Tim Wu Insists That Market Domination Is A Monopoly
from the um,-no dept
So we recently posted about Tim Wu's claims that the internet is filled with "monopolies," by noting that just being successful and dominating a market does not, in fact, create a monopoly on that market. Wu himself appears to have stopped by and made the following comment, which he asks us to "post... somewhere visible." Hopefully a new post will do the trick:A firm that dominates a market is a monopoly. End of story. That is the definition of a monopoly. It is not necessarily an illegal monopoly, or a problem, but that's a different issue. It is, however, clearly a monopoly by any standard definition.Now, I like Tim and agree with a lot of the stuff he says. But sometimes he goes out on a limb, and this is one time where I think he's just wrong. If we look at the basic definition of monopoly, you see that it's about having an exclusive situation -- being the only seller in the market, or having exclusive control. If that's the definition of monopoly, then Wu's claims that Google and Facebook are monopolies is clearly wrong. Neither company is the exclusive seller or has exclusive control over the markets they're in. And yet, I think most people agree that both companies "dominate" their markets.
In looking through some other definitions of monopoly as well, I only found one that included the word "dominate" and it's from Wiktionary, stating: " To dominate something by excluding everyone else." So that's a case where dominate is in the definition of monopoly, but it's conditional. It's not saying all domination of a market is a monopoly, but if you dominate by excluding everyone else. Again, I don't see how Google and Facebook are excluding anyone.
There are plenty of "monopolies" to be concerned about these days. But I think Wu is making a mistake in claiming that these services are monopolies.
Thank you for reading this Techdirt post. With so many things competing for everyone’s attention these days, we really appreciate you giving us your time. We work hard every day to put quality content out there for our community.
Techdirt is one of the few remaining truly independent media outlets. We do not have a giant corporation behind us, and we rely heavily on our community to support us, in an age when advertisers are increasingly uninterested in sponsoring small, independent sites — especially a site like ours that is unwilling to pull punches in its reporting and analysis.
While other websites have resorted to paywalls, registration requirements, and increasingly annoying/intrusive advertising, we have always kept Techdirt open and available to anyone. But in order to continue doing so, we need your support. We offer a variety of ways for our readers to support us, from direct donations to special subscriptions and cool merchandise — and every little bit helps. Thank you.
–The Techdirt Team
Filed Under: competition, information, monopolies, tim wu
Reader Comments
Subscribe: RSS
View by: Time | Thread
[ link to this | view in chronology ]
Re:
[ link to this | view in chronology ]
Re:
I've always used the term natural monopoly for this. There are industries where monopolies exist because they are the best company doing the job.
Monopolies have good and bad. Typically, they became a monopoly because they are efficient at what they do and deliver the best value.
They are bad in the sense that they gave up flexibility to gain that level of efficiency. Also, when a company uses its position to influence the market in other ways. An example of this would be Wal-mart. They control about 60% of the retail market. If Wal-mart wants you to switch boxes to better fit on their shelves, you change boxes. If they want you to cut prices, you cut prices.
That's how a dog food exec decides this low grade, non-inspected meat is good to put in dog food.
Monopolies aren't always bad. In fact, our government sometimes grants and enforces monopolies in some areas.
[ link to this | view in chronology ]
A monopoly is greater than 98% market share and less than or equal to five suppliers in the market. Or something like that. Point being that in a free market, to be a monopoly by pure dominance requires a tremendous share. Otherwise you're just a really good market leader.
To be a monoply without meeting that criteria, a firm would have to at least a) engage in anticompetitive behavior (ssuch as with vendor ccontracts), b) create artificial barriers to entry (regulations), and c) actively work to exclude rivals (overly broad patents). It's the abuse of market dominance, not the dominance itself, which is detrimental and monopolistic.
[ link to this | view in chronology ]
Monopoly light?
You are wrong when you claim they can never be effective monopolies.
Monopolies are only impossible when they are in pure competition, therefore there is no chance that they can collectively impact public law. Unfortunately, as we have all seen over and over again, they can.
The reason copyright is so terrible is precisely because of these "monopolies that are not actually monopolies." They are only around because legacy businesses (which are not, strictly speaking, monopolies, though they are oligarchies) are able to push through laws that only benefit their own interests.
