Monopolies and Barriers: Good or Bad for Business?

Barriers seem to be bad for business, but who is the one that builds them up?

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Monopoly means one seller. So, is that inherently bad? If not bad, is it inherently helpful to society? Dr. Per Bylund argues in his lecture “Monopoly Power: What Should We Fear?” that monopoly power is a good thing, and I am surprised to say I think I agree with him in most regards.

Monopolies don’t drive innovation, but innovators are often monopolies, and that’s ok.

At first, I thought Bylund was arguing that monopolies drove innovation. This seemed so counter to everything I know about capitalism and free economic theory, but then his explanation made sense. It was argued that when innovators introduce a new product, they are, by definition, monopolies because they are the only company providing the service. And this makes sense when considering cycles of innovation. The example of Apple was used when they first created the iPhone, and how everyone wanted an iPhone compared to flip phones. Apple was just as much a monopoly at the time as they were a market disruptor, and then other companies began to imitate Apple because their product was so valuable to consumers. It is important to note here too that consumers still had a choice whether to buy a flip phone or an iPhone. The flip phone was much cheaper, but it wasn’t as valuable to consumers, and they were willing to pay upwards of 4x more for an iPhone because they saw it as more valuable. So yes, Apple had a monopoly on phones and still does in America for the most part. And this is not necessarily a bad thing.

Another example I can think of is Tesla. While maybe not as extreme as Apple, Tesla certainly innovated beyond other companies early in the electric car introduction to the United States, and because of this, they seemed to be the only company that was producing at a high level. Though, fast forward years later to today, every car company in America has multiple electric models that are available at all price ranges. I would not say that today any company in America has a monopoly on electric cars. I think this cyclical nature of innovation, then brief monopoly, then other companies following suit is very interesting, and can only exist if the barrier of entry is low enough and other companies can enter the competition.

Barriers to entry must be low enough, and it often isn’t. Bring down that wall!

Bylund argues that you only need one market in a competitive market if and only if other companies are allowed to enter. This was an argument I have never heard before and it makes sense. Bylund discusses Nokia which was once shifting to become a flip phone monopoly. Now Nokia is not even a major competitor. Why? Because other companies made better products, i.e. produced more value. Apple’s iPhones are better than the Nokia Lumina, if not for any objective reason, simply because they are worth more value to consumers.

But Apple was allowed to enter the market. Bad monopolies, according to Bylund, exist when the barriers are too high for competition to come in and undercut the business providing the service. New companies must produce something different, or they must do it cheaper, and the former is easier because the existing company likely has already cut costs. But the main culprit for a barrier to entry, Bylund argues, is the government. And the examples he provides have some merit. I did some more research on CON laws and the lack of competition and high costs of hospitals. I didn’t know CON laws were a thing, and at first, it seemed that collusion was the problem. But the government is the one who allows and mandates the CON laws, and thus, they are responsible for the lack of competition. This goes back to the argument that only one business is needed in a free market, as long as it can be competed against, and the barrier is low. But when government collusion exists, then the barrier is high, and all the companies can collude with each other.

And the companies embrace the regulation because it protects them. So, in a way, as Bylund says, monopolies are not the problem, regulations are. And while some regulations are good, those that prohibit competition are not. I personally think that some regulations that prohibit public harm like environmental degradation and defrauding the public are necessary, but regulations that enable monopolies are not something I really even considered possible before this lecture. Now I see how harmful they can be.

The Curious Case of Amazon and Money in Politics

I wish I could have asked this question in person at the lecture, but I am puzzled at a company like Amazon. It is probably a fair bet to say that Amazon has engaged in some form of regulatory capture, even if I am not aware of any specific law that prohibits competition with Amazon (I should do some more research). But isn’t the fact that Amazon is such a big company, has such a vast resource network, and such a capture of the market, inherently mean that the barrier is so high, even if that barrier is self-manifested by Amazon itself? In other words, can companies not build their own barriers high enough to where others cannot compete? Amazon continues to expand its value to customers, and they can even ship medication to consumers now and act as a pharmacy. Does this not undercut small businesses and put people out of work? I also know that many small businesses use Amazon as a distributor, so in a way, Amazon expands business ability instead of stifling it. But I still wonder if all barriers are only government-constructed and if companies can't construct their own barriers to entry.

Lastly, in a political science class last semester on campaigns and elections, we had a unit about money in politics. Our professor reviewed many studies with us that showed that more money does not automatically win a candidate's election, no matter the sum. But, where money did make a difference was in getting candidates to a certain threshold, which was higher than the ‘average Joe’ could afford. This threshold was easier to achieve for those already in office. So, money made a difference in overcoming the initial money barrier, but after that, it didn’t make much of a difference in influencing elections. I wonder if Amazon is not in a similar position. The barrier seems to be too high for any sort of similar business to compete, government-regulated or not.

While I have explored various perspectives in this essay, it is important to note that I do not necessarily ascribe to any argument made here 100%. This is a writing exercise, and I sought to explore various perspectives after watching the lecture, as per the assignment instructions.