I have seen this allegation raised often whenever a large corporation buys out a smaller one. For instance, take Electronic Arts (EA) and the lengthy lists of video game studios they have bought the rights to, then shut down. To a lot of people, this is an example of how big monopolies in capitalism apparently buy out their competitors and reduce variety of choice for the consumer:
Take this one quote I've found from a forum:
It's just business as usual. Buy your competitors and then shut them down. The overall quality of available product slowly drops so people are obliged to patronize the only publishers left standing. Expect EA to continue to do this as they build momentum (and cash) until there are only two or three publishers left.
This is a common misconception for many, as they look in the entertainment industry among many others and see a handful of giant firms that own nearly everything. How would you counter this fear as an Austrian? How could you disprove the notion that in a liberalized economy such practices would not 'endanger' the range of choice consumers have, or for that matter, that even in the mixed economy we have that such fears are unfounded?
First, you must prove that companies like EA are not limiting the choices of consumers through these practices.
I don't think those complaining about Electronic Farts buying out their competitors are aware of how many patents they hold.
The state has really helped build them up to the point where they're able to do this. It's the same thing with Ubi Soft. They receive so much in subsidies from the French government that they don't have to worry about quality or about pissing gamers off with invasive DRM.
The state has reduced the quality of video games to shit.
Firstly there are obviously many anti-free market barriers to entry. It must be understood that the market is extremely hampered everywhere across the globe (some places more than others) and to simply blame things on the free market makes little sense, since the free market is not allowed to exist.
Now to turn to the particular example. If the small companies that are being bought and shut down were profitable (satisfied the consumer more than they cost), it is a ridiculous business decision to shut them down and a huge waste of money to buy and then shut down companies. If they were profitable, it's worth continuing to fund them and make money from them, while if they were unprofitable, there's no point buying them since they would go out of business anyway, and you are only wasting your own money in shutting them down (plus, what's to stop their former developers simply forming a new company? See e.g. the ex-developers of Rare essentially doing this and making a couple successful titles). The complaint is probably just the usual objection to the decisions of the literary market (Mises discusses this in The Anti-Capitalistic Mentality). EA probably satisfies consumer's demands far more than these small companies do - the whole complaint against them is likely just the whining of entitled fanboys.
On the issue of the possibility of standards slipping as a result of these takeovers, there is always the threat of competition in the free market and if there is a lack of competition it is due to government strangulation and due to the lack of a free market. Look at what happened about 30 years ago to Atari. They were the dominant company in the video game market, but they let their quality slip and sought to cash-in on gimmicks like poorly made movie tie-ins, i.e. the game ET. Well, what happened? People stopped buying. They got refunds on their pre-orders. Atari went bust. Then what followed? Nintendo appeared on the scene with quality games and the concept of the 'seal of quality' - only games that satisfied the company's quality standards were licensed for the NES console, and so people were less apprehensive about spending hard-earned cash on crappy games (the internet wasn't around then, of course, so it was a lot harder to find information about the quality of games). The NES, released in 1983, was the best selling video game console of all time until sometime in the late 90's when the Sony PlayStation surpassed it - and this was of course with a smaller world population and a smaller customer base in the video game market overall.
@OP
Have you heard of Valve and Steam? Valve thrives on publishing other companies products, and most of those other companies are actually small indie companies. Even if EA is trying to buyout and close the competition, Valve is there to counteract this and make a profit.
@ gotlucky: I think people would then say something like:
What's to stop EA from buying out Valve? *something else implying that in the future there will only be EA and companies they hate that own everything*
Cortes:[...] To a lot of people, this is an example of how big monopolies in capitalism apparently buy out their competitors and reduce variety of choice for the consumer: [...]
Intellectual property issues aside, the sellers now have money to start another business to serve customers. The classic example are the oil refiners that would sell out to Standrad Oil then use the money to start another refinery and then sell out to Standard Oil again. During the process, the oil price went down and oil supply went up.
To paraphrase Marc Faber: We're all doomed, but that doesn't mean that we can't make money in the process. Rabbi Lapin: "Let's make bricks!" Stephan Kinsella: "Say you and I both want to make a German chocolate cake."
