I'm a newcomer to this school of thought (and pretty new to economics in general). I'm currently reading Israel Kizner's essay collection "The Driving Force of the Market" and I'm stuck on a point that he brings up in the first essay (called Entrepreneurial) about competition and, in particular, about anti-trust laws.
The claim is that antitrust laws block entrepreneurial entry into the market and thus anti-competitive in nature.
But, surely, in theory and in practice, monopolies through mergers are more likely to restrict the competition necesary for a free market to function.
I understand the essence of the claim, which is that government inteference in the free market tends to reduce the freedom of a market, but I've always considered loose antitrust laws to be the exception to that rule.
Kirzner then brings up advertising as an example of an imperfectly competitive industry which "are precisely the kinds of entrepreneurial initiative which make up the dynamic competitive process."
So, my question is, in the Austrian view, are antitrust laws not supported? And could somebody offer me a clearer explanation of why what is? It may just be my lack of economics background, but I just don't understand his point in the way he's explaining it.
Thank you!
Antitrust laws are backed by force, ergo a big gun. Monopolies can be taken down by any "David" with a better idea.
Kirzner is saying that advertising is tool our proverbial "David" uses to compete; itis a product of entrepreneurial initiative or human action.
It is only inevitable, though, when the politicians are allowed to control the fates of companies. When the government is kept out of the business world, at least mostly, then there is no benefit for big business to collude with them. But when the government can control who wins and who loses in the marketplace, then they get involved. A major way of doing this is anti-trust. Walter Block often makes the point that it is impossible to not be violating anti-trust laws, because if you are setting prices higher than your competition, then it is profiteering and exercising monopoly power; if you set prices lower, then it is predatory pricing and dumping; if you set prices the same as your competitors, then it is collusion and cartelization. Since it is impossible to not violate anti-trust, or at least impossible to not be "investigated" for anti-trust violations and brought to court, the decision of who to use these laws on is absolutely arbitrary. Remember now who controls the government - the lobbyists and big corporate interests. What do you think those anti-trust laws will be used on? Anti-trust laws were created by politically-connected companies to destroy their rivals and have been used for that purpose since.
This is a common enigma I run into with Libertarians where ideology trumps practicality.
I.e. when a person is too principled to give up their ideology based on what (some) perceive to be bad consequences?
Those of you who argue that monopolies only drive out competition by being more efficient with lower prices are providing a naive point of view.
Gee, what a novel critique! Also a naive and uninformed one. Dominick Armentano, for one, has contributed loads of material criticizing the usual rubbish advanced in favour of monopoly claims, including this.
Both can be abused to the detriment of society.
Who is this "society"?
Let's use Microsoft as an example.
If you insist on using a firm with a large government-based clientele and protected by IP privileges, sure.
Here's a conundrum: Microsoft tells Dell that they have to only offer PC's with Windows operating system and Internet Explorer and, if they choose to offer any competing OS (like Linux) or browser (like Netscape), they will pull their license to sell Windows completely. Does Dell have a choice? Sure, but the practical reality is that MS is holding an economic gun to Dell's head.
Yes, Dell has a choice. No, MS is not holding an "economic" gun to Dell's head. The only crime MS is guilty of is using IP laws in its favour.
Possible future competitors got the message and didn't even bother trying to go up against them.
And yet MS still has competitors. How much worse would it be for MS if its software could simply be "pirated"? Yeah...
but through pure coercion. Sound familiar?
Only if you're going to conflate an act of choice (i.e. not to do business with MS) with physical force. So no, it doesn't sound familiar. Cute attempt though.
The only way to curb this detrimental use of economic power is to use political power, in the form of anti trust legislation, to stop it.
Right, by instituting a monopoly to "curb" a monopoly, as opposed to providing a convenient medium for other firms to crush competition. Aha. We're the naive ones. Peddle this crap to the ignorant, please.
-Jon
Freedom of markets is positively correlated with the degree of evolution in any society...
Mashuri:So here we have a company using their economic might to stifle competition not through better efficiency, but through pure coercion. Sound familiar? The only way to curb this detrimental use of economic power is to use political power, in the form of anti trust legislation, to stop it.