Yet because there are more than one of them (and because we're supposed to believe they "compete" rather than collaborate), we're supposed to believe that consumers are benefiting from competition, and not suffering because of a monopoly (even though that "monopoly" is held by a trade and not a single business).
If I wasn't so aware of major label contracts, this might be convincing. But, unfortunately, it's not.
[ link to this | view in chronology ]
Re: Monopoly light?
[ link to this | view in chronology ]
Re: Monopoly light?
I don't believe I've ever made that claim. If these firms were to turn into effective monopolies, I would be concerned. But I haven't seen evidence of that happening.
[ link to this | view in chronology ]
Re: Re: Monopoly light?
Microsoft?
Okay, that's computer software, not the web. Still - it makes economic sense to form a monopoly, so if it's possible to do so, it will happen.
At the moment, the nature of the web makes monopolies impossible (since no service is excludable). But if COICA is passed, then the web will be a petri dish for monopolies. Wu's concerns may be overblown right now, but it's possible they won't be, and very soon.
[ link to this | view in chronology ]
Not to mention that google and facebook have all the best talent in the world atm.
So yeah, you are free to compete buy why bother.
[ link to this | view in chronology ]
Re:
My first thought was: for the sake of competition; without it, only one party controls the benefits of market transactions, and that one party usually isn't you.
I then realized an optimistic restatement of the question: why compete when you can disrupt and create your own market?
[ link to this | view in chronology ]
Re:
Not to mention that google and facebook have all the best talent in the world atm.
So yeah, you are free to compete buy why bother.
Historically, the exact same argument was made against IBM... and then Microsoft came along.
Historically, the exact same argument was made against Microsoft... and then Google came along.
Historically, the exact same argument was made against Friendster and MySpace... and then Facebook came along.
Point being that the competition almost always shows up, and the argument that they have all the "talent" or "money" never seems to hold up. Big companies act like big companies and employees who actually have innovative ideas go elsewhere to try them out.
I find it hard to believe that after seeing so many other firms that had such a big lead only to be taken down by innovators, that we've some how reached the end of progress where other new companies can't do the same.
[ link to this | view in chronology ]
Re: Re:
[ link to this | view in chronology ]
it's much more simple
when they aren't? oh, it's monopoly, it's horrible, it's damaging to the consumer! etc. dominating the market is just fearmongering as usual
same old story has gone around for thousands of years in one form or another.
[ link to this | view in chronology ]
How the government defines it
http://www.justice.gov/atr/public/reports/236681.pdf
[ link to this | view in chronology ]
All I can say is that I've seen "monopoly" used to mean "near monopoly" (an overwhelmingly dominant position) a number of times, even among the technically well-informed. It's a part of colloquial usage.
[ link to this | view in chronology ]
Re:
[ link to this | view in chronology ]
[ link to this | view in chronology ]
Re:
[ link to this | view in chronology ]
Why don't we list some of them
Taxi cab monopolies, cableco monopolies, bogus patents, unreasonable copyrights laws, airwave spectra monopolies, monopolies on power distribution (electricity), monopolies on who can put mail in mailboxes, all of which are government imposed.
Google, Facebook (though they have filed questionable lawsuits in the past so maybe they're not exactly the best example), are emblematic of exactly what's right with free market capitalism, which is exactly why those who benefit from govt imposed monopolies and can't compete in the free market keep complaining.
[ link to this | view in chronology ]
What monopolies ??
If that was the case, you would be able to show some examples of such.. Like some monopolies that are there because of a government granted right.
Or even a monopoly that is based on a single copyright or patent..
You wont be able to do it, because that is a nieve strawman argument..
If you create a movie, you DO NOT have a monopoly on that movie, you have a right for that movie, you can try to make money off it, or sell it or do what you like with it.
But there is not government granted right for you to profit from that movie, or to restrict anyone else from watching another movie, or spending their money on something entirely different.
Sounds like the old cold war days, where instead of a "red" under the bed, there are monopilists everywhere !!.
But if I asked any of you to list 5 monopolies that they know off, would they really be able to provide that list ?
Market dominance is created by the market, not by the company, its because the majority of people are willing to use a product that creates the market. Its the buyers who make the market.