Valve's a privately held company. It can't simply be bought, not by hostile takeover anyway.
I'll refer you to part i and ii of this Robert LeFevre talk on the fears of monopoly, which as he says, is actually the fear of high prices:
http://mises.org/media/1158/The-Fear-of-Monopoly-Part-One
http://mises.org/media/1159/The-Fear-of-Monopoly-Part-Two
@Cortes
Why would Gabe Newell sell Valve to EA? A large part of Valve's revenue comes from publishing indie games. Newell is estimated to be worth $1.5 billion. Why would he sell Valve with the kind of revenue it pulls in is nearly $1 billion? And I'm not even sure the decision is entirely up to Newell anyway. But even if it were, he completely loves his baby.
The whole argument is irrelevant. The decrease in quality/quantity of games, so long as these games are demanded, means that there's a greater incentive for new studios to open up. This is especially true since there's now all of the old game developers who are now out of a job and can be gobbled up by new companies. The fact is that a lot of the games produced have always been pretty crappy and not worth purchasing. For each generation of gaming there are perhaps 40 games of real quality produced, the rest tends to be imitations of quality games or simply shovelware (on consoles at least, mobile devices are becoming a different story).
At any rate, video games, under IP laws or no, cannot resist the basic laws of the market, even if a single firm can gain a partial monopoly price from restricting the games produced, this makes an opportunity for new firms to enter the market and receive a sizeable profit for doing so and the corrupt the monopoly the larger this opportunity is. Furthermore with a whole generation of gamers who, wisely or unwisely, are attempting to enter the industry, as well as a highly active news community and a consumer base that tends to be highly connected to the internet, and with a history of exceedingly successful "Indie" material from originally insignificant firms (see the recent success of minecraft and most handheld games out there). This means there's no significant barriers in terms of either labor or of getting the name out there. It truly is, for the most part, a quality based industry, even more so than film in many ways. For an industry which gravitates naturally towards monopolistic competition, it's competitive to the point of being as competitive as that type of market structure gets.
A monopoly can only be instituted by the use of force. Force takes many forms: State-sanctioned monopolies, entry barriers, dodgy gentleman's agreements backed by the full power of the State. To stay in the video game market, the market is still relatively free. EA or other large companies don't have a State-sanctioned monopoly and cannot impose entry barriers to new developers and publishers. If I have the capital, the technical expertise and a good idea I can publish my own video game and make money out of it and there's nothing EA can do to stop me. EA can buy me out, but if my company is successful it will cost them good money, otherwise I'd have no incentive to sell. They cannot keep this up forever and even if I retire to become a planter in Jamaica there will be thousands of young entrepreneurs ready to follow into my footsteps. Can EA buy all them out and still be profitable?
What EA can do is trying some tactics to strengthen their position. Publish visually dazzling games that cost huge money to develop. Strike deals with big distribution companies to only have their products on the shelves. Pay magazines to give their products raving reviews. Buy huge name licenses (NFL for example). Do they work? To a point. In just a few minutes I can do an Internet search and find as many game reviews as I want. Most of them are written by individuals who don't get a dime from EA and hence have every incentive to be honest. I can buy an independent game directly from the publisher/developer through their Internet site, and it's usually cheaper than any EA game. And what if I value gameplay over dazzling visuals and big names? What if a big retailer says EA "We will sell your games but we will not give you a monopoly". EA has to weigh the options: if they decline they stand to lose millions in sale. Sure, they can somehow bribe the retailer but, again, how much it will cost them? Stockholders won't subscribe big losses forever in the name of an uncertain (ie not State-sanctioned) future monopoly.
Kakugo:A monopoly can only be instituted by the use of force.
False. See the first link above.
Let's refine then: A monopoly can only be maintained by the the use of force. One could arise naturally in truly exceptional circumstances, but would face competition either direct or indirect in due time.
Anenome:Let's refine then: A monopoly can only be maintained by the the use of force. One could arise naturally in truly exceptional circumstances, but would face competition either direct or indirect in due time.