What???
They use patent law and copyright to stifle competition. The State handed them their monopoly on a silver platter.
The *only* thing stopping someone from busting the MS monopoly is they would be in violation of unnumerable copyrights and software patents. The *only* thing stopping Dell from shipping winders is copyright law.
Their last attempt to go after Linux was by claiming they were in violation of a hundred plus software patents. Unnamed patents that is because if they named them the devs could engineer around them and it would become a non-issue.
I can't believe that this is a 'verified answer' when the answer is to use government force to correct the problems that are a direct result of past usage of government force.
Yeah, I love how MS is always their first target, one of the worst offenders when it comes to availing itself of government force. I didn't even know IP laws protected MS that much, which sort of makes the use of MS to make a point againt markets, kind of pathetic.
I'll try to discard all ad hominem attacks and only get to the substantive argument.
How do you base that it's Microsoft's IP laws that gave it its monopoly, and not the fact that they made themselves the ubiquitous standard in operating systems and mainstream office software? Please provide an example of how said IP laws kept, say, Apple from being able to become THE standard.
Sure, Microsoft still has competitors today (minor ones) because the DOJ threatened to break them up. If not, innovators like Java and Mozilla would no longer exist today.
Why do you only equate coercion with physical force? You don't see Microsoft's threat to render Michael Dell's company insolvent because he plans to offer other people's software as coercion? Here's a definition to help you out: Coercion (co-er-shion) is the practice of compelling a person or manipulating them to behave in an involuntary way (whether through action or inaction) by use of threats, intimidation or some other form of pressure or force. Also, do you think Microsoft's bullying was constructive to our economy or destructive?
You still seem to refuse to believe that excessive economic power can bastardize the free market system, when it's been demonstrated that, like any other form of excessive power, it most certainly can. Do you really believe that? Because this amassing and abusing of power is part of the human condition, the best we can do is strive for a system that keeps both economic and political power as separate as possible and use them to keep each other in check. Unfortunately, every system I've seen seems to result in a collusion of power.
I certainly have my issues with our current patent laws but, without any sort of patent system, we basically render things like, for example, software development as value-less, since it can so easily be reverse-engineered and copied by any hack out there. Where would the incentive be to create new software?
Wait. I said such a thing? No, I don't believe so. What I did say is that you're using a company that benefits heavily from IP laws as an example of a monopoly. Even the example you gave (licencing) is an IP-based issue. Check Anonymous Coward's response as well.
How about you actually prove that? D. Armentano has argued that it is through clever definitions that MS is labelled a monopoly, not economic fact.
Why do you only equate coercion with physical force? You don't see Microsoft's threat to render Michael Dell's company insolvent because he plans to offer other people's software as coercion?
Dell has a right to use MS products? I had no idea. If there is no right being infringed via coercion, there is nothing to complain about. Dell is having its rights infringed by MS, but not in quite the way you suggest (and no doubt Dell is engaging in its own IP-based rights infringement.)
Here's a definition to help you out: Coercion (co-er-shion) is the practice of compelling a person or manipulating them to behave in an involuntary way (whether through action or inaction) by use of threats, intimidation or some other form of pressure or force. Also, do you think Microsoft's bullying was constructive to our economy or destructive?
Nice, a dictionary definition. So when I lie to someone and "manipulate" them into believing something, should I be coercively punished for it? I think so. By that definition of coercion I definitely should be. Or when someone insults me. That's coercion. Or if my loved one chose to leave me, that's psychological coercion! Sarcasm aside, MS's usage of IP laws is definitely destructive.
You still seem to refuse to believe that excessive economic power can bastardize the free market system, when it's been demonstrated that, like any other form of excessive power, it most certainly can.
Nope. I refuse to believe nonsense. There's no such thing as "excessive" economic power (did you calculate that in your head maybe?) All that has been demonstrated is that MS is willing to wield IP laws in its favour, and only in this connection does MS's economic power become "excessive".
Unfortunately, every system I've seen seems to result in a collusion of power.
Especially "anti-trust" laws.
Your argument is hinging on IP laws. Do you believe they should not exist at all?