That is why microsoft does so well, that is why MS is not a monopoly, as far as I can tell I do not HAVE to buy MS products, I can buy many other competing products, therefore not a monopoly.
Its also not monopoly as I do not have to spend my money on software at all.
But if you HAVE to use paper for your living, to survive, and there is only one supplier of paper, and you cannot get that product from any other source, and you HAVE to have it, then that is a monopoly, as no matter what price of the product if you have to have it and cant get it from another source, you have to pay what the ask..
that is the illegal monopoly, and is similar with collusion and market fixing by non-monopoly's.
So to say a movie is 'a monopoly' is silly, it is not, it would be if you HAD to watch a movie, and it was THE ONLY MOVIE in existance.
I think they can be considered monopolies not in the traditional sense but more like a seemingly impossible mountain to climb.
That would mean you cant compete because you cannot do the stuff as good as them.. fair enough. but that is not a monopoly, there is nothing stopping your from competing, except your own ability..
You might as well just be happy to reward their ability to create something like that, and accept that you cannot.
But being able to not compete because you cant do stuff as good is not an excuse for you to have have patents, or copyright...
[ link to this | view in chronology ]
Re: What monopolies ??
[ link to this | view in chronology ]
Re: What monopolies ??
This story has nothing to do with patents and copyright.
But, just to humor Darryl:
"The saying there shall be no monopolies lessens the incitements to ingenuity, which is spurred on by the hope of a monopoly for a limited time, as of 14 years; but the benefit even of limited monopolies is too doubtful to be opposed to that of their general suppression." -- Thomas Jefferson, talking about patents.
According to Darryl, Thomas Jefferson "would have to be stupid" for thinking patents are a monopoly.
[ link to this | view in chronology ]
Re: What monopolies ??
Like the bogus Tivo patents? This has given them the license to sue any rivals. Then there are various "interface" sorts of standards like those related to game consoles or even stupid nonsense like the Windows 95 disk format.
Giving a the first entrant into the market a monopoly to exploit is what patents do.
Only a fool would dispute that. The real question is whether or not such encumberances are good public policy or not?
There is a patent world war going on in the mobile space right now. Some of it's legitimate. Some of it's bogus. All of it is destructive. Even the "good patents" serve to retard progress.
[ link to this | view in chronology ]
Re: What monopolies ??
Copyright law says that the copyright holder of a movie can forbid others from manufacturing and selling thier own copies of that movie. In other words the monopoly is on that movie and not the motion picture market as a whole.
Furthermore copyrights give oppertunities for monopolies on much broade markets than just the one for that one product. For example Microsoft threatening higher prices for windows licenses if the OEM tries to sell product lines with another os/no OS installed, thus bullying copetitors out of the market. This would have been much harder to do without copyright law in place.
[ link to this | view in chronology ]
I don't necessarily think Facebook is in a position that will let it keep its monopoly for ever, but I do think it's got a pretty decent monopoly position at the moment (complete with pretty significant barriers to entry for any competitors because of this "all my friends are on Facebook" effect).
[ link to this | view in chronology ]
Proprietary interfaces
[ link to this | view in chronology ]
Any and every textbook on this stuff acknowledges that copyright is a monopoly right. Every single one. And try not to be rude to the people who disagree with you.
Ask yourself this: I write a book - from the moment I finish the last page, who else has the right to sell that book without my permission?
The answer is absolutely no-one. My copyright over what I've created gives me a monopoly on the distribution of that book. No-one (no third party with a photocopier, no publisher) can sell or distribute the book unless I decide to grant them a license.
You might be saying "Well of course they can't - you wrote the book," and that's another point, but the question of whether a monopoly is morally right has no bearing on the question of whether it legally exists.
By your own example, anyone who wants to buy the book I wrote would have to come to me to buy it. There is absolutely no-one else who can sell the book, unless I decide to grant them permission. If anyone else started selling the book I could have them banned and demand the money they made be paid back to me.
The examples of "monopolies that are there because of a government granted right" you're looking for would be every single copyright granted in the last hundred years, for starters. They're government-granted because they're totally artificial and purely created by the law.
Yes, lots of different places will sell DVDs of whatever Hollywood blockbuster - but the only reason they can do that is because the copyright holder has seen fit to let them. Copyright is a monopoly right.
