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Archive for April 4th, 2011

NCAA Monopoly

I have no idea what the reading says about monopolies, but I am pretty sure I can give an example. In college basketball, the NCAA controls all. Their control started after Marquette declined their bid into the NCAA tournament to accept their bid to the NIT. They won the NIT that year. Since that happened, it has become illegal for a team to decline a bid to the NCAA tournament. To secure their monopoly status, NCAA has bought the rights to the NIT for the next 10 years. Since the NCAA regulates college athletics and the “amateur” status of its athletes AND it runs its own tournaments, there is prima facie exclusion taking place here. No private enterprise is allowed to join in the game. There is only one exception. The NCAA does not control division 1 football, the BCS does. In order for another business enterprise to offer a competitive alterative to what is already offered by the NCAA it would take an obscene amount of capital. It has not happened and most likely will not happen in the near future. The only reason why BCS was able to gain control of division 1 football was because the NCAA has not created a tournament similar to the other sports.

Sirius XM Satelite

I have been a subscriber to Sirius satelite radio for the past five years and must say I can’t live without it.  I remember the huge amount of troubles they had trying to pass the merger.  The merger was betwee XM and Sirius,  the reason for the major problems was the it created a monopoly.  The company argued that if the merger didn’t happen then one of the companies would go out of business because the client base wasn’t big enough for both companies to make a profit.  So after several years fighting for the merger they were finally given the go-ahead to complete the merger.  I was scared at first thinking that my service fees would double or triple now that there was no other competition.  Much to my delight monthly fees have actually dropped and the channel selection is better now that they have a bigger selection.  Why would the cost go down?  I’m not sure the answer but I am guessing that the price they have it set at is the maximum of what the market can bare.

Government intervention

The reading this time was interesting in its content, but mentioned several models that we haven’t really studied.  The government intervention in mergers and other big business policies was addressed in this particular part.

I have mentioned it before, but the more that I study about the affects of government intervention the less I am in favor of it.  Government does have to intervene in certain circumstances of complete monopoly that yield inefficient results, but for the most part markets take care of this.  Previously when we studied game theory we learned of the incentive that individual entities have to resist corporation with others and to defect.  This self motivating desire generally is enough to break down potential monopolies.  In very rare cases natural monopolies exist.

The idea of discouraging monopolistic behavior resulting from huge mergers is beneficial.  However, why can we trust government officials with this job.  The reading expressed how members of the committee were influenced by a number of factors including people from their voting districts, other government official, etc.  These influences and short term incentives discourage efficiency.

An example that came to mind while I was reading about this is the monopolizing influence that the government actually applies when it implements policies such as tariffs.  One particular example that illustrates this point is that of sugar beats.  The current laws prohibit importation of cheaper/better sugar cane for use in production.  These high quotas and tariffs allows for the inefficient market of sugar beats to exist in the United States.  This policy allows for almost monopolistic behavior by sugar beat producers while consequently raising the price on almost all goods that contain sugar.

I think that before the government should undertake regulation in the private sector on mergers/monopolies they should examine their own policies that create gross inefficiencies.  However, we must recognize that the incentives still aren’t aliened such as to promote efficient actions.

Congressional Monopolies over constituents interests?

On my third reading of Stearns and Zwyicki I may finally understand what they are alluding too. The clearest quote I can find said, “The congressional committee system allows individual members of Congress to create what amounts to a system of congressional mini-monopolies that oversee particular agencies and departments with minimal inter-jurisdiction conflict. (pg. 352)”  Later saying that this system creates a system that “gives members of Congress disproportionate influences over the issues that matter most for electoral support.”

So essentially Congress has self-created a system that gives that huge regulatory and oversight powers over federal agencies if they choose to do so. Aside from “fire alarm” oversight however (BP Oil Spill, Toyota Hearings) which really make us no safer, agency is rarely effective or give opportunities to credit claim for your constituency.  In the FTC case the book gives us however, it was worthwhile for congressional committees to regulate the FTC based on their ideologies.

From my own understanding of anti-trust and monopolies they only exist with the help of the government. Here we have our congress with an oversight of the agencies, such as the FTC, who control nationwide anti-trust issues. Isn’t that nice? Until I read Friedman’s spiel on monopolies, we have reasons to believe that, “Congress often spurred FTC anti-trust investigation at the behest of firms located in their district in order to gain a competitive advantage.(pg. 354)”

For whatever reason,  (perhaps the game monopoly) constituents believe that monopolies exist(ed) and congress is/has used its “mini-monopoly” over the regualtory agencies  to show their home state they were fixing monopolies and breaking the evil trusts which will not exist in the free market anyways. Others could additionally argue that their is a breach of the separation of powers theory here.

