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 tschmidtPremium,MVM
join:2000-11-12
Milford, NH
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| Lets Look at Historical Examples In deciding how to deal with this issue let’s look at the history of telephone service in the US to see if it provides any insight.
One of the methods AT&T used to crush competitors in the early 20th century was to refuse to connect to them – making them an island. To prevent this from happening regulators required non-discriminatory access. Anyone can connect at the edge of the network. Cisco got into hot water for proposing a 21st century version of this by telling ISPs they could use Quality of Service to advantage partners and handicap others.
Prior to the 1980s customers were not allowed to own or connect their own equipment it was rented from the phone company. This provided a lucrative revenue stream for AT&T and thwarted innovation. Cablelabs, the development arm of the Cable industry, is working furiously to integrate home networking into Cable service – thus being able to generate revenue and control each customer device.
During the early days of the Internet ARPA (now DARPA) went to AT&T, since they had the most knowledge about sophisticated networks, and asked them to participate in this grand experiment. They declined and had two major objections. They didn’t think packet switching would work and if it did they did not want to create a competitor. Innovation almost never originates from the incumbent – they are good at what they do and upstart technology is not as good as what they already have. New technology opens markets that does not yet exist. In the short term they are inferior to the status quo. Packet switching wasn’t better then the existing circuit switched network – but it opened the door to other services that could not be delivered over the old network.
Regulators enforced common carriage rules on the Telcos. Network was not limited to voice – as long as the customer meet the engineering requirements of the network they could send any type of information they wanted: voice, fax or data. Without the notion of common carriage the industry could treat voice, fax, and data differently.
Customers prefer predictable cost. To their credit telecom regulators required Telcos to offer flat rate service for local calls. This was fought tooth and nail because the industry wanted to charge by the minute.
The result of these telephone industry restrictions was to encourage experimentation. New services could be deployed using the telephone network. One of the reasons Internet adoption was so rapid in the United States is a direct result of telecom regulations. New services could use the existing network and the cost of experimentation was low.
Shifting to the Internet this begs the question is regulation needed? Do matters affecting the common good trump the rights of the access provider to control how the service is used? The Internet is a robust fault tolerant network so one can argue no single entity or group is able to control the Internet. In general this is true except as pertains to first-mile access – it is not redundant and is a scarce resource. Customers typically have few if any choice of first- mile access providers. This gives the carrier tremendous power to determine how the network is used. This does not have to be blatant all on nothing control. Even modest advantage to the privileged and modest disadvantage to the unprivileged will have a profound effect over the long term.
The question facing us is what, if any, limitations should be placed on first-mile access providers? | |
|   LegoPower77AbecedarianPremium
join:2002-08-03
Midlothian, VA | Re: Lets Look at Historical Examples Very good. I always respect your posts and I see your point with this one. But we've been through this before. I don't understand how you can worry about the last mile when there are many alternatives. There's DSL, Cable, Satellite, ISDN, Dial-up, and now Wi-Fi. Given the availability of substitutes, I just don't see how any one company would risk losing subscribers by saying, "we will block access to such-and-such site." Please inform.
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"Lunches don't get free just because you don't see the prices on the menu. And economists don't get popular by reminding people of that." --Thomas Sowell | |
| |  ravitalJust Another Pesky Independent Nh VoterPremium
join:2001-07-19
Merrimack, NH | Re: Lets Look at Historical Examples said by LegoPower77:
I don't understand how you can worry about the last mile when there are many alternatives. There's DSL, Cable, Satellite, ISDN, Dial-up, and now Wi-Fi.
You forgot homing pigeons and semaphores. I mean, if dialup is a viable alternative to cable broadband, why not semaphores?
When you're reduced to pedaling a ten-speed bike because monopolies will have effectively prevented all of us from owning cars (figuratively speaking of course), don't come crying to me, 'cause all you'll get is "bah!" | |
| | | LegoPower77AbecedarianPremium
join:2002-08-03
Midlothian, VA | Re: Lets Look at Historical Examples Even not having an internet connection at all is an alternative to broadband. People in here seem to think that monopoly power means that it can charge whatever it wants and give poor service to boot. Monopoly power is limited by the demand curve; that means, if they start charging too much, people substitute away —some even to having nothing. (Of course, what we see in this case is not a monopoly, but I guess I wouldn't know, I'm only working on my Master's).