I also think you're wrong when you say that a monopoly only exists if you have to buy a particular item. It's entirely possible for one company to have a monopoly on the sale of bread (for any reason you want to imagine), even though you could theoretically decide to live without bread. That point is that if you wanted it, you would have to go to source X.
(I now see that Mike Masnick has dealt with this since I started writing, which is what I get for putting together an essay... but why stop at "labouring the point" when you can work it to death, I always say) xxx
[ link to this | view in chronology ]
I guess one question I would ask is:
If someone else came in and offered an adword like service at half the price, would Google's prices fall ?
Or do google determine the terms for the market generally ?
[ link to this | view in chronology ]
Monopoly, redux
"The existence of ... [monopoly] power may ordinarily may be inferred by the predominant share of the market." United States v. Grimmell, 384 U.S. 562 (1966).
“Absent other pertinent factors, a share significantly larger than 55% has been required to established prima facie market power.” United States v. Dentsply Intern., Inc., 399 F. 3d 181 (3d Cir 2005).
As much as I like user-generated content, the place to understand the legal concept of monopoly is not Wikitionary but the decisions of the federal courts. The idea that a dominant share of the market infers monopoly power is not some invention of mine, but rather the Supreme Court's and it is relied on by the United States Justice Department and Federal Trade Commission.
The usual presumption in the caselaw is that market dominance - a market share over some amount, like 70% -- suffices to create a presumption of monopoly power.
For more cases so holding, see United States v. E.I. du Pont de Nemours and Co., 351 U.S. 377 (1956); United States v. Microsoft Corp., 253 F. 3d 34 (D.C. Cir. 2001); Fineman v. Armstrong World Industries, Inc., 980 F. 2d 171(3d. Cir. 1992) (“A predominant share of the market, or a lesser market share combined with other relevant factors, may suffice to demonstrate monopoly power.”)
Technically speaking, the courts are inferring monopoly power - the ability to exclude competition - from the dominance of the firm. The presumption of monopoly power can be rebutted; by showing for example, that absence of barriers of entry means that the firm does not hold the power its market share suggests.
It is fair game to argue that matters SHOULD be different. Some economists have criticized the presumption I’m speaking of, and insist on a more complex look at multiple factors. You can also argue that, in high tech industries, dominant monopolies should be left alone to be destroyed by eventual competition. That’s fine, and a good subject for debate.
But arguing that dominant market share doesn’t, in American law, lead to an inference of monopoly is simply a mistake.
[ link to this | view in chronology ]
Re: Monopoly, redux
Based on this, it appears that you are willfully misleading people, using a word where you are using the legal definition, and tricking people into believing you mean the common, every day definition.
That's a serious problem.
Tim, I support a lot of what you do, but this borders on blatant propaganda.
[ link to this | view in chronology ]
Re: Re: Monopoly, redux
[ link to this | view in chronology ]
Re: Monopoly, redux
Such as it being worth @ 10 million dollars for spilling hot coffee on yourself. Yes, the courts are full of logic.
[ link to this | view in chronology ]
Re: Monopoly, redux
So... market dominance is not necessarily a monopoly.
[ link to this | view in chronology ]
I think your strongest arguments are this. First, that the barriers to entry for, say, Facebook or Google are so low that it doesn't have monopoly power. But even this is tough: Facebook, in particular, has the advantage of network effects, and Google has economies of scale on its side.
The alternative is to say that the markets are different; that the market for Google isn't "search engines" but rather something like "search" in general, including search on PC, not just the Internet. Plausible, but still weak.
[ link to this | view in chronology ]
Re:
and there is nothing wrong with that, it's these advantages that enable them to provide customers with a better product at a better price, which is fine. It's good for the customers and good for the company, it's a win win situation. If the status quo begin to abuse their power by providing a worse service at a worse price then newcomers will naturally see this is an opportunity to enter the market being that they can now compete with the worse product. So the potential for newcomers to enter the market ensures a good level of quality.
[ link to this | view in chronology ]
Re: Re:
The customer simply should not be trapped BY ANYTHING. Customers should be free to move from vendor to vendor at any time of their choosing. No one should ever be "trapped". At that point, the vendor doing the trapping has unnatural market power.
Network effects severely inhibit the ability of new competitors to enter a market.