Okay, Kakugo. Then it would depend on how you define "monopoly". I would think having 90% market share pretty much qualifies. You might claim "NUH UH! That would mean TEN WHOLE PERCENT of the market comes from other firms!!!! That's competition! There's no monopoly there!"
I wouldn't. *shrug*
John James: Anenome:Let's refine then: A monopoly can only be maintained by the the use of force. One could arise naturally in truly exceptional circumstances, but would face competition either direct or indirect in due time. Okay, Kakugo. Then it would depend on how you define "monopoly". I would think having 90% market share pretty much qualifies. You might claim "NUH UH! That would mean TEN WHOLE PERCENT of the market comes from other firms!!!! That's competition! There's no monopoly there!" I wouldn't. *shrug*
o_O
A. I'm not Kakugo, and I thought I was agreeing with you, so where's this coming from.
B. Having 90% indeed does not give you a monopoly, unless the word itself has no meaning, for mono = 1, and 90% + 10% clearly means two market entities.
Only government force can maintain a true monopoly.
If one company was so good that no one were able to compete against them, or wanted to, they'd be a complete boon to the market place. Very few have ever achieved anything close to this. Microsoft maybe, for office, for Windows. These near-monopolies are inevitably maintained by low-price and high service. Google for email?
But then there's lateral competition. Suppose someone gained a monopoly on steel and raised the price astronomically. Industries can switch to aluminum, fiberglass, etc.
Anyone who actually did achieve a monopoly in one narrow market would never come close to achieving a lateral monopoly on all the things that could be substituted for the thing they have a monopoly in.
Suppose MS raises the price of Windows to $5,000, in swoops Apple, in swoops Linux, etc. There's no monopoly there. Suppose Gmail begins charging, Hotmail and a thousand others are there to pick up the slack.
Anenome:I thought I was agreeing with you, so where's this coming from.
It's coming from a place called "reality" where "false" doesn't automatically mean agreement with whatever other scenario you come up with.
I'll give you an analogy. Pretend someone named "Kakagu" spoke directly to me and said "Your name is Josh." And I responded "False. See my name right above this post."
Then someone else comes in—let's call him "Anenome"—and says: "Okay, let's rephrase. Your name is Joshua."
Simply because you agree with my assertion that Kakagu isn't correct in his statement, doesn't mean that I agree with whatever fallacious statement you come up with, just because it also maintains that Kakagu isn't correct.
Having 90% indeed does not give you a monopoly, unless the word itself has no meaning, for mono = 1, and 90% + 10% clearly means two market entities.
Ah, clearly. Except for the fact that most people tend to use something called a "dictionary" when looking to find the commonly accepted definitions of words. Here's what a "dictionary" says:
noun, plural mo·nop·o·lies.
1. exclusive control of a commodity or service in a particular market, or a control that makes possible the manipulation of prices.
The more you know.
Microsoft maybe, for office, for Windows.
a) Open Office, for Windows. Oops. Guess you're wrong again.
b) Obviously you didn't read the link I provided titled "the Microsoft case"
These near-monopolies are inevitably maintained by low-price and high service. Google for email?
Ever heard of Yahoo Mail? Hotmail? Live Mail? Hushmail? AIM Mail? Shortmail? Myway? Juno? Zoho? iCloud? Bigstring? Gaweb? Inbox.com? Lavabit? Facebook?
But then there's lateral competition. Suppose someone gained a monopoly on steel and raised the price astronomically. Industries can switch to aluminum, fiberglass, etc. Anyone who actually did achieve a monopoly in one narrow market would never come close to achieving a lateral monopoly on all the things that could be substituted for the thing they have a monopoly in. Suppose MS raises the price of Windows to $5,000, in swoops Apple, in swoops Linux, etc. There's no monopoly there. Suppose Gmail begins charging, Hotmail and a thousand others are there to pick up the slack.
You obviously didn't look at any of the links I provided. Perhaps you should do that in the future before attempting to come back with essential regurgitations like this.
I'm not sure you even know what I was arguing as you seem to be making the same case I was now. So, I'm gonna walk away in confusion. Maybe lay off the sauce a bit.
Sauce?