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"Lunches don't get free just because you don't see the prices on the menu. And economists don't get popular by reminding people of that." --Thomas Sowell | |
| | | | | | Re: Lets Look at Historical Examples I'm bewildered by your insistence that nothing represents a substitutable alternative to something. By that logic, since one can do without almost anything except food all markets, except the market for food, are by default competitive no matter what the circumstances. I can't believe that you aren't just being perverse for effect.
Obviously there are limits to all power, at some point people will balk at participating and, at the extreme, rebellion or mob murder will ensue.
I have never seen an economist argue that this invalidates the understanding of monopoly pricing distortions/market control. Nor have I ever heard this seriously used as a justification for a deregulation agenda.
If you believe this why complain about governmental power? The government doesn't really have any power over you since you can always choose to turn your back on civilization and become a hermit, reverting to a pre-human monkey life swinging from tree to tree and eating bugs, nuts and berries. So none of us has anything to complain about and we should all just stop our whining 
Again I think you have crossed completely into the realm of the absurd and I find it hard to believe that you really buy what you are saying. | |
| | | | | | Or are you simply saying that you couldn't care less about competitive capitalist markets or whether companies control markets, abuse power, restrict entry. | |
| | | | | LegoPower77AbecedarianPremium
join:2002-08-03
Midlothian, VA | Re: Lets Look at Historical Examples The only way they can control markets, abuse power, or restrict entry is through government (which has a monopoly on force). Can you name for me a company that is a monopoly in the absence of this power?
Again, let me clarify my point about substitutes: I have cable modem, if they hiked the price up to $80/month, I'd go to DSL, I wouldn't be happy about it, but I would rather do that than pay $80. If DSL hiked their price, I'd go to ISDN; if ISDN hiked their price, I'd go to Dial-up. If Dial-up hiked their price, I'd probably pay it since I can afford it (because being an economist is quite lucrative ), but I could just choose to have nothing at all and go back to calling my broker for price quotes.
And believe me, I am considering going to another country in the future in order to escape this oppressive system we live under, what with the imperial Supreme Court deciding for the states what's best for them and congress passing a new hand-out to the wealthiest group of people, Costa Rica is looking quite nice (and the officials would be cheaper to pay to leave you alone).
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"Lunches don't get free just because you don't see the prices on the menu. And economists don't get popular by reminding people of that." --Thomas Sowell | |
| | | | | |  calvoiper
join:2003-03-31
Belvedere Tiburon, CA | Re: Lets Look at Historical Examples said by LegoPower77:
The only way they can control markets, abuse power, or restrict entry is through government (which has a monopoly on force). Can you name for me a company that is a monopoly in the absence of this power?
Uhh, how about DeBeers? They have for years maintained their monopoly on diamonds by avoiding US regulation--they operate offshore, and only advertise here.
Do you think MicroSoft would be less of a monopoly if we had no government involvement in its affairs?
Calvoiper
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VoIP--the death knell of remaining voice monopolies! | |
| | | | | | |  oliphant5Got Identity?Premium
join:2003-05-24
Corona, CA | Re: Lets Look at Historical Examples Add to that Standard Oil, AT&T, U.S. Steel and railroad conglomerates.
It's the lack of federal supervision that permits the growth of monopolies in the first place. Not the other way around. | |
| | | | | | | | LegoPower77AbecedarianPremium
join:2002-08-03
Midlothian, VA
| Re: Lets Look at Historical Examples Glad you brought those up. Let's look at it: AT&T — government created.
Some of these were covered in an article by Samuel Friedland in Journal of Law and Economics Vol. V, Oct 1962.
Standard Oil: In 1870, they had 4% market share and produced 3.9 million barrels @ $26.4/bbl, in 1890, their market share was 88% and they produced 28.2 million barrels @ $7.5/bbl —that's right, the price went down. By 1911, their market share had fallen to 69% and they produced 121 million barrels at $4.7/bbl.