[ link to this | view in chronology ]
Thomas Jefferson So he is the final word OK, here are some more of his words.
He said that "no society can make a perpetual constitution or even a perpetual law.
"Every constitution then, and every law, naturally expires at the end of nineteen years. If it is to be enforced longer, it is an act of force, and not of right."
This is a good one..
Corporations Jefferson in 1816 wrote to George Logan,
In this respect England exhibits the most remarkable phenomenon in the universe in the contrast between the profligacy of it's government and the probity of it's citizens. And accordingly it is now exhibiting an example of the truth of the maxim that virtue & interest are inseparable. It ends, as might have been expected, in the ruin of it's people, but this ruin will fall heaviest, as it ought to fall on that hereditary aristocracy which has for generations been preparing the catastrophe. I hope we shall take warning from the example and crush in it's birth the aristocracy of our monied corporations which dare already to challenge our government to a trial of strength and bid defiance to the laws of our country.
He could of been talking about the US sub-prime market, or the US Government's borrowings off china in modern times.
As there is a massive contrast between the profligacy of its governments and the probity of it's citizens..
Mike if you actually believe what you say, then you will have no problems listing what patents have created a monopoly, and what monopolies exist. It should be trivial for you to do. but you dont.
You just talk in general, never giving real examples, and quoting people who lived over 200 years ago..
How about something modern, from the massive list of patents, you should be able to list all those monopilies those patents have granted.
But you cant, can you mike, because you are talking crap, if you have any real world example you would cite them, immediately.. but you cant, so therefore you dont..
Mike you MUST know at some level, deep down that what you claim is not true, you cannot ever find examples of what you claim. But defend it with more talk, and 200 year old quotes.
Give us ONE example, of a patent created monopoly.
Or an example where a patent has stopped or reduced innovation.
You always say it happens all the time, if that was true, you would be able to feed your plebs with a constant stream of this occuring..
But you dont,, and you dont for one simple reason, you cant..
Obviously, if you were capable of showing examples of your 'claims' you would show them. failing that, you just say it is so, and hope people will believe you.. some do.. most probably dont..
[ link to this | view in chronology ]
Re: Thomas Jefferson So he is the final word OK, here are some more of his words.
Patents don't "create" a monopoly, they ARE a monopoly.
You always say it happens all the time, if that was true, you would be able to feed your plebs with a constant stream of this occuring..
Have you even read this site? Darryl, we point to examples of patents being used to hold back innovation all the time. And, again, this is totally off-topic on this post.
[ link to this | view in chronology ]
Mike, you're only "correct" by hard-line semantics.
And your keee-jerk support of Google at every turn is quite obvious.
The clear goal of Google and Facebook IS to have monopolies. Google in particular is a monster branching out into dozens of areas, including energy, one example of which is buying up power cables from future off-shore wind farms. Tell me how that relates to their corporate charter, and that they aren't preparing to BE a monopoly from energy to entertainment.
[ link to this | view in chronology ]
Re: Mike, you're only "correct" by hard-line semantics.
Your post assumes that the market cannot change rapidly to: include new capabilities/offerings or b) reward better or revolutionary ways of meeting customer needs.
I'm sorry, but if you understood anything about the lifecycle of a business, you would understand that being a large, well-established business in the "maintenance" phase of its life is precisely what makes them vulnerable--the inability to innovate and move to market the way a new entrant can.
I have seen no evidence that you or Mr. Wu have provided that explain what the true barrier for entrance is, other than: "I can't see what the next great innovation is, so it must not exist."
[ link to this | view in chronology ]
Re: Re: Mike, you're only "correct" by hard-line semantics.
> into the marketplace against Microsoft?
So I can get some Linux machines at Best Buy now can I?
From the point of view of the average "man on the street",
Linux doesn't exist at all. Now Linux has done very well
in other areas including large corporate servers and small
embedded devices. However, these are markets that were never
dominated by Microsoft. Desktop MS-DOS network effects really didn't have the same significance.
Also, pointing to Linux as "proof of competition" is really quite absurd since it is not a market entity. It is not something that was created to be bought and sold like OS/2 or BeOS or DR-DOS or the Atari ST or the Amiga or even AIX.