On Wednesday I plan on applying this logic to the economic and politics of gasoline prices.


I for one don’t see the big deal with allowing some monopolies.  Alright, that isn’t entirely true.  But, according to Friedman it seems like even with monopolies we would be fine.  From what I am understanding it seems that monopolies can potentially work themselves out, so why worry about them?  Although monopolies can be something that are inefficient, they still pose a potential threat of “bullying” or “preying” on smaller companies and corporations.  In theory, it seems like it would be a great thing to own all of one good, but luckily “theoretically” economics has once again succeeded in helping me not make sense of the world or any part of it.

Making a monopoly sounds ridiculous but not unrealistic.  If you could sustain yourself through driving the prices down and waiting out the competition then you could eventually raise the prices again.  The problem with that is what is stopping the failed companies to come back once you’ve raised the prices again.  With all of the stubbornness that lays less than dormant inside of me I believe that if I were a small business owner and I someone was trying to bully me out of business I would nickel and dime them to death.  I would drive my prices lower from the beginning forcing them to dramatically lower their prices causing them to in turn drastically increase their production rate causing them to also hire more people.  Overall costs would sky-rocket and they would then have to pay all the extra while still having to sustain a company with falling prices.  This could potentially cause them to lose lot’s of revenue right off the bat.  I think I could ride out the wave after that.

But, to be honest that sounds like to much work.  Why not just get together with the owner of the other company and come to some agreements as to where we will put the prices.  If we really want to raise prices then we can do it together and control the market using each other as checks and balances in a way.

When ‘Protecting Competition’ becomes ‘Protectionism’: a Tale of Good Intentions

I’ve never really thought or read much about antitrust laws until reading Stearns and Zwycki.  So my opinion is still really pliable.  The argument for antitrust laws and the Federal Trade Commission seems to be that consumers need to be protected from high prices.  If that’s the case, then we ought to have a bureau to protect us from tariffs, right?  Having both antitrust laws and tariffs seems like a contradiction of economic principles.  The former benefits consumers at the expense of industry (at least companies that can manage a monopoly), and the latter benefits industry (American industry) at the expense of consumers.  Maybe the two are supposed to cancel each other out.  But if that were true then we could get rid of both and save ourselves the governmental/bureaucratic expenses.

Granted, I think that monopolies are probably inefficient.  Is government intervention the best way to break them up, though?  What happened to ingenuity and entrepreneurship.  Some argue there is a sort of monopoly with oil companies.  That’s probably bunk.  But even if there was, we’re not being forced to buy gas.  We could all start riding bikes or the scientists could get cracking on alternative energy forms, or a young and ambitious businessman could start an oil company of his own and sell it for less.  Whether any of those suggestions are practicable or not, the principle is that competition will exist because it’s part of human nature; or at least American nature.  Competition will exist whether or not we ‘protect’ it with antitrust laws and a government bureaucracy.

Well… I’ll admit it. I actually enjoy reading Friedman.

I found chapter 16 of Friedman to be very interesting – an economics version of MythBusters if you will. I loved where he discussed the impossibility of predatory pricing.

For as long as I can remember I have been taught that monopolies are bad. A (ridiculously) good-sized portion of my time in AP U.S. History was spent looking at all the anti-trust legislation and trust busting. Boiled down, monopolies suck and lucky for us, we have government to step in and right everything. I’m starting to really doubt that. It seems that most of the problems created by monopolies occur when government tries to step in and “regulate” a monopoly. On page 258 he says, “such restrictions are a cure for an imaginary disease.” Bam! Friedman also makes good points about the inability of measuring costs within a firm since everything is so interrelated. It seems to me that a monopoly can only exist as long as it is providing goods/services that consumers want. If consumers demand something that the monopoly can’t provide, then competitors will have a chance to enter the market. It reminds me of comparative advantage; if a firm can make a product at a lower cost, etc, then they should be able to provide that product regardless of how much or little of the market share they hold. Maybe its unwise to put all your eggs in one basket, but I feel fine about the fact that nearly all my technological gadgets are Apple products. For people who don’t like Apple, they can find a substitute.

I can’t wait to hear what Randy, eternal champion of the free-market, has to say about monopoly tomorrow. :)

Monopoly? No Thanks!

First of all I would just like to say that I hate Monopoly. It is the worst board game ever. Perhaps this is where my deep seeded hate for monopolies and antitrust laws comes from. I have such a difficult time comprehending the idea of monopolies and antitrust legislation. It just does not make sense in my brain. And reading chapter sixteen of Law’s Order only made my confusion and aversion worse.

