No it doesn't, and you just proved it. You managed it because you could fake you had leverage. But without that you were slaves of theses companies, and that's the general rule.
Sometimes I wonder if whoever writes these comments understands the words their using.
> No it doesn't, and you just proved it
What exactly did they prove? You didn't substantiate or explain this at all. Leverage would be relevant if they were negotiating a deal. They weren't. The company laid down fibre because of what they saw as a potential competitor (municipal fibre). The municipality didn't use the threat of fibre to come to terms with the monopolistic company. That would've been leverage. But they didn't, so it wasn't leverage. The municipality created the appearance of competition and the monopoly behaved accordingly as if there were a potential competitor.
They proved that the Free Market doesn't automatically provide functional competition, if you think about it, the Western-style free market is very keen on creating and maintaining monopolies, even cheating isn't going to help you here.
> The company laid down fibre because of what they saw as a potential competitor (municipal fibre).
The OP is about free market failures, not about competition. As another example, many people have pointed out that there is much more competition in China than in the US. Hope, this is enough for you to understand the difference.
Free markets tend toward monopoly which restricts individual people’s opportunities for action. In this example, there was a cable monopoly mentioned. The only way to coerce it (not even to defeat it in some way) was through baseless deception, not free market competitive action. The monopoly remained.
Not true and oversimplification. Some markets tend toward monopolies, but you rarely will get one unless enforced/protected by a state. If you navigate through history, you will find almost exclusively monopolies on salt extraction, coal mining oligopolies (with the help of worker unions), silk... Curiously, the Standard Oil was accused of being a monopoly, and the proof was they were offering lower prices than anyone thanks to their scale, destroying the competence. The reward for offering low prices was disolving the company (notice that they never reached the hypothetical price hike stage).
It is also common practice for the state to declare something "public utility" or "natural monopoly", on things like snail mail distribution, telephone or TV, that were clearly not a natural monopoly and could be offered by free market. Here fall a lot of ISPs, that get a "public utility" status and only then can abuse that monopolistic position with the help of the state.
A lot of free market sectors tend to atomization: think hair or nail saloons, masonry, plumbers, carpenters... if you know someone in the sector, it seems that as soon as they get a size over 5 or 6 people, two of them always decide to split and go by themselves.
You're right on most of these, but wrong on telephony. That actually was a natural monopoly.
It's exactly how OP describes it. It's unproductive for multiple companies to maintain disconnected, parallel telephone infrastructures. The most productive use of resources is to lay more wires to more houses, not to lay more wires to places which have already been wired up for telephone service by somebody else. That creates a monopoly, and the government should step in.
With modern tech, you can mandate local-loop unbundling and fix some of this, but that wasn't possible with 1970s (and earlier) phone infrastructure.
We use "natural monopoly" too freely and too quickly, almost as a free card to actually implement monopolies that last for decades. Anecdo-time: in my small city there is a small "natural" monopoly in public bus service: the municipality offers a monopoly on which buses can operate in the city, that lasts for 25 years or so. I lived through a renewal that was a bit rocky, the bus company went on a strike, and as a result there was a vacuum of monopoly for six months. That resulted in a flood of other companies, big and tiny (as in 1 bus only, serving 1 very demanded route), doing the routes. They were as cheap as it gets, offering month cards outrageously cheaper than previous public-natural-monopoly. It was so cheap, and the offer was so high that cars seemed to vanish from the city center, that was so full of buses that you didn't even check the timetable: you just waited for the next for 5 minutes.
Eventually the municipality renewed the previous contract with the same previous company, a contract that forbids other companies from entering the city center, and we went back to the worse service we were used to. Of course they were a lot of narratives: they were trying to capture the market, drive competence away and then hike the prices; they were bounded to bankrupcy at such prices; that many buses were damaging the roads, and others. But the reality was that for a brief time we had the best bus service in the modern world.
