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Monopoly

5 min read

Part of Regulation and the administrative state.

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Every episode (3)

Who argued it

Ryan Young ×2 · Bill Frezza

Big Tech · Antitrust · Section 230 · Free Speech · Regulatory Capture · Innovation

Background

Monopoly as a product of state planning

In the Venezuela episode, Ben Powell described a monopoly beer producer, Polar, whose inability to brew beer followed from government economic planning rather than from market power. Powell said the government did not allocate enough foreign exchange for the company to import barley, so it could not make the beer and the country ran out. He framed the case as the polar opposite of a market economy, noting that a socialist dictator would not let beer and toilet paper run out. Socialism… Still Not Cool (2019)

Defining monopoly under the Sherman Act

Bob Zadek opened the antitrust episode by distinguishing two paths to monopoly. The railroads, he said, became monopolies because the government made them monopolies and protected them in many ways, while Standard Oil became a monopoly, if it was one, through the cleverness of its business model and because Rockefeller and others grew by being good at what they did. Zadek then noted that the word monopoly appears in the Sherman Act of 1890 and that enforcers are told to use the statute to beat down monopolies without much guidance as to what that means. Antitrust 101 with Ryan Young (2019)

Ryan Young answered that the Sherman Act is two pages long and does not define what it means by monopoly, a source of confusion 130 years later. He gave the economist’s definition: a company powerful enough to lower its supply and raise its prices, making its product harder to get and more expensive, which harms consumers. But economists, he said, are not in charge of antitrust policy; judges decide cases under the Rule of Reason standard, using whatever definition of monopoly they find reasonable, with no bright-line standard and no way for a company to know whether it is in trouble. Zadek pressed the distinction between a company that can reduce supply and raise prices and one that does: is the mere power to do bad acts, never exercised, a monopoly and therefore a target? Young said that question has never been definitively answered and has been answered differently in different cases. Enforcement usually rests on past actions, but antitrust has a term, incipiency, for conditions that might in the future make monopoly possible; it has been invoked rarely, especially in the 1950s and 1960s. Zadek compared such a standard to a criminal statute punishing people for a higher than average likelihood of committing a crime, and asked whether federal law for 130 years has treated the mere power to interfere with the market as reason to break up an enterprise. Antitrust 101 with Ryan Young (2019)

Consumer loyalty and monopoly power

In the episode with Roger L. Martin, Zadek said he was profoundly loyal to Amazon because it gives him what he wants at the price he is willing to pay. Martin replied that this loyalty is what makes Amazon a monopoly, and that as companies become monopolies they start abusing the very customers they used to serve well. He said Amazon is already abusing Zadek by deceiving him as to what is the most recommended product, something it did not used to do. Martin advised buying only 50% or 60% of one’s goods from Amazon and buying from other online services and local stores, because a resilient environment is needed and it will be too late once the alternatives are destroyed. Zadek said he would give Amazon all his business and close his account when it started behaving like a monopolist; Martin answered that it would be too late. When More is Not Better (2021)

Political monopoly in California

Tom Campbell, described as a former Congressman, State Senator, and law and business school dean, told Zadek that economics teaches that monopoly is inefficient, resulting in less output and less opportunity, and that applying that learning to government reveals a self-perpetuating monopoly in which people with good ideas have no place to express them. He said the dominant party in California insists candidates adhere to an orthodoxy that does not admit sensible other points of view, that the Republican Party has become largely irrelevant, and that the monopoly party holds 77.5% of the Assembly and 75% of the State Senate and every state office. Restoring Common Sense to California (2021)

Campbell cited Public Policy Institute of California polling of registered voters: 56% of Democrats, 53% of Republicans, and 75% of independents said a third party was needed. He described the top-two primary as the mechanism that makes a challenge possible: with only two candidates on the November ballot, a Common Sense Party candidate could pick up the support Republicans, Libertarians, and independents might have had. He said identifying seven Assembly districts out of 80 would bring the monopoly party below two-thirds, the threshold at which it can raise taxes without the people’s approval and put constitutional amendments on the ballot without paying to gather signatures. Zadek observed that the country locks in this anti-competitive environment in politics with statutory protection, and that the Sherman and Clayton Antitrust Acts and the FTC would come down on a business doing the same. Restoring Common Sense to California (2021)

Across episodes

The Venezuela, antitrust, consumer-loyalty, and California episodes each touch the topic, but the episodes show no development of a single argument across them.

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