Mashuri:Here's a conundrum: Microsoft tells Dell that they have to only offer PC's with Windows operating system and Internet Explorer and, if they choose to offer any competing OS (like Linux) or browser (like Netscape), they will pull their license to sell Windows completely. Does Dell have a choice? Sure, but the practical reality is that MS is holding an economic gun to Dell's head. "Do as we say or we'll put you out of business." Another tactic was to only temporarily lower prices. Microsoft has offered software for free until their competitors either go under or sell out to them at fire sale prices, then they come out with "new" versions and charge whatever price they want. Possible future competitors got the message and didn't even bother trying to go up against them.
I'm not sure any of that was actually correct.
First, you trying to use a present day example to prove something about how the market works. News Flash: We don't have a free market. Any apparent flaw in today's economy is most likely to be caused by the innumerable government interventions.
Mashuri:Does Dell have a choice? Sure, but the practical reality is that MS is holding an economic gun to Dell's head. "Do as we say or we'll put you out of business."
If an employer says to an employee "Work on Saturday or you're fired," is this holding an "economic gun?" Theft is bad because a person has the right to keep his property. An employee does not have the right to never be fired. Sorry, the only naive person here is the one comparing social influence to coercion.
Mashuri:Another tactic was to only temporarily lower prices. Microsoft has offered software for free until their competitors either go under or sell out to them at fire sale prices, then they come out with "new" versions and charge whatever price they want. Possible future competitors got the message and didn't even bother trying to go up against them.
False. Internet Explorer is still free.
You are trying to say "Monopolies are bad because they raise prices" while at the same admitting that they don't raise prices.
Mashuri:The only way to curb this detrimental use of economic power is to use political power, in the form of anti trust legislation, to stop it.
Again with the naivety. Once government has the power to destroy companies, which companies do you think its going to wield this power against? The small, politically unconnected business, or the large, rich, politically influential one? Just take a look at the economic landscape and you'll have your answer.
Government is for sale, which is exactly why the more power it has, the better rich people like it.
Peace
Mashuri: Do you believe they should not exist at all?
Duh!
A very good argument that cannot be refuted since it is non-falsifiable (unless I can transport to a parallel universe -- haven't figured that one out yet...)
Your "government is for sale" is quite telling, however, in that a true free market system is incompatible with human nature or, more accurately, only partially compatible. The problem is that it is in our nature to seek power. Economic power (the "rich people") begets political power, etc, etc. Since we're in such an imperfect system, I still contend that anything that pits one type of power against the other works against collusion and slows down the inevitable negative progression. Better to have our government fighting MS rather than continuing to grant them more power.
Then I resubmit my question about software development. Computers, of course, would be useless without it and there's no denying the tremendous productivity boost provided by our software-driven computer/information age. Without IP, where would the incentive be to develop software?
Example: I spend 2 years developing a personal finance program (like Quicken) and offer it for sale. A day later, Geeks Inc has reverse engineered my product by extracing its code, changing a few lines in it to put their company name on it and put it up for sale at 1/5 my price. My company invested 2 years of labor developing this while Geeks Inc spent a day. What law would I have to protect against this? If there is no law, what possible incentive would I have to produce this software?
Mashuri:A very good argument that cannot be refuted since it is non-falsifiable (unless I can transport to a parallel universe -- haven't figured that one out yet...)
Not quite. It just takes knowledge of how the interventions effect the economy.
What you are trying to do is use the "real world example" of a bowling ball falling faster than a feather to prove that gravity effects heavier objects more. All that is required to understand why your example does not prove what you claim it does is an understanding of air resistance.
Mashuri:How do you base that it's Microsoft's IP laws that gave it its monopoly, and not the fact that they made themselves the ubiquitous standard in operating systems and mainstream office software? Please provide an example of how said IP laws kept, say, Apple from being able to become THE standard.
Well, first off, Apple shot themselves in the foot by refusing to license their OS on anything other than their own hardware.
Without IP how exactly could MS charge $700 per seat of their office suite? All you would need to do is buy one copy and the whole office could run it -- something they take into account with their program to tell on your company if they are running unlicensed software and the licensing agreement that they can audit an office if they chose. The name of this program slips my mind at the moment but every so often they put out radio ads.
