One of the main pillars of capitalism is competition, the theory being that competition, whether it be in sports or business, will stimulate our best efforts and the winner will produce a product that is best for the consumer at the lowest price. A monopoly is when a single or small group of enterprises control the production and distribution of their product.
As experience shows, a monopoly defeats this purpose by cornering the market on a product or service as well as concentrating wealth among a small minority. If I own the production and distribution rights, unless there are state and federal regulations prohibiting this, I can pretty much charge whatever I please. This not only hurts other competitors but limits the consumer’s choices and raises their cost of living. In short, a monopoly is a roughshod version of capitalism benefiting no one.
Monopolies were originally created to protect ownership. In 1623, the English Parliament created the “Statute of Monopolies” intended to protect patents which today are considered to be a fair and reasonable way to protect the creators of new inventions and strengthen the economy. An unintended consequence was that the monopolies of today achieve the opposite result by burdening consumers with higher prices and concentrating wealth at the expense of consumers. For example, in the early 19th century, the Pabst Brewing Company owned breweries, saloons, and even forest lands for the wood to make beer barrels which certainly tilted the playing field to their advantage and there were no laws at the time to curb this practice. It was not until 1890 that “The Sherman Antitrust Act” was passed by Congress which banned businesses from colluding or merging to form a monopoly “The law prevented these groups from dictating, controlling, and manipulating prices... The act aimed to promote economic fairness and competitiveness while regulating interstate commerce. The Sherman Antitrust Act was the U.S. Congress’ first attempt to address the use of trusts as a tool that enables a limited number of individuals to control certain key industries.” (www.investopedia.com)
Nowadays, we have federal and state laws constraining private business to compete on a level playing field. For example, an enterprise that sells its product at lower price than its competitors is certainly legal but when that price is below the cost of its production and/or the motive is to eliminate competition, that is considered breaking the law. As you may surmise, it is difficult to establish motive in these cases and creative accounting can mask the actual manufacturing or production costs. There are, however, other methods which are not illegal. One of these is by forming a holding company.
“A holding company is a firm that doesn’t produce goods or services, but rather only has investments in other firms. Most businesses are organized as operating companies, meaning they manufacture items or provide services. Essentially, a holding company invests in operating companies that actually produce goods or offer services. The businesses that both holding and parent companies own are known as subsidiaries. If the holding or parent company owns 100% of the subsidiary, it’s called a wholly owned subsidiary. Certain tax benefits accrue to holding companies that own greater than 80% of the shares in a company.” (smartasset.com)
Subsidiaries of parent companies are often not acquired by purchasing shares, which is the way holding companies typically get their subsidiaries. Instead, parent companies often create subsidiaries by spinning off operating units (for example, Alphabet has become the holding company for over 160 sites, including Google Search, Maps, Youtube, Fitbit, Nest, and Waze. OK, strictly speaking Waze is a “parent’’ not a holding company as holding companies get certain tax benefits and are not liable for the actions of their subsidiaries. But why, you might ask, does Alphabet need both Google Maps and Waze since they are both navigation apps? I’ll tell you. I don’t know — — but if you go to the HyreCar website you can at least examine the advantages and disadvantages of both.).
To get around the regulations and restrictions applied to monopolies, the current strategy is to simply absorb competitors and/or form holding companies which are just a group of other companies with similar or diverse products. A group of holding companies is called a “conglomerate”. What is a group of conglomerates called? Don’t ask.
Internet Provider companies like Spectrum and Verizon and Internet websites such as Alphabet (owner of Google) and Meta (owner of Facebook) present special problems in that their software products are not tangible and visible like automobiles, telephones and beer. The Internet, which connects everybody and everything, has provided opportunities to create and grow businesses that have never before existed, most of which supply and contribute to the growth of the Internet (sound like an unintended consequence like Frankenstein’s monster or a creature that grows by feeding on itself).
And the growth rate of the Internet economy is accelerating, which is to say the speed of change is growing. In response to the situation, both the United States Federal Communications Commission (FCC) and the Federal Trade Commision (FTC) are investigating, among other things, whether and how much of a monopoly threat are the “Big 4” largest Internet companies: Amazon, Apple, Google and Facebook. (The growing tension between the FCC and FTC is an interesting story in itself (broadbandnow.com). Also, “The U.K. ‘s competition regulator, the Competition and Markets Authority, has decided that Microsoft’s $70 billion acquisition of Activision Blizzard may harm competition in the video games market, and that it merits deeper investigation.” (https://www.polygon.com/23332541/microsoft-xbox-activision-blizzard-deal-uk-regulator-investigation)
More than ever, we need a solution that is fair to both the consumer and the corporation but the current cantankerous political situation does not bode well for a quick nor an easy resolution. Buckle up.
Fun Fact: I stumbled across this tidbit while doing the research for this article:
“Why is Major League Baseball exempt from antitrust laws?
Antitrust laws are meant to prevent businesses from engaging in anti-competitive practices. MLB has held its exemption since 1922. Major league players are represented by a union, and labor law presides rather than antitrust law when a collective bargaining agreement is in place between management and employees.” https://theathletic.com/news/us-senate-mlb-antitrust-manfred/czCdXJCAAatD/2
Dr. Stewart A. Denenberg is an emeritus professor of computer science at Plattsburgh State, retiring recently after 30 years there. Before that, he worked as a technical writer, programmer and consultant to the U.S. Navy and private Industry. Send comments and suggestions to his blog at www.tec-soc.blogspot.com, where there is additional text and links. He can also be reached at denenbsa@gmail.com.
Gloss