Monday, June 28, 2010

Monopoly is Over-rated

When I was at the FTC, early in the Reagan administration, we had a test for whether an industry was a monopoly:

1. Rank the firms in the industry by size, from largest to smallest.
2. Now count the number of firms.
3. If the number is bigger than 1 it is NOT a monopoly.

Here is a slightly more sophisticated approach, but pretty much the same idea. Monopoly simply does not exist, outside of government action and a (very) few extraction industries such as diamonds.


Dirty Davey said...

I would say that Microsoft clearly had a monopoly in the OS industry, in the era in which they were dictating to Dell, Gateway, etc. that the "Windows licensing" fee was owed per computer sold, whether that computer included Windows or not.

Technological change has somewhat broken that monopoly, but for a while there it's hard to argue that Microsoft was anything but.

Tom said...

DD, how did Microsoft maintain their monopoly?

Oh, wait; they didn't. I have two machines running Ubuntu and it's nice to see MS running third in the smart phone market.

I hate MS as much as anyone, but they maintained their lead by innovation and marketing. Nothing wrong with that.

MaxSpeak said...

So it turns out that economics is really easy, like DeLong says.