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Comment by doyoulikeworms | Hacker News Reader

This system is "tolerated," simply because there is nothing wrong with rightfully earned monopolies. Monopolies turn bad the moment they gain special treatment from the government. That's where things get ugly.

There's nothing stopping another search engine from springing up (and they do, of course). There's nothing stopping search engine XYZ from topping Google except for the aggregate of our voluntary decisions. This is not a bad monopoly.

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Monopolies can do a great deal of anticompetitive things without the help of the government. In the past antisocial pricing that was the primary concern. While these firms are different in that they do not charge users directly, their revenues are directly related to the size of their user base and other familiar tactics can be employed: For example, using their user-base to squeeze competitors in vertical industries, and employing defensive tactics that ensure direct competitors can never gain traction (see contacts spat).

If the monopoly is in an industry where the barrier of entry is very high, then yes, they could raise prices to antisocial levels and make exorbitant profits; However if the monopoly was in an industry where the barrier of entry is very low, the monopoly doesn't have that much power to raise prices to antisocial levels; If they do other competitors will jump in. Imagine, through low prices and effective logistics you've achieved a monopoly in producing wheat. You have a monopoly because no one can afford to sell as low as you do, not even the poor developing country farmer; Now imagine that you got arrogant and raised your prices by 350%, you'd start to lose the monopoly because other competitors can now enter the market. That's why you wouldn't raise prices even if you have a monopoly, if your industry has a low barrier of entry. No matter what you cannot employ defensive tactics to ensure your competitors (other farmers) can never gain traction, if your prices are too high.

Now, whether search or social networks are high barrier of entry industries, is another question. (I tend to think so)

Is monopoly even possible in easy to enter markets? Could you please present an example?

Let's say in a town of 200 people you open the first fruit shop. Turns out people there love fruits but just never knew it. Everyday they only come to your shop to buy fruits. That's a monopoly already. However, you'd only stay a monopoly if your prices stay competitive. If your prices are too expensive and your margins are too high, other opportunists will jump in to open their own fruit shop, and there's nothing you can do to stop them. You can try to drop your prices, but that's it, and now you're worse off, your prices are lower and there's a competitor. You'd rather have prices to be low all the time and have all the business to yourself.

I think that your example does get a point across, however there are a couple of problems with it:

1. I was hoping for a real world example (if its possible then there should be many examples, right?). 2. You imply that the fruit shop owner has access to the most efficient supply chain of all the other potential, would be fruit merchants and thus the only way he can loose his primate is if he raises the prices too much. How about people who start competing for various reasons like: I don't like the guy, or I don't have a better idea for business, etc. 3. Defining monopoly too locally has its own problems: Grocery store has a monopoly over selling groceries on a block, if there are two groceries, we can say that each has a monopoly over their part of the block, etc. See that's not really a monopoly.

The point is that in free, easy to enter markets monopolies are impossible - by the virtue of free and easy to enter market. What monopoly really is - domination of a single entity over a regulated (possibly by the monopoly itself) and expensive to enter market. Examples: http://en.wikipedia.org/wiki/Monopoly#Examples_of_legal_.28a...

See no village fruit merchants there.

By your definition, Amazon is not really a monopoly either, its got to compete with all these brick and mortar book stores...

My definition: a firm is a monopoly in a market when it is the only firm trading in that market.

The grocery shops on two blocks: not really, their markets overlap.

To look for real examples, pick any country town with 1 petrol station, or 1 book store, or 1 supermarket, or 1 fruit shop. You're never going to get these mentioned in a Notable Monopolies list on wikipedia.

Amazon is waaaay from monopoly. It competes with eBay, specialty web stores,...

And also - entering the field of WEB commerce is not a hard to get into market per say. Getting into oil market or telco marker, even getting Wal-Mart out of the way - now these are some hard undertakings.

In a town with 1 fruit shop - you can always go to nearby town if you don't like your fruit merchant (out of spite for example). But when you arrive to these nearby towns - and everywhere there is basically the same fruit retailer, with the same problem that bothered you with the first one. That's when you encountered a true monopoly.

I'm from ex-socialist republic and mostly everything was monopolized (many things still are) by the government or government owned enterprises. If you're from US, you wouldn't have seen stuff like that since AFAIK you guys are really good at breaking stuff like that apart.

So while I admit that your reasoning is solid, I view the term "monopoly" as inherently bad, since lets face it most (even all?) businesses start squeezing their customers when they get the chance.

Seriously, drive 100km to the next town to buy fruit when you have a reasonably priced fruit shop next door? :)

I'm from Australia, similar i suppose. Monopolies are generally bad, but as I said before, monopolies that result because a firm is super efficient and keeps prices low, and remains that way because it is afraid of potential competitors, well that monopoly is hard-earned. Although these so called monopolies are generally small. (being the only firm in a niche market).

"there is nothing wrong with rightfully earned monopolies."

Market dynamics can create an anti-competitive, bad-for-the-economy monopoly without gov't help. Your assertion assumes that there exists no economic barrier so large that it is irrational for a potential competitor to try to overcome it.

In fact, there are easy counter-examples: imagine a town's public water source dries up and the only well is owned by a purely rational/greedy party.

Did you read "In search of stupidity"? It's a very interesting and amusing book, and it makes a point that Microsoft monopoly owes more to competitors' ineptitude (Borkand, Lotus, Novell, Digital Research, etc) than to Microsoft genius per se. Therefore Microsoft monopoly may be "rightfully earned" in some sense, as bad as it is - though it carried some positive effects too.

Actually, I'd see Amazon, Google and Facebook as three somewhat different types of monopolies.

Google's monopoly comes economies of scale and superior technology. No one is locked into the Google, you just prefer Google because it is superior.

Facebook's monopoly is network effect.

Amazon is something like traditional horizontal monopoly.

The only thing the companies have in common is that they're on the Internet. But the main conclusion is that Internet is where all future market dramas will be played out.

But Amazon is only something like 10% of all online sales, isn't it?

"all online sales" is not really relevant. Nobody is anywhere close to monopolizing all sales on the internet. Saying Amazon is not a monopoly because they don't dominate all sales is like saying PacBell wasn't a monopoly because they didn't control all forms of interpersonal communication. Instead, look at their chunk of sales of their core items, such as books.

Google search is starting to suck a lot though. Now half the time I search for something I end up with garbage and give up. Tried searching up the name of a virus .exe and got a spam page instead of anything relevant as the first result, with more spam pages for the rest. This is not a one time or occasional occurrence anymore.

Agreed and by that token Google seems like they could lose their position.

It's a shame since alternatives still look more evil.

Duck-duck go definitely is not evil. Still suck for non english searches, though.

Their other commonality is that they are "new markets". As the article indicated, monopolies do tend to spring up in new markets. In new markets, what to do to be successful is not immediately obvious, so the difference between competitors is much greater.

As markets mature, the differentiation between competitors lessens. Does that mean that the competition will increase? In the case of Amazon or Google, it should. However, it's possible that Amazon or Google will gain governmental barriers to competitors (they're big enough to buy congressmen), or quasi-governmental barriers (a-la Paypal) or strong arm barriers (a-la Standard Oil). Let's hope that they don't gain those barriers.

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