Apple, Microsoft, Google: Far from Coercive Monopolies

Given the recent FCC inquiry into "uncompetitive" practices by Apple (AAPL) in regards to Apple not allowing some of Google's (GOOG) products to work on Apple's own phone, and also as a result of my long standing thinking vis-a-vis all the flak (and massive European fines) Microsoft (MSFT) has sustained as a "monopoly", I thought it was useful to bring out the following old gem from Ayn Rand. It's important to understand what a monopoly really is and isn't when discussing the issue of whether a company is one. This is because the high market share of Windows or Google Search was achieved, and is maintained, in a far different manner than how some liquor or casino baron in a developing nation locks in his position via political favor. It's a high market share achieved by delivering a strong product through skill and then constantly staying ahead of the competition. It's under intense competition, but winning, temporarily. This is far different from the coercive type of monopolies we should truly hate.

It is imperative that one be clear and specific in one's definition of "monopoly". When people speak, in an economic or political context, of the dangers and evils of monopoly, what they mean is a coercive monopoly - i.e. exclusive control of a given field of production which is closed to and exempt from competition, so that those controlling the field are able to set arbitrary production policies and charge arbitrary prices, independent of the market, immune from the law of supply and demand. Such a monopoly, it is important to note, entails more than the absence of competition; it entails the impossibility of competition. That is a coercive monopoly's characteristic attribute, which is essential to any condemnation of such a monopoly.

In the entire history of capitalism, no one has been able to establish a coercive monopoly by means of competition on a free market. There is only one way to forbid entry into a given field of production: by law. Every coercive monopoly that has ever existed - in the United States, in Europe, or anywhere else in the world- was created and made possible only by an act of government: by special franchises, licenses, subsidies, by legislative actions which granted special privileges (not obtainable in a free market) to a man or group of men, and forbade all others to enter that particular field.

A coercive monopoly is not the result of laissez-faire; it can result only from the abrogation of laissez-faire and from the introduction of the opposite principle- the principle of statism.

Apple's app store, Google Search, and Microsoft's Windows are not coercive monopolies, while the original AT&T (T) was one in the past. As to the new AT&T, distributor for Apple's iPhone, one would have to examine their current regulatory regime, but as I understand it, it's a pretty competitive market these days in their wireless space.

Comments

[Jon T:]

Or, in order to maintain your controlling position, you abuse it by destroying competition using foul means. Yes, that's Microsoft.

Google and Apple are light years removed from Microsoft in many things, including business practises and treatment of competitors.

Aug 03 09:15 AM

[mollytjm:]

interesting article. Apple has been through a lot...even had to sell code to it's competitor in the early days (Microsoft bought basic code for Windows development), lost it's focus and nearly the company...then returned and did it all right. They'll survive this attack also and remain a sound investment.

Aug 03 09:32 AM

[Vincent Fer...:]

Jon, they simply used their business position. Most large companies use their scale to defend their turf. It's fair game, it's part of the advantages of scale and breadth of product offering. It's far different from manipulating the laws to lock in your business. There is nothing wrong with putting other companies out of business using your strong business position as long as you aren't manipulating laws to make it happen. The problem Microsoft had was that while it was simply doing business, and competing vigorously as it should, the spotlight of public ire happened to fall on them. But it's standard business to try and use your size to your advantage. Upstarts have to figure out a way around it, not whine to the government to force change. Actually, we are witnessing MSFT under a pretty serious assault on many fronts and it's from angles regulators didn't even consider when attacking MSFT as a "monopoly".

Aug 03 11:32 AM

[John Watkins:]

Ayn Rand?
As if she were some kind of authority on the subject?
You're pathetic

Aug 03 11:50 AM

[Jon T:]

Saying they 'simply used their business position' sounds suspiciously like a defence of Microsoft's unscrupulous methods. Just ask the one time Microsoft partners such as Novell, IBM, Sun, Netscape and many others. It isn't just 'manipulating laws' that is illegal, it's practices and activities.

And yes, as we have known for a few years Microsoft is unravelling, more visibly today than before. What's more, it's under fair competition, not by an 800lb gorilla tearing into them when no-one is looking.

Aug 03 12:30 PM

[User 438434:]

What was defined was "coercive monopoly", suggesting that other forms of monopoly exists, of which coercice monopoly is one such form. Let's see if any of these companies fit the description of other forms of monopoly. Governmental regulation (or arm twisting) is not the only way to bar competition.

Aug 03 08:07 PM

[Sam Liu:]

as for enlightened monopolies, doesn't Apple purchase its competitors and put the "best app" into its OS. Typically, Msft follows after Apple

Aug 04 12:30 AM

[Neil Anderson:]

Not that far, actually.

Aug 04 01:19 AM

[Vincent Fer...:]

Jon T: That's the problem with horribly vague and easily politicized anti-trust laws, you can take what are fair business practices from a free markets stand point and make them illegal just because the spotlight of public hatred shines on an unlucky company. The point here is to help people understand the different ways companies can be dominant, and that there is a big difference to the kind of position a Microsoft builds up vs. those who manipulate the regulatory system (coercive monopolies). So sure Microsoft's practices can be shown to be against the anti-trust law, but that is usually because the anti-trust laws are horribly vague and should be done away with.

John Watkins: I am not asking you to simply blindly believe the writing based on your esteem for the person, but to rather analyze what they say. Most people conflate monopolies formed as a matter of regulatory manipulation with temporary high market share positions achieved by companies who simply build killer business positions on an open playing field. That's the point of showing the quote. Not quite sure how making the distinction is pathetic.

Aug 04 10:59 AM