Alcoa (you forgot to mention them):
In 1887, their output was 15K lbs @ $5-8/lb. By 1941, the output had increased to 500 Million lbs for a price of just 15¢/lb.
Railroad conglomerates:
Arthur Hadley wrote at the time that railroad rates fell an average of 50% from 1856 to 1880 (Railroad Transportation; its History and its Laws (GP Putnam's Sons, 1885): p. 17). Likewise, John Stover estimates that railroad rates fell 70% between 1870 and 1900 (American Railroads (University of Chicago Press, 1961): p. 100).
While I don't have data on US steel handy (too lazy to look for it) I assure you it's the same case, the price was brought down under "monopoly" control.
In modern times, Microsoft gets in trouble for being a monopoly at the same time they bring prices down (the browser was given away for free for crying out loud).
My point is twofold, then. A. monopolies don't exist —even in the best of times, Standard Oil did not have 100% market share— and certainly not in the broadband market (as evidenced by the news of price wars), and B. where we see monopolistic competition generally the consumer benefits.
Q.E.D.
{edit}
The prices quoted are in unadjusted dollars{/edit}
[text was edited by author 2003-07-09 08:30:13] | |
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| | | | | | LegoPower77AbecedarianPremium
join:2002-08-03
Midlothian, VA | I'll have to check on deBeers, but I'm not so sure about it, in my area, I hear ads for Mervis(sp?) Diamond Importers.
And no, I don't think Microsoft is or ever was a monopoly. You can get a Mac with no Microsoft products on it at all.
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"Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it." —Ronald Reagan | |
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| | | | LegoPower77AbecedarianPremium
join:2002-08-03
Midlothian, VA | As a follow up, I've mentioned this before in other posts, but perhaps you didn't see it:
quote:
“Enthusiasm for perfect competition in theory and the support of monopoly in practice are indeed surprisingly often found to live together.”
The reason for this is that people get so caught-up in trying to make everything “competitive” that they end up distorting the market by excessive regulation.
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"Lunches don't get free just because you don't see the prices on the menu. And economists don't get popular by reminding people of that." --Thomas Sowell | |
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| | | ravitalJust Another Pesky Independent Nh VoterPremium
join:2001-07-19
Merrimack, NH | said by LegoPower77:
Even not having an internet connection at all is an alternative to broadband. People in here seem to think that monopoly power means that it can charge whatever it wants and give poor service to boot. Monopoly power is limited by the demand curve; that means, if they start charging too much, people substitute away —some even to having nothing.
I'm sure you've noticed, that for at least 30 years now, we've been living in an Information Economy. By that I don't mean an IT based economy, I mean an economy where people are much more finicky about how they spend their money. They demand to know a lot about a product before reaching for their wallets. Whether you try to sell a toaster or a supercomputer, these days, you have to list features, facilitate product comparison, i.e. provide information and plenty of it. The days of making a profit by running an assembly line that produced identical kitchen radios in 4 different colors are long gone (I still had hair on my head when that was a viable model).
So please tell me, when I shop around for internet services, how exactly do you price "nothing?" What features does "not being connected to the internet at all" have, and how do you compare it to anything else?
On a linguistic or philosophical level, sure, I suppose death is an alternative to life, and probably only one of many. When it comes to the pragmatics of daily life, in order to engage in trade, you need something as pedestrian as a frame of reference. And for better or worse, consumers will gravitate to the most widely accepted frame of reference. In this specific example, the most widely accepted definition of broadband is 1Mb down or better, meaning Cable and ADSL qualify, dialup does not. It's not a particularly profound or beautiful or even valid truth, it's not justice or fairness, it's what people accept, when they have to function in an information economy.
Your argument about the "Demand Curve" is especially relevant in an Information Economy. ILECs, to name just one "almost former" monopoly, would not be engaging in their current price-wars against Cable if we were all kept dumb and ignorant about the industry. The fact is, that is precisely what drives their efforts to petition government for less regulation. They know consumer demand, if unchecked, is going to gravitate not towards "nothing" or towards "no internet connection" but towards the better alternative, and having realized that they no longer represent the better alternative for as many consumers as they used to, they petition government to hinder consumer choices to extend their ability to limit the options. Or in plain English, to extend their monopoly power.
