Changing World, Static Beliefs

Monopolies are evil. Or at least that’s the common belief. The obvious fear with monopolies is that a company with monopoly status can raise prices and we’d have no alternatives but to cough up. Another less commonly known reason (until you hear it) is that a monopoly kills competition and thus kills innovation, something that is bad in the long run. And monopolies inevitably use their monopoly status in one segment to promote their products in another segment. Remember how Microsoft used its Windows OS monopoly status to force Internet Explorer down our throats a little over a decade back?

As with everything else, monopolies get complicated in the age of the Internet. Google argues that while it is a monopoly in search, people can switch to competitors like Yahoo or Bing in a jiffy (if they want to). And if users can switch so easily, what is the danger of Google’s monopoly status, they ask?

Then there’s the flipped version of monopoly: monopsony (“a dominant buyer with the power to push prices down”). Like Amazon. It can drive down the prices of books because it is the biggest sales channel and thus has great bargaining power with publishers. Sure, that’s bad for publishers but why is that bad for customers? And yet many regulatory agencies feel very uncomfortable: doesn’t that give Amazon powers to abuse in future? On the other hand, can we penalize somebody for something that we think they might do in the future? That doesn’t sound right, does it?

And now there’s a third category of this topic: what if a company doesn’t have a monopoly on sales in an industry but has a monopoly on profits in that industry? In case you had forgotten:

Profit = Sale price – Cost price

Need an example? Apple’s iPhone sales account for just 20% of global smartphone sales. But they take 92% of all smartphone profits globally! (No, there are no typos there). As John Gruber says:

“We don’t even have a term for this situation, it’s so unusual. Profit monopoly?”

All this just goes to show why rules never make any sense: we create them based on experience. But the world does not have any obligation to abide by our rules or descriptions, be it in economics or in physics. Consistency is not always a virtue, especially in a changing environment. As Bernard Berenson said:

“Consistency requires you to be as ignorant today as you were a year ago.”

So feel free to change your opinion, if the world today is a different place.