Tag Archives: Monopoly

Indie Authors, Gamers, and Monopoly Censorship

Book publishing and game news journalism are both being disrupted by “user generated” platforms that have consumer-side economies of scale.

For book publishing, two of these platforms are Kobo and Amazon Kindle. The users/producers of these services are called “indie authors.”

For game news publishing, two of these platforms are Twitter and Reddit. The users/producers of these services are called “gamers.”

While these services are united in their hostility to other types of publishing, each still faces competition from other “user generated” platforms with consumer-side economies of scale.

For instance, in book publishig, Kobo’s President Michael Tamblyn is warning “indie authors” that Amazon Kindle’s interest is not theirs, and Amazon Kindle could use market power to take away their profits and silence them.

Meanwhile, in game news publishing, this form of censorship has been observed. Early on in the #gamergate scandal, reddit began censoring discussion of collusion between Vox Media, Gawker Media, and game developers. This lead to the discussion to shift to twitter, a rival platform.

The power that monopolies have to extract all profits and control the agenda is called wholesale transfer pricing power.

If Amazon achieves a monopoly in “indie author” book publishing, they would have wholesale transfer pricing power, be able to strip all economic profits from indie authors, and censor indie authors at will.

If Reddit would achieve a monopoly in “gamer” news publishing, they would have wholesale transfer pricing power, be able to strip all economic profits from indie authors, and censor gamers will.

The only difference is that this shift from command-and-control to user-generated publishing is more advanced in game news than it is in books.

The today of gamers is the tomorrow of indie authors.

That’s why the gamergate scandal is the biggest news in publishing.

The Cartel

Monopoly is the natural form of human social organization.

Within the context of suppliers, a monopoly is called a cartel.

The leader of the cartel — or El Capo del Cartel — is typically charged with setting the cartel’s agenda. As the capo is in the unique position of reacting to events he controls the timing of, the capo is able to hedge his bets much better than others. This allows the capo to reap a disproportionate share of profits from the cartel.

In other situations, a Capo might be referred to as a Hegemon, a Bank, or a Central Actor.

The most dangerous time for a Cartel is during a Power Transition. During a Power Transition, a Lieutenant (or constituent member of) the Cartel perceives itself to be able to challenge the Capio, or, alternatively, the Capo perceives a Lieutenant of being in the position to do so.

Presuming the Capo is competent, the other Lieutenant are steadily rewarded by the Capo. Thus, they have much to lose in a potential change, and little to change. Therefore, during a Power Transition, the majority of Lieutenants can be expected to side with a Capo against the challenging Lieutenant.

Within the context of large states, the following wars were caused by a Power Transition, fought between a challenging Lieutenant against his Capo & his Capo’s Lieutenants.

  • The Napoleonic Wars, 1803-1815 (France v. Anglo-Austro-Russian Cartel, unsuccessful)
  • The First Germanic Wars, 1864-1871 (Prussia/Germany. v. Austro-Franco-Russian Cartel, partially successful but unresolved)
  • The Second Germanic Wars, 1914-1918 (Germany v. Anglo-Franco-Russian Cartel, unsuccessful)
  • The Third Germanic Wars, 1936-1945 (Germany v. Anglo-Franco-Russian Cartel, unsuccessful)
  • The First Japanese Wars, 1894-1905 (Japan v. Sino-Russo-American Cartel, partially successful but unresolved)
  • The Second Japanese Wars, 1933-1945 (Japan v. Sino-Russo-American Cartel, unsuccessful)

The next power transition concerns the United State and China.

Major periods of peace, during which a Power Transition was not seriously threatened, include

  • The Anglo-Austro-Russian Cartel (1815-1864, collapsed following successful Prussian/German challenge)
  • The Russo-American Cartel (1945-1991, reformed following collapse of Lieutenant position)
  • The Euro-Sino-American Cartel (1991-Present, reformed Russo-American Cartel, still extant)

Cartels and Power transitions also occur at the Class level.

For instance, consider the Proletarian class. The ancient population of American blacks have long been consigned to the proletarian classes, for many reasons. While the Proletarian class has rarely been in a position to challenge the Bourgeois in the united States, a Cartel still naturally forms among members of the Proletarian class to determine which group may take the position of Capo del Cartel of the Proletarians.

Here are some famous racial disturbances in the United States, all of which were caused by power transitions in the United States

The