If Free Software is what you point to to claim that the free market is healthy, then you most definitely have a monopoly on your hands.
[ link to this | view in chronology ]
Re: Re: Re: Mike, you're only "correct" by hard-line semantics.
Add that in with the servers, nadroid based phones, tvs and dozens of other things sold with linux as a component/preinstalled and you see that old tux has a fairly sizable market presence.(and yes, I know that system 76 isn't the only seller of linux PCs but they're on my mind most becuase they only do linux boxen)
[ link to this | view in chronology ]
Re: Mike, you're only "correct" by hard-line semantics.
It's not about Google or Facebook, it's about any business. An effective monopoly is the "grand unification theory" of business, the ultimate goal, the ne plus ultra of capitalism.
Any business that attains a significant market share will attempt to force out their competition through law. It's not even like they have a choice in the matter: if they don't do it, they believe they'll be sued by their shareholders.
That's why attaining a significant marketing share is so dangerous. It may not actually be a monopoly, but sooner or later, it will turn into one.
Now, I love Google, and Facebook is OK (relatively speaking). But absent any laws against restraining others, they will eventually turn into Microsoft. Simply because they're a business, and their primary motivation is to make money.
It's one of the (few) areas where I disagree with Techdirt. Take net neutrality laws, for example. Mike claims that with greater competition, those laws are unnecessary. I agree that greater competition should be a high priority; but I don't think it's enough to prevent monopolies in the long run.
[ link to this | view in chronology ]
Re: Re: Mike, you're only "correct" by hard-line semantics.
Microsoft does benefit from a lot of bad laws though (ie: their patent portfolio that enables them to better "negotiate" with others and that makes it more difficult for competitors to compete along with very long copy protection terms that essentially makes their software never enter the public domain, or by the time it does it will not be recognized by any computer or processor of the time).
[ link to this | view in chronology ]
Re: Re: Mike, you're only "correct" by hard-line semantics.
[ link to this | view in chronology ]
When you are talking about dominating a market, I think the important thing to note is who is granting this superior position.
If the power to dominate is granted by government(s), laws, or some other barrier, that is cause for concern.
If the dominance is created by a large portion of the populace choosing a particular item or service -- not because they have no other choice, but because they prefer it (such as in the case of Facebook vs MySpace, iPod vs Zune, etc.) -- then there is less cause for concern. Facebook can dominate the market, but if they start making changes that make it less attractive to users than other offerings, they can quickly lose their dominance. The public, after all, is extremely fickle.
The kind of monopoly most people are concerned with are the ones where the monopolist no longer needs to compete with others due to the power the monopoly provides. If a true monopolist egregiously abuses their position the public usually has little or no choice but to accept these abuses and continue dealing with the monopolist. I don't believe Facebook could get away with that kind of behavior for very long without losing most of their customer base to other options.
Granted, Facebook would have a lot more wiggle room to push boundaries without largescale defections than a much smaller player, but that doesn't mean they have the power of a true monopolist.
Piranha and guppies are both fish, but that doesn't mean I'm going to be afraid of getting eaten by the guppies.
However, expanding the use of the word "monopoly" to include large numbers of benign entities only serves to lessen the impact of the word when used in its more meaningful context. In other words, sure you can probably get away with calling most of the internet a monopoly...but why would you want to? What do we gain in doing so?
[ link to this | view in chronology ]
Voting in the Tyrant
The problem with voting in the tyrant is then everyone including the minority has to put up with that tyrant.
[ link to this | view in chronology ]
Re: Voting in the Tyrant
I know plenty of people who don't use Facebook at all. Some use MySpace, some use twitter, some even use flickr. Others don't use any form of social networking at all.
If all of your friends choose to meet up at the same club every Friday night, does that mean that club automatically has a monopoly, or has done anything wrong? It may feel like you are being forced to go to that club, but in reality you have choices: you can go to the club to be with your friends; you can try and convince your friends to go somewhere else; or you can go somewhere else (or nowhere at all) and not be with your friends.
Of course, the nice thing about the internet is that you can have a Facebook page AND a MySpace, flickr, etc. page. You can check in on your friends at each. Or not. Your choice.
[ link to this | view in chronology ]
[ link to this | view in chronology ]
Post
[ link to this | view in chronology ]