How, you might ask, would consumers opt for better alternatives if they are under the thumb of monopolies? Isn't that a contradiction? I'm glad you asked  To give you just one example: Talk to real-estate agents today, they'll tell you that more and more buyers are looking for locations with broadband (if I were in the market today I'd look no further than 5,000 from a CO because I'm itching to become a Speakeasy customer. Alternately, I'd look for a town with it's on municipal FTTH). And that's just one example. These corporations are not in business to do right by the consumers that pay their salaries, they're in business to catch the consumers that are getting ready to open their wallets. They have forgotten that Capitalism demands that they do both. Subsequently, and as a direct reaction to that callous approach, consumers understand very well that their opportunity to opt for better alternatives is just before they open their wallets.
said by LegoPower77:
(Of course, what we see in this case is not a monopoly,
Again, the most widely accepted frame of reference will apply, right or wrong. We can split hairs about the academic, linguistic, philosophical or economic definitions of "monopoly"; in an Information Economy, perception is almost everything, reality is almost nothing. Don't take my word for it, look at the degree to which the fluctuations of the Stock Market are driven by perception vs. reality, and I'm sure you'll agree that the influence of perception is completely out of proportion. said by LegoPower77:
but I guess I wouldn't know, I'm only working on my Master's).
That's wonderful, really, good luck with it, I mean it. But you're not the only one, and again, respectfully, a Masters or even a PhD is not a mark of infallibility, especially in Economics. Economists who have won the Nobel Prize have been proven wrong, as I'm sure you know. | |
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| | | A consistent mistake that I feel you are making is a very questionable notion of what constitutes a competitive market.
As oliphant pointed up above one can have a flurry of focused content and still have concentration of power distorting the market. For example, the fact that your town might have a country, top 40, and rock station, all owned by clear channel, isn't evidence of a competitive local radio market.
I'd like to take your alternatives above one at a time.
One of the issues with a competitive market is whether the product offerings of alternative firms are ready substitutes for one another.
You can't seriously be claiming that dial-up is a competitive alternative in the broadband space? You just threw that in as padding. ISDN would be a closer substitute than dial-up, but it is much lower bandwidth(doesn't really classify as broadband) and typically much higher cost, except in those areas where the local/state government has been aggressive in using its regulatory power(isdn falls under a similar regulatory framework to voice, this is a key reason why the telcos never really wanted to push it and tried to price it out of the market).
Wi-fi equipment sales are strong but the notion of wi-fi becoming a last mile alternative is presently nothing but hype and hope. Beyond some, as yet unproven, experiments with pay per minute/hour business service to hotels and airports there is very little happening here.
Satellite broadband is stagnant, low earth orbit systems have been scrapped and geosynchronous systems are not serious competitors to cable or dsl. This will remain a small niche offering to those whose only alternative is dial-up. Without some major technical breakthrough it will not be able to affect the market/pricing power of wireline carriers.
That leaves dsl and cable which are the only reasonably comparable substitutes of the list you gave. You may want to argue that a single coax cableco/ single copper telco duopoly constitutes a competitive market. The very fact that prices have remained stagnant until very recently while costs have been plummeting is a pretty good sign that market mechanisms are not functioning here. I'm not going to claim that there is criminal collusion going on, but there was pretty clearly price signalling with tacit agreement to maintain the $50 price point. The only reason that there is pricing experimentation going on now is because these companies are realizing that they have saturated the early adopter market and broadband growth will stall without price reductions.
I also want to give a thumbs up to oliphant and tschmidt for arguments in this thread(I realize there are others unnamed as well). | |
| | | LegoPower77AbecedarianPremium
join:2002-08-03
Midlothian, VA | Re: Lets Look at Historical Examples As an economist, I'm not hell-bent on making a market artificially competitive. I have no problems with monopolies or duopolies because all they do is capture more consumer surplus. True, depending on the market structure of the monopoly/duopoly, there may be dead-weight loss, but how much dead-weight does government interference create? All the money and resources spent on lobbying offer a clue.
