Reinventing monopolies: Part 2

In the late 1990s, there were many competing search engines, like Lycos, AltaVista, HotBot, and Excite. In the 2000s, there were many social networking sites, including Friendster and MySpace.

It was “us” driving the marketplace that made Google and Facebook dominant. The biggest sites were faster, better and easier to use than their competitors, and the benefits only grew as more users signed on. But what seemed like a good idea in the beginning, to pick one search engine or one social networking site, ended up giving us what we didn’t want – a world with fewer options.

Every time we follow the leader for what seems like good reasons, the consequence is a narrowing of our choices. This is an important principle of information economics: “Market power is rarely seized so much as it is surrendered.”

Here are a few examples of some of today’s more unusual monopolies:

• Monsanto is the largest seed company in the world. It controls 95 percent of the market for insect and herbicide resistant cotton traits. During the late 1990s and through the 2000s, Monsanto acquired almost 40 companies creating the horizontal and vertical integration that underlies the firm’s dominant position in the seeds farmers plant in their fields. Their patents on Roundup Ready seeds gives them unusual power over the entire seed market.

• Major Sports Leagues. Because of the high barrier to entry, sports leagues such as the National Football League, Major League Baseball, and the National Basketball Association, an industry based on human athletic competition, ironically has little competition of their own.

• Luxottica. When it comes to sunglasses, there are many brands to choose from: Oakley, Ray-Ban, Revo, Vogue, DKNY. Some of the high dollar brands from Prada and BVLGARI cost over $500 a pair. All of these brands are made by one manufacturer – Luxottica. They started as a tiny Italian glasses company in the 1980s. Over time, Luxottica started buying every glass-wear company it could get its hands on. With growing levels of clout, they went on to convince virtually every fashion designer into letting them make their line of sunglasses.
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• Menu Foods. If you buy wet pet food labeled Eukanuba, Iams, Nutro, Hy-Vee, Triumph or Priority, it all comes from the same factory. One Canadian company, Menu Foods, makes all those brands. They just slap different labels on it because they know that we as a breed like the illusion of choice. Their wide distribution network and low-cost supply chain give them an unusual competitive advantage.
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• Private Prisons. Because of the lack of checks and balances, one of my biggest fears in life centers around the monopolistic nature of private prisons. Once built, private companies can virtually assure a full house simply by lobbying for tougher tough-on-crime laws.

Future Monopolies

One thing is clear, the monopolies of the future will be far different than the ones we’ve seen in the past. Limitations surrounding infrastructure that require pipes and wires will begin to find usual competitors. Similarly, industries formed around scarcity will be confronted with work-arounds that were previously unimaginable.

Perhaps the biggest battles will be wages over who gets to monopolize our time. Monopolies of the future will transcend country boundaries and defy regulation by any one country. While the advantages of an Internet based on a global communications network make it easy for us to eliminate dependency on buildings and specific locations, these same attributes make them harder to regulate. The Internet itself will become the subject of many take-over bids, the first of which will likely come from AT&T.

Final Thoughts

Government itself is a monopoly. People in government tend to be more tolerant of monopolies because they serve as a stabilizing force in an otherwise unstable world.

It would be a gross over-statement to say that monopolies are all bad. In the short term the create market efficiencies, set standards, and grow the market farther and faster than companies operating in small competitive marketplaces.

As consumers, it often far easier to have the decision made for us, where we only have one company to call.

The Internet is still in its adolescent years. The monopolists guiding the Internet are still in the “good-to-great” stage of the monopoly life-cycle. We can also take comfort in the fact that most of the Internet’s giants are aware of the responsibilities that come with the powers they wield.

Is there a chance that history could be handing us a new script to follow to go along with the new communication tools now in play? Not too likely, but I’m certainly open to hear from those of you who draw other conclusions.

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