Back in 1948, the Supreme Court ordered Paramount, Metro-Goldwyn-Mayer and other movie studios to divest themselves of their theater chains, ruling that the practice of giving their own theaters preference on the best movies amounted to illegal restraint of trade.
Everything you have heard about AT&T is a lie.
AT&T didn't set monopoly prices. The government set prices starting in 1917.AT&T invented the transistor, but it never sold any. In 1954 the government not only confiscated the patent. Then anyone could sell transistors, anyone but AT&T, which the govern, it banned the company from selling transistors, or anything other than telecom.
I don‘t think I presumed this, but thanks for reminding me anyway. I was simply surprised that you didn‘t talk about this tradeoff. Can you recommend an overview over all considerations that one should think about?
I understand that you talked about concentration. But isn't there basically a 1:1 relationship between increasing concentration and reducing competition?
So if somebody thought that the reduction in competition is much worse than you think it is, this could explain your disagreement about antitrust enforcement?
If you will notice, I've talked above about concentration, not about competition. Vertical mergers increase concentration in some sense, but they are NOT always or even usually bad. Even if
I‘m a bit confused. Vertical mergers also lead to less competition, correct? Which is bad, but you don‘t mention it. My thinking why it diminishes competition: If you have one big firm which does everything from starting with raw materials to selling the product, it is much harder to start a competing company, correct? For example it would be much easier to compete with a turbine manufacturer than with Boeing and Airbus.
Lack of clear strong evidence suggests that the effect is weaker. So maybe an industry of 5 firms is really more like one with 4 firms, not really more like one firm.
Are you saying that we should update away from this actually happening because we would have seen clear evidence of it by now if it was actually happening, or just that we should stick with our priors?
BTW, another theoretical argument that points in the same direction is that the repeated nature of the game that multi-monopolies are in should also make them act more like a single monopoly (and the same applies to oligopolies). And the repeated nature of the game that monopolies play with their customers should also reduce deadweight loss relative to one-shot games. (I showed this for a 2-period game and there are probably more general results in the literature.)
Also internal coordination problems within a single monopoly can cause it to act more like a multi-monopoly (if for example each manager is rewarded mainly by how well their own division is doing).
While an intact AT&T did produce considerable innovation, did it produce more than the the baby bells? It may have, but it may also have hampered the dissemination of that innovation in the interest of protecting margins. Would we have had cell phones earlier with them than without? I am skeptical. Too much competition is another way of saying command and control work better than markets, which it does for some things, while for other things, opening these internal exchanges to market forces combat more entrenched power and motivation to extend the monopoly to wider areas.
There's an argument that Intel and Microsoft either should or already do charge prices that are not as high as if they are completely separate monopolies, because they actually have a lot of shareholders in common. Note that index funds control 45% of the US stock market and there's probably a lot of correlation between Intel shares and Microsoft shares even in active portfolios. Of course the downside of this is that oligopolies should act more like monopolies because they also have a lot of shareholders in common. (I think the latter fact is more commonly known. I recall seeing news stories about the latter but not the former.)
I think the same problem comes up when a vendor needs to license many patents from different parties to produce a product.
I was once involved with video coding standardization (MPEG, H.26x), where this is a well-known problem. Of course with a standardized product the problem is even worse, as the vendor has no freedom to work around problematic patents by making different technology choices (as that would lead to incompatibility and non-conformance with the standard).
In that business, this problem seems to be well-understood to the point where virtually every standard is associated with a single patent pool. Because it's obvious to all participants that there is no practical alternative.
(Something similar seems to have occurred in the early US aviation industry.)
Everything you have heard about AT&T is a lie.
AT&T didn't set monopoly prices. The government set prices starting in 1917.AT&T invented the transistor, but it never sold any. In 1954 the government not only confiscated the patent. Then anyone could sell transistors, anyone but AT&T, which the govern, it banned the company from selling transistors, or anything other than telecom.
I don‘t think I presumed this, but thanks for reminding me anyway. I was simply surprised that you didn‘t talk about this tradeoff. Can you recommend an overview over all considerations that one should think about?
In the land of monopolies, single cases stand huge.
You are presuming that increasing competition is the only possible consideration. The ideal concentration level need not lead to maximum competition.
I understand that you talked about concentration. But isn't there basically a 1:1 relationship between increasing concentration and reducing competition?
So if somebody thought that the reduction in competition is much worse than you think it is, this could explain your disagreement about antitrust enforcement?
You seem to be trying to extract too much info from a few cases, instead of looking at our overall data.
If you will notice, I've talked above about concentration, not about competition. Vertical mergers increase concentration in some sense, but they are NOT always or even usually bad. Even if
they reduce competition.
I‘m a bit confused. Vertical mergers also lead to less competition, correct? Which is bad, but you don‘t mention it. My thinking why it diminishes competition: If you have one big firm which does everything from starting with raw materials to selling the product, it is much harder to start a competing company, correct? For example it would be much easier to compete with a turbine manufacturer than with Boeing and Airbus.
Lack of clear strong evidence suggests that the effect is weaker. So maybe an industry of 5 firms is really more like one with 4 firms, not really more like one firm.
Are you saying that we should update away from this actually happening because we would have seen clear evidence of it by now if it was actually happening, or just that we should stick with our priors?
BTW, another theoretical argument that points in the same direction is that the repeated nature of the game that multi-monopolies are in should also make them act more like a single monopoly (and the same applies to oligopolies). And the repeated nature of the game that monopolies play with their customers should also reduce deadweight loss relative to one-shot games. (I showed this for a 2-period game and there are probably more general results in the literature.)
Also internal coordination problems within a single monopoly can cause it to act more like a multi-monopoly (if for example each manager is rewarded mainly by how well their own division is doing).
While an intact AT&T did produce considerable innovation, did it produce more than the the baby bells? It may have, but it may also have hampered the dissemination of that innovation in the interest of protecting margins. Would we have had cell phones earlier with them than without? I am skeptical. Too much competition is another way of saying command and control work better than markets, which it does for some things, while for other things, opening these internal exchanges to market forces combat more entrenched power and motivation to extend the monopoly to wider areas.
I agree that this can happen in principle, though I haven't seen clear enough evidence that it actually happens in practice.
There's an argument that Intel and Microsoft either should or already do charge prices that are not as high as if they are completely separate monopolies, because they actually have a lot of shareholders in common. Note that index funds control 45% of the US stock market and there's probably a lot of correlation between Intel shares and Microsoft shares even in active portfolios. Of course the downside of this is that oligopolies should act more like monopolies because they also have a lot of shareholders in common. (I think the latter fact is more commonly known. I recall seeing news stories about the latter but not the former.)
Also, Richard Epstein on the same point - 49m50s into this:
https://www.youtube.com/wat...
Yes, that is indeed an example of the same problem.
I think the same problem comes up when a vendor needs to license many patents from different parties to produce a product.
I was once involved with video coding standardization (MPEG, H.26x), where this is a well-known problem. Of course with a standardized product the problem is even worse, as the vendor has no freedom to work around problematic patents by making different technology choices (as that would lead to incompatibility and non-conformance with the standard).
In that business, this problem seems to be well-understood to the point where virtually every standard is associated with a single patent pool. Because it's obvious to all participants that there is no practical alternative.
(Something similar seems to have occurred in the early US aviation industry.)