I'm not really saying that's the only reason but is the basis from which they leveraged their monopoly position.
Mashuri:Sure, Microsoft still has competitors today (minor ones) because the DOJ threatened to break them up. If not, innovators like Java and Mozilla would no longer exist today.
Why would they not exist today?
Nothing so far has stopped the free software movement from competing against MS. DOJ or no DOJ, it is here to stay.
Sun sees this (openSolaris and soon to be Java) as does the Mozilla Foundation.
As I pointed out before, all MS has is their giant warchest of software patents to go against the competition. Gone are the days where they can muscle them out or buy them up because their main competition these days either has always been open or has recently come to the conclusion that open source is the way to go.
They could buy up Mozilla if they wanted and the next day the free browser version would be called something silly like Iceweasel.
Mashuri:Why do you only equate coercion with physical force? You don't see Microsoft's threat to render Michael Dell's company insolvent because he plans to offer other people's software as coercion? Here's a definition to help you out: Coercion (co-er-shion) is the practice of compelling a person or manipulating them to behave in an involuntary way (whether through action or inaction) by use of threats, intimidation or some other form of pressure or force. Also, do you think Microsoft's bullying was constructive to our economy or destructive?
Also like I said before, the only thing stopping Dell from shipping winders is copyright law.
One can't reverse engineer MS software because of the DMCA to produce a viable competitor and can't ship it without an official holographic sticker pasted on the side of the box.
Without these clubs they wouldn't be able to beat their customers over the head, would they?
Mashuri:You still seem to refuse to believe that excessive economic power can bastardize the free market system, when it's been demonstrated that, like any other form of excessive power, it most certainly can. Do you really believe that? Because this amassing and abusing of power is part of the human condition, the best we can do is strive for a system that keeps both economic and political power as separate as possible and use them to keep each other in check. Unfortunately, every system I've seen seems to result in a collusion of power.
You seem to refuse to believe that the 'excessive economic power' is the direct result of state market intervention and is not some natural condition that will inevitably happen without the impartial bureaucratic watchdogs ensuring 'perfect competition'.
You want to see a counter-example, just look how the GNU/Linux OSes have pretty much killed off all the proprietary UNIX distros. With some help from the BSDs of course.
You want to know why this was possible, the different UNIXes were designed to run under a single standard that was free and open. All they had to do was develop their own implementation that conformed to the posix standard and they were peachy.
Now contrast this with Microsoft's not fully published or documented API (or document structure for that matter) that is protected by patents and from reverse engineering by the DMCA to prevent someone coming along and implementing a stand-alone compatible version that could directly compete with them.
The 'excessive economic power' is a direct result of State granted monopoly power in the form of IP. Wait a few years until linux starts to get more than a trivial share of the desktop market and then watch them swing around that IP club to stifle competition.
Ideals getting in the way of practical reality again. There are no such things as "impartial bureaucratic watchdogs" at least none that can be human. Economic and political collusion are inevitable.
You want to see a counter-example, just look how the GNU/Linux OSes have pretty much killed off all the proprietary UNIX distros. With some help from the BSDs of course. You want to know why this was possible, the different UNIXes were designed to run under a single standard that was free and open. All they had to do was develop their own implementation that conformed to the posix standard and they were peachy. Now contrast this with Microsoft's not fully published or documented API (or document structure for that matter) that is protected by patents and from reverse engineering by the DMCA to prevent someone coming along and implementing a stand-alone compatible version that could directly compete with them. The 'excessive economic power' is a direct result of State granted monopoly power in the form of IP. Wait a few years until linux starts to get more than a trivial share of the desktop market and then watch them swing around that IP club to stifle competition.
Compare the overall productivity of open source (freely contributed labor, BTW -- Marx would be proud) vs. private, IP-protected software. The market has decided already that the latter is far more desireable. Funny you mention BSD. How does FreeBSD compare to Mac OS 10.5 in usability, features and overall productivity? OS 10 is built on a BSD core, just that it has a profit motive behind its development. You think that would have happened if Apple knew that they couldn't make their money back?
Absolutely. What's at issue here is which knowledge is most accurate.