As for telephone wires, we went through some years, between copper-IDSN and fiber (the DSL bridge) that a lot of companies found a way to make it profitable to put new copper cable parallel to what it already existed. The only thing the municipality did was to make it mandatory that the first to install it must use a wider-than-needed conduct (a solution much less disruptive than giving a natural monopoly, latest shown by new small companies born everywhere), so if a company wanted to add more cable later could use the same tubing. Predictions about company A blocking their tubing showed false, as other companies could retaliate in other places. No second tubing was allowed until the first tube was full, this was the only state intervention in the issue. The same tubes have now the optic fiber.
I am not fully anti-state, but there are undeniable overreaching everywhere, and a lot of zealots of intervention that are itching to issue mandates and interfere with everything, and then fix what fails with more interventions.
The OP is about telecom. I took a look and learned [1]:
> The telecommunications industry in China is dominated by three state-run businesses: China Telecom, China Unicom and China Mobile.
A little slippery to bring China into the telecom free market discussion and contrast it with “Western-style” while failing to mention the structure of its telecom industry.
> The OP is about telecom. I took a look and learned [1]:
Untrue - in the context of the OP, telecom is just an example. Look at the title.
> The telecommunications industry in China is dominated by three state-run businesses: China Telecom, China Unicom and China Mobile.
"More competition" doesn't mean "no monopolization". Communications are political everywhere, I'd be surprised if they were a subject of less control in China than in the US. However, even on Amazon and even with tariffs, there's more competition between Chinese sellers than between sellers of other origins.
Markets are just a tool. This tool functions on information. OP explained how information (in this case, the rumor of a competitor laying fiber) caused action within the market.
> The only place monopolies tend to emerge is heavily regulated areas that allow for regulatory capture (laying fiber is a great example of this).
No, actually laying fiber is a great example of the problem with a free market.
It's not regulations that make it hard to put down fiber, it's property rights. Without some sort of regulation or government action (such as eminent domain) it's impossible to build out modern infrastructure. There will always be some person with property right in the way of a cable line. You can beg and plead with them to let you bury a line (including pointing out that it's very temporary disruption of soil) and they can still just say no.
It isn't unusual for a phone company that's looking at a difficult land owner to say "ok, screw it, we'll just have to take a 90 mile detour because the guy that owns that 500 yard strip won't let us bury here". Imagine how much harder that is if the land owner is related to or owns stock in a competitor company.
We have been able to lay as much fiber as we have in the US because there's a bunch of regulations around right of way that ultimately grants burying rights near public roads to utilities companies like ISPs. Without those, it'd be almost impossible.
If property rights are regulation, then so is anything that allows you to ignore them.
Once you get down to the level of property rights, the only alternative left is total might-makes-right anarchy.
Property rights are some of the earliest and most basic things protected by governments—indeed, to a large extent they precede governments, being protected with force by the people who wish to assert them.
Wipe out all regulations, all laws, all property rights, and try to run fiber across someone's property without their permission, and they're likely to come out with a shotgun and start shooting everyone digging. Follow the steps logically from that point, and you'll fairly quickly start reinventing governments and regulations.
Ok, let's imagine property rights are gone. Now it's impossible to build a fiber line without also employing an armed guard of that line. Sure, the open market allows for anyone to build out their lines where ever they like, but since we've eliminated all property rights and laws it means the most natural thing to do to your competition is sabotage.
That means if you are a new comer, you have to employ significant military strength to guard and defend your line going in. Otherwise, existing powers will simply stomp it out as soon as they get a whiff that someone is trying to compete with them. That, or they'll simply take your line by force.
That is probably the most difficult form of entry because it requires someone to be independently very wealthy before they could dream of putting in new infrastructure and it requires them to enforce their own property rights since there's no government doing that.
Are you an anarco-communist by chance? That's about the only group I'm aware of that would advocate for the complete elimination of property rights, but they also usually don't advocate for a "free market".
The "only" place monopolies tend to emerge in is any market with a significant barrier to entry. Regulatory regime can be one such barrier, but e.g. up-front capital costs and network effects are other barriers to entry that can and will lead to monopolies.
It is well known that individual businessmen often want to reduce competition, because it's best for them. That is why the government's important role in the free market is to promote competition. But just because the market is imperfect and can be captured without the government making sure that people play fair, does not mean that the free market is "a lie" as TFA claims. It means that it's imperfect, as are all human endeavors.
