more of a hassle to run effectively because of the thermodynamic cycle it uses) is about 45%-55%. Most engines can get that quite easily since you can run an engine in a generator at any rpm and then just find the "sweet spot" of the best rpm/torque characteristics. However, with smaller engines you get bigger and bigger losses becuase you get a higher proportion of surface area to volume inside the pistons and so you get higher heat losses compared to the power output (which is bad) Unless you can find a way to invalidate the laws of thermodynamics by throwing money at it no one is going to magically make a more efficient generator that the ones we have now, really.

Incidently by saying no one puts money and research into generators you are showing how much of an idiot you are. Guess what cars use. Is it engines? My god! it is! guess part of the car gets more R and D money spent on it than any other part? Could it possibly be the engine? Gee, turns out it is. Generators are hardly fringe products either. Every single building or construction company will have a few in stock becuase the sheer hassle of getting mains electricity onto a construction site is so great that generators are a more attractive choice. Hospitals, Government buildings, police stations, fire stations and sometimes private residences (if the owner is wealthy enough) Will all have them too, since power isn't completely infallible and mission critical operations can go incredibly wrong without power (Like people dying because all of the life support systems died, or because then lights in the operating theatre went out)

Email is used because there is no barrier to entry apart from owning a computer, which most people will own for (at least) work purposes, Pen and paper isn't used because computer servers offer faster response times for finding, checking and writing reports (this one should be obvious I don't even know why you tried to use this as a rebuttal honestly), and frankly if I even have to describe the advantages of a motorised vehicle over a horse to you I'm going to assume you're brain damaged.

[ALPHA.]

I have one question:

Does a governing body invest the people's money into innovation better than the population acting freely?

[Hawker]

I have one question:

Does a governing body invest the people's money into innovation than the population acting freely?

Governments can jump start entire industries, for example jet engines and nuclear power.  But free market investment is preferable as the investor loses if the decision is bad whiel with government, the taxpayer loses.

[Rassah]

Substitutions for gasoline:
...

Hope you get the picture. If you don't, substitution doesn't mean equivalent/similar thing. Email is substitution for paper letters through post office. The two are entirely unrelated technologies.

All of which require either a massive change in lifestyle (which a lot of people would find annoying, especially if suddenly the bus service was overloaded by millions of other people doing the same thing) or such a massive investment either from you or infrastructure wise that it would unsustainable (Eg, every petrol station would need to provide ethanol, and the charging technology for electric cars which isn't a tremendous hassle (refueling a car is about equivilent to a 10MW power line running into it) hasn't even been invented yet). Substitution doesn't have to mean an equivalent or similar thing but it does however have to the same outcome as before you started.

You do realize that driving is actually a substitution for taking a train, right? No one imagined that an infrastructure like railroad tracks can be replaced. Yet it was, even despite the massive changes in lifestyle. Personally I still prefer trains, and hope someday they will replace cars again. Or at least that cars will not be necessary, because work could be done from anywhere online, and so few people need to travel that trains will be more than enough.

The maximum possible thermal ...blah-engines-blah... that the ones we have now, really.

Incidently by saying no one puts money and research into generators...blah-engine-based-generators-blah... because then lights in the operating theatre went out)

Again, you are only focusing on internal combustion engines, and the need for an engine, period. Sure, many businesses have generators, but only for emergencies. Barely any depend on them for their main source of power, and barely any personal houses have generators. Once generators become something people actually buy for their home as a main source of power, we will likely look at today's tech same way we look at typewriters now. Japan is working on a personal nuclear plant the size of a trailer that can be buried in the back yard. My university is working on a gassificator that turns garbage into combustible gas to generate power. Solar powered stirling engines are getting more research and may be becoming more efficient than photovoltaic cells. Houses are using more tech that lets them stay warm in the winter and cool in the summer without generating power. And that's just for electricity.
I am not arguing that there isn't a semi-monopoly on gasoline and internal combustion engines, I am arguing that this monopoly is as relevant as a monopoly on land lines, type writers, and horse buggy whips.

Email is used because there is no barrier to entry apart from owning a computer, which most people will own for (at least) work purposes, Pen and paper isn't used because computer servers offer faster response times for finding, checking and writing reports (this one should be obvious I don't even know why you tried to use this as a rebuttal honestly),

But according to your argument, the high barrier to entry for running a monopoly like the post office would not have allowed email to even exist!

and frankly if I even have to describe the advantages of a motorised vehicle over a horse to you I'm going to assume you're brain damaged.

But that's exactly what you have been doing: defending the modern equivalent of a horse by saying there are no substitutes for "horses," and the barrier to entry for "horses" is too high, ignoring the fact that within a few years, the modern equivalent of a horse monopoly is irrelevant.

[Vitalik Buterin]

If a company has a monopoly on ALL soda (Coke, Sprite, 7-UP, etc) and prices go up too high, people substitute with drinking milk or juice.

A hypothetical for the sake of discussion: What if the same soda company also had a monopoly on the dairy farms, orchards and even the distilleries?

I would open one up in my backyard, massively overhype it, and when they come to buy it up sell it to them for 100x what it's actually worth. Rinse and repeat until they're bankrupt.