Furthermore, we know from economics that monopolies are inherently unstable and ephemeral so they do not last in the absence of government regulations which support them. While not directly on point of this thread, check out an earlier post of mine to see how regulation actually hurts consumers and perpetuates the eeevil monopoly: »Missouri Explores Deregulation
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"Lunches don't get free just because you don't see the prices on the menu. And economists don't get popular by reminding people of that." --Thomas Sowell | |
| | | | oliphant5Got Identity?Premium
join:2003-05-24
Corona, CA | Re: Lets Look at Historical Examples As an economist?!? ROTFLMAO! | |
| | | | | | | Re: Lets Look at Historical Examples Now Now, oliphant there's no reason for that.
lego:
By the way, I did read the link and I agree with much of what you said about the complexities of price controls. I also am no fan of import tariffs. Still I feel by focusing on regulatory price issues one is picking and choosing to fight parts of the battle that one can reasonably win. The regulation issues that we are focusing on here revolve around social issues that aren't readily reduced to price and supply/demand curves. Do you believe that there are legitimate social benefit concerns, such as open communication, in an unregulated concentrated market? Do you recognize that these issues, although not easily quantifiable in strictly economic terms, themselves have complicated economic effects?
I feel like I have a vague grasp on what you are arguing but I'm dumbfounded at how to proceed.
You seem to be arguing that the broadband market is competitive at one moment(which I don't agree with) but you have also said things that suggest that perhaps you recognize it as non-competitive and that this does not bother you. You appear to believe that even monopolies should not be regulated and if I'm understanding you believe that "being limited by the demand curve" will be acceptable restraint on monopoly power?
The demand curve is a mathematical construct bound up with supply and price. Yet both you and I seem to be looking at demand as encompassing much broader intangibles. I don't see how in the above context there can be any room for any of the issues of free speech, concerns about non-price oriented abuse of power etc. How in an unregulated non-competitive market do we protect these values that are not purely about economic efficiency. Do you believe that consumer revulsion is, in itself, enough of a check on predatory behavior? How does one explain the historical record of predatory behavior.
Perhaps I'm only making this murkier, but it seems to me that we are talking at each other. It doesn't appear to me that concerns about access and free and open communication are of much concern within the intellectual framework you are arguing from. Perhaps I am being uncharitable. | |
| | | | | | oliphant5Got Identity?Premium
join:2003-05-24
Corona, CA | Re: Lets Look at Historical Examples said by asdfdfdf:
Now Now, oliphant there's no reason for that.
Well it's like claiming you're a mathematician while arguing that 1 + 1 = 3. | |
| | | | | | | | | Re: Lets Look at Historical Examples would you please stop posting,it distracts from those with real points of view. | |
| | | | | | | calvoiper
join:2003-03-31
Belvedere Tiburon, CA | I've got to agree with oliphant here.
It would seem that LegoPower has never considered the impacts of someone cornering the market in a basic necessity. It's all well and good to talk about "consumer surplus" in a non-necessity that may be "elastic" (i.e., how much people buy depends on the price) but it's really different for an "inelastic" product (like bread, heating oil, etc.)
Consider Mexico, where the cement business is entirely controlled by one individual. Cement is the principal residential building material in much of Mexico, as wood is not plentiful and subject to the tropical effects of rot and termites. Most cement is sold for residential projects in bags of 50 Kg. or less, and costs far more than comparable product in the US. Is it really OK with you, lego power, that one individual get fabulously wealthy on the backs of millions of Mexicans who have no cement choice?
Oh, and BTW, that one individual is Carlos Slim--who also controls TelMex, has a big investment in SBC, and sits on SBC's Board of Directors.
Calvoiper
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VoIP--the death knell of remaining voice monopolies! | |
| | | | | | | | LegoPower77AbecedarianPremium
join:2002-08-03
Midlothian, VA | Re: Lets Look at Historical Examples Not to sure about this case either, I'd like to see your data. But I'd hazard to guess, if this guy has such a coercive monopoly, there is no doubt some sort of government interference propping him up.
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"Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it." —Ronald Reagan | |
| | | | | | | | | oliphant5Got Identity?Premium
join:2003-05-24
Corona, CA | Re: Lets Look at Historical Examples Yay! Way to wake up a 10 day old thread. | |
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