The entire first page of the chapter seemed devoted to defining what a monopoly is and why it is inefficient. Once again Friedman talked in circles and gave the most unclear examples that I have ever read. Finally when I reached the third page it started to make sense. It is on page 246 that Friedman finally just comes out and says what he actually meant with all of those unnecessary words. The first scenario in which monopoly is inefficient is because “in the process maximizing its profit, sells too low a quantity at too high a price. The second is that the opportunity to acquire monopoly profits creates an incentive for inefficient rent seeking, for spending resources making sure that your firm, rather than someone else’s, ends up with the monopoly.” Finally Friedman makes sense! I would just like to express my appreciation for this chapter. Many teachers over many years have tried to explain to me why monopolies are bad and why we need antitrust law and how that antitrust law actually works. This chapter, although at some points a bit wordy, finally put it in a way that I can understand. Who would have thought that I would ever understand a single thing that Friedman said?

I have one last thing to say. I have really enjoyed perusing the posts about monopolies. They have all helped contribute to my new found knowledge of monopolies. I particularly enjoyed the post about Waiting for Superman. It made me think about unions in a different light and perhaps not the most flattering light.

Parker Bro’s Monopoly

First off, I’d like to ask if the Parker Bro’s ever envisioned forming a monopoly on the board game market with the game monopoly? Sorry to get all meta on you, I just had to ask. That being said, this game did a great job of teaching me about monopolies unwittingly. I liked the line in Friedman when he said that the higher the monopoly profit, the more resources firms burn in competing to get it. I thought about all those games of monopoly I played when I obviously had the most money but somehow did not win. I wasn’t focused on the end of the game, obtaining all the properties. Thus, those willing to spend their money instead of hoard it became the winners. The old adage, you have to spend money to make money is so very true. I think that is one of the main reasons companies some label as monopolies are so successful. Apple, for example, may have a virtual monopoly on the portable mp3 market, but they poured money into doing so. Research, advertising, and development are the key to their success and these things cost money. Pharmaceutical companies experience the same. At the same time, those just trying to ride the wave without any real money into innovation have been left in the dust. And we get to enjoy the fruits of their labors, at a “nominal” fee. I for one embrace our monopoly overlords. I can’t imagine life without my ipod, antibiotics, or heck, even monopoly!

Last Week but Still Relevant

I wanted to bring up this topic last week and had already wrote this blog but then found out that we didn’t have class and didn’t need to post a blog. So I decided to still use it for the beginning of this week; even though it isn’t our topic it can still relate. In class last Tuesday I found the discussion to be very intriguing, our fill-in-instructor was very enthusiastic for 7:30 in the morning but still very enlightening. He brought up points that I have often wondered about and also things that I thought were fact in law but found out that I was wrong. Things that dealt with searches and a person’s right to privacy. We talked about efficiency vs. enforcement, and how in terms of justice you don’t want justice to stop a person from engaging in efficient activity in society. We talked about an example about speeding in your car and how that is just what everybody does by going on average 5 miles over the speed limit. This is a person weighing their cost of the chance of getting caught and what the highest speed they can travel to avoid it. When I am thinking about this I can clearly see that there is a factoring balance to these things when making law. Surely the lawmakers know that this is going on and factor those cost in when making certain laws. For example, maybe the safe speed limit in a residential area was calculated at 30 miles per hour but the limit was set at 25 knowing that the public would take this into consideration. But to argue the other side I would have to say that the same types of balancing would work on the enforcement side as well. Like dealing with searches, to me lawmakers would also set the criteria for a legal search in a way along those same lines. To me there is quite a large area for a law enforcement officer to conclude there was probable cause to search; and maybe it is for good reason to do so in most cases. When I was growing up me and my friends would get pulled over all the time for something ridiculous; I have been pulled over before for my license plate illuminations not being bright enough, twice, in two separate vehicles. Sure that may be a valid reason to pull somebody over in regards to playing by the book but clearly in the officers mind they were looking for a reason to pull over a car load of kids traveling around back roads out in the middle of know where. But that is my point; that these balances seem to work in both ways. Just like the speed limit scenario, when there is a limit on enforcing the law there is an equally beneficial way for the enforcers to get around it. I’m not saying that this is a bad thing; I would have to say that every time my friends and I were on the back roads we were usually doing something we shouldn’t have been doing. I’m saying that when making the laws lawmakers would have to be considering the level at which people are breaking the laws as well as the level at which enforcement is going to be able to enforce the laws. The same criteria works for a person weighing their costs on how far they can break the law versus how far an enforcer can bend the law.