So this shows competition works, but I thought the original post was about the free market. When the two companies were asked to fill a need for the people, they refused, and the people were not otherwise about to independently provide the service based on their own funds. I feel as though if the only way of getting companies to do something without organic competition is to use underhanded methods (such as lying about another competitor), then the free market has some places for improvement, no?
Competition works up to a certain point its best for short term returns and not for long term as the time and capital investment increases the chances of monopolies forming increases. This is the reason why I think most public infrastructure should be invested in and owned by the government. Let companies compete on building, running and maintaining it.
> ...one day, one of the municipal counselors just called up a friend who worked for a fiber laying company and asked them for a favor: put out a press release saying that they were “investigating” laying an undersea fiber to power a municipal fiber network on the little island.
They called in a favor that put pressure on the company from public expectations.
Yes. What do you think happens in a competitive marketplace? Sony heard about Nintendo partnering up with Philips for the SNES CD expansion, so Sony made their own console. That's literally competition.
The details of how the "public pressure" came to be don't matter, because the monopoly didn't know about that. All they knew was there was a potential competitor, so they behaved according to that information. That's how it works.
Maybe i misinterpreted the original comment, but having the government step in to pressure a company is not usually what i find people mean when they talk about competitive markets. Let alone when the pressure is through a side channel.
Frankly, I think you're trying to poke holes in a straightforward concept. And now you've dug your heels in and you're trying to justify it. But... let's ignore opinions and interpretations...
> Sony heard about Nintendo partnering up with Philips for the SNES CD expansion, so Sony made their own console
This is completely inaccurate in every way possible. You even have the order of events backwards (Nintendo and Sony partnered first). There is in no way in which even the most charitable interpretation of this statement could bear out. Just about the only correct part is that you have some (but not all!) of the relevant parties involved.
If you're wrong about such a well documented, cut and dry matter of historical record, then what else are you wrong about? :)
> That isn’t actually refuting his original argument. Just proving his example false.
Correct. It is extremely false. And it's an extremely well documented event, as well.
> Then you beg the question with a bit of a straw man fallacy thrown in.
I expressed my opinion. I did not misrepresent that person's argument (i didn't represent it at all). As for begging the question, well, I'm not sure what you're referring to, unless you mean the intensely cut and dry sequence of historical events? In which case... well, they're so unaligned with reality that it's comical.
I don't understand this line of thinking. The spreading of a false rumor is an example of a competitive marketplace? If this took place in a different domain wouldn't it be fraud? That it was in the public benefit seems orthogonal.
Yes, if a simple unsubstantiated rumor is enough to get your competitors to spend potentially millions of dollars to fight you, that's a competition. Literally what else could it be?
It can be two things, anyways. You can utilize fraud to manage your competitors expectations. CEOs lie constantly about the state their products are in, in order to drum up more sales.
It has absolutely zero requirement to be beneficial to the public in order to be a competitive marketplace. They're also competing to make as much profit as possible, which has effectively zero benefit for the public.
Plenty of cheap stuff is a consequence of companies interested in people's money and, yes, presence of at least nominal competition between providers (i.e. they can be essentially a cartel, mirrioring each other exactly, but each still wants to step into other's money supply and retain its own). Choice for customer is present but also equally nominal.
In deficit economy, economic agents aren't really interested in people's money, and competition is between consumers - who'll bid higher and offer something of real interest to provider. So providers hoard stuff and there are long lines.
Benefit for public is not a boolean, it's a spectrum. Lots of cheap poor stuff readily availible is better than having to compete for stuff, but less good than having choice between cheap poor stuff and more expensive better stuff, for example. For the latter, you need non-nominal competition and providers having to compete whithin the market, not outside of it, and also each individual provider having infinitesimal effect on whole market.
"Companies optimize to make as much money as possible, which is why there is cheap stuff" does not logically follow. I get what you're saying, but it's not related to the concept of companies trying to make as much profit as possible. Some will simply chase higher profit margins.
>That's constrained by the Law of Supply and Demand.
Law of supply and demand works in the really free market, when providers are essentially infinitesimal and are not able to exert their will upon consumers. If a single provider is capable of significantly affecting the prices and supply of the whole market, it can bend law of supply and demand.
>Standard Oil gained great profits by reducing the price of kerosene by 70%.
They (I suppose, don't know for sure) had plenty of margin for that, and as price-demand relation is not linear, increase of volume was larger than margin reduction.
That is often not the case, and race to (quality) bottom and shrinkflation happens.
The math doesn't support this. There is great confusion about this point. Imagine, for example, that there are people that want to buy one unit of a product made by a monopoly that is a greedy corporation trying to maximize profits. And to keep things simple, make everything discreet in dollars.
10 people are willing to pay $2
5 people are willing to pay $3
1 person is willing to pay $4
and no one is able or willing to pay more than $4
So this would be the demand curve.
Now, let's do the supply curve. Keep it simple and assume a constant cost of production equal to $1 per unit.
The question is, if you are a greedy corporation, then how much should you charge to maximize your profits?
You should charge $2.
At that price, you will make $10 selling to the poors, $5 selling to the middle, and $1 selling to the rich. $16 bucks in profit for the greedy corporation.
If you charged $3, you would make $10 in profit selling to the middle, and $2 in profit selling to the rich, for only $12 in profit.
12 < 16. The greedy monopoly prefers $16 in profit to $12 in profit. That's why it lowers prices.
If you charged $4, you would make only $3 in profit.
3 < 16
In other words, it is profit maximization + law of demand + law of one price that drives down prices in the face of a demand curve.
People get this all wrong, they think that it requires perfect competition or some set of unobtainable market assumptions to make stuff affordable, it does not. It's just the law of demand (charge more and you get fewer customers) plus the law of one price (everyone pays the same amount).
This is why things like government subsidies to the poor to help them buy stuff actually drives prices up. It's why businesses wage an eternal war to be able to price discriminate. Health care, for example, would be much more affordable if hospitals had to post their prices and could not charge different rates to different people based on what they could squeeze from their insurance or based on how much money they had. It's why programs to help the poor by giving them more cash to buy stuff end up making things unaffordable for everyone else. It's why section 8 rental subsidies drive up rents. It's why during the covid subsidies, the new car price index went up from 147 to 188, but after the imposition of tariffs, it didn't change at all. So much of the world is explained just by some simple math, the law of one price, and the law of demand.
Because the companies are already charging the most to maximize their profits. They are not charities. Whenever a business says "if I have to pay this extra tax, it will just drive up prices", then ask them "Are you a charity? If you could charge more, then why aren't you charging more now? If you can't charge more now, why do you think you will be able to charge more tomorrow?"
Now, I'm not saying that there is no relationship between costs and prices, and that everything is set purely by demand and the law of one price. To get supply in there, you need more assumptions about the type of competition and the cost curve. But in general, supply only enters into the picture in that if you raise a firm's costs, then some firms go out of business because they can't pay the higher costs, and for the firms that are left, there is less competition, and it is this reduced competition that allows (some) of the increase costs to be passed on to consumers.
Always remember -- firms are already charging the most they can possibly charge in order to maximize total profits. That's the normal state of affairs, and it is what drives prices lower. Whether you are modeling a monopoly, or monopolistic competition, or an oligopoly, or perfect competition, it does not matter. They always charge the most they can possibly charge, and the law of demand, working with the law of one price, drives prices down.
Except it doesn’t scale at all like this. There are companies selling sandwiches on private jets for $150/ea. Some people sell a candle for $5 at Target while others sell them for $45 at a farmer’s market. If you’re making websites for a living, it’s common advice to raise your prices to keep away people who aren’t very serious or who will balk at every expense.
There are countless companies working with excellent profit margins.
None of those are monopolies, unless you consider someone selling a sandwich on a particular plane as a monopoly and the people on the plane are your market, in which case it is exactly this situation, and why that sandwich doesn't cost $100.
So instead of trying to think of complications, you need to first understand the argument, and then you can see it everywhere once you understand it.
I’m simply saying it’s incorrect to assume that everything everywhere is as cheap as possible. This is true in MANY INDUSTRIES, but not everywhere, and it’s absolutely nothing like a rule.
You, I think, are tying it into a larger discussion about monopolies, but I’m not sure that makes sense because if you’re a monopoly, you don’t have competitors to beat on price, so you again would not charge the least amount possible. That makes no sense.
> I’m simply saying it’s incorrect to assume that everything everywhere is as cheap as possible.
This is a non-sequitur. Please read the post and reply to what I wrote (or don't reply) - not to whatever ghosts are dancing in your head. I think the combination of you not understanding what I wrote, yet somehow getting triggered by it, and then launching on a debate with a interlocutor that exists only in your mind is the reason why you are objecting to things I said by providing examples that solidify my case.
lol, what other weird fantasies do you have about how I'm reacting? Relax buddy. I do not have to engage with your entire comment, I can comment on a specific part, or even just talk about something it reminds me of, as it turns out. If that's too much for you to handle, stop commenting? I dunno.
I really just didn't care much about most of what you had to say, because it was based entirely on an incorrect premise. I skipped like 80% of it.
But in the case of the grand parent the company had no intention of following through and did it seemingly at the request of the friend.
> one day, one of the municipal counselors just called up a friend who worked for a fiber laying company and asked them for a favor: put out a press release saying that they were “investigating” laying an undersea fiber to power a municipal fiber network on the little island.
Sometimes commenters all over the internet write like this because they just got incredibly jealous after reading the parent post. I've been thinking more and more about how most posts are jealous or depressed outtakes against the world, system, or other person. This fundamental human behavior won't change, and is as reflexive as a monopolistic company reacting to a press release, proving the parent correct despite their scathing response of the child.
It's worth noting that 4chan and Reddit also live here because both sites are insufferable.
I don't know. I feel like "price fixing until maybe there was a hint of competition" is pretty far from frictionless sphere, supply and demand economics.
Competition was possible but was not working. A fake news brief is the supposed solution. That's not really competition actually lowering prices. That's the price fixing regime blinking for an unsubstantiated reason.
It would be a different story if the friend's fiber laying company actually saw an opportunity and pursued it, but they didn't.
ISPs and other extremely capital intensive industries with a relatively fixed demand are always going to be warped markets. Nobody thinks they’re a spherical cow.
Despite that, the single mechanism that works so well in a competitive market, the threat of competition, (this time) worked just the same in a 2 person market where you would expect the inefficiencies of a price fixing regime and for all decisions and investments to have to pass through (and have funds allocated to) an army of lawyers, politicians and special interest groups.
That is objectively what happened and reframing it into a negative light is a choice grounded in emotion and not analysis.
Have you ever taken an economics course? Nobody finishes a basic micro/macro course without an introduction to game theory. Game theory is the EXACT reason that N=2,3,4 markets struggle with competition and provide insights into the regulation and “rules” needed for markets with very low suppler cardinality.
You thinking that anyone else expects a local ISP market to function efficiently and competitively is a failure of your own understanding, not of the system.
This is a perfect example of competition in microeconomics. If you've only been exposed to an introductory economics, you've missed out on a lot.
This type of situation sounds like an amalgamation of a few exam questions from my first year of an econ PhD. "Cheap talk in a Bertrand market with entry costs and capacity constraints" or something. No I haven't worked it out but my intuition is that it would predict exactly what was observed: the threat of a new entrant with enough capacity risks loosing your entire business so you invest to expand your capacity to prevent that entry.
The problem isn't that econ PhDs don't have classes giving more nuanced views of the world, but the fact that people spend so much time with “introductory economics” that even Nobel prices will make nonsensical arguments based on those flawed concepts.
It seems that spending several years working with models assuming that the earth is flat isn't being well compensated by one class on “imperfect flatness”.
(I've contemplated doing an econ PhD myself before changing course, and I've been exposed to much more than econ 101).
Ironically, during the anti-trust trial of Standard Oil, Rockefeller's market share kept slipping. His competitors figured out how to compete with him.
As for Rockefeller being a "robber", the rise of Standard Oil resulted in the price of kerosene dropping 70%.
If technical advances make cost go down 90% but prices only goes down by 70%, someone is making tons of money at the expense of consumers.
That's what happened with the telco by the way, the price is is still significantly lower than 40 years ago, but in the US it's still more expensive than it should.
The cartel setting a price is still subject to the Law of Supply and Demand. The Law is not about setting a price, it is about how much sales you're going to get at a particular price point.
Maximizing the price is not the same thing at all as maximizing profit. Standard Oil made more money by reducing prices, not maximizing them.
There are many instances of “the” law, but your argument basically boils down to “who cares about markets, monopolies are good” which is a strange take.
> As for Rockefeller being a "robber", the rise of Standard Oil resulted in the price of kerosene dropping 70%.
This is your quote right? Now tell me how this doesn't resemble the “fabrication” above?
And indeed it follows from my reply as well: if setting prices independently from costs is OK, then monopolies are good. Because market competition is lauded for preventing exactly that.
Falling prices is not always indicative of a well-functioning competitive market.
Rockefeller was known to deliberately lose money to undercut his competitors and put them out of business. With enough scale, a near-monopoly can provide irrational predatory pricing long enough make competitors insolvent. In between, it looks like the near monopoly is losing market share while prices drop.
Without taking the larger context, it's easy to misconstrue the long-term anti-competitive systemic effects.
Nor did Rockefeller eliminate his competitors. He never got more than a 90% market share. SO was not tried for being a monopoly, it was tried for trying to create one.
SO's market share sank during the trial, as Rockefeller's competitors learned how to compete with him.
See "Titan" by Chernow.
> With enough scale, a near-monopoly can provide irrational predatory pricing long enough make competitors insolvent.
The reason this doesn't work is if X has 10 times the market share of Y, if X wants to lose money to hurt Y, X loses 10 times the money that Y loses. I.e. the larger the market share of X is, the proportionately more money is lost trying to undercut Y.
Chernow is more of a laity source than an academic one. Fun to read, but it’s not a strong source. He tends to over emphasize the efficiency side and neglect the logistical barriers to entry and many would consider Chernows thesis incomplete.
If your claim is that someone needs to have 100% market to be anti-competitive, we’re talking past each other. I know HN can have relatively high levels of binary thinking, but the real world is more complicated and nuanced.
X doesn’t have to perpetually lose money, just long enough to put Y out of business. Modern definitions of predatory pricing did not exist at the time, but that is essentially what Standard Oil was found guilty of in their day. They can also lose market share as new markets emerge but that doesn’t undermine the monopoly argument. If I have a utility in TX and another utility opens in CA, my regulated monopoly is still intact.
The court case found SO used local aggressive price cutting until competitors were driven out. That’s why they were broken up. I don’t think there is court evidence whether they lost money (although there’s speculation) in those cases because that standard wasn’t established until later antitrust cases. But once competitors were gone SO raised prices. SO still meet the threshold for monopolistic operation.
Yes, SO had a lower cost structure in many cases. But efficiency is not the determining factor for antitrust behavior. That’s the chink in Chernows perspective: he focuses almost solely of efficiency argument and ignores the larger context.
And not to be snarky, but that’s the same pattern you take whether you defend Rockefeller, Musk, or any other business magnate. There’s a narrative you identify with and you’ll stick to it almost to the point of circular reasoning.
Interestingly enough, all the examples you cited are being produced by Asian brands, where the various governments have specific policies designed to make companies actually engage in such a competition in order to take over the world markets.
Now do banking, retail, real estate, insurance, healthcare, software, or any business where Asian governments are not actively subsidizing a race to the bottom competition and you'll see it how it works.
Software is easy - look at the App Store. Every piece of software and even the console market is moving away from pay once to shady pay to win mechanics.
Google and Facebook make most of their money by giving things away and selling to advertising.
The biggest retail stores squeeze their suppliers and compete on prices, healthcare everywhere else except the asinine system in the US is government backed.
The fast food places compete on price and “fast casual” that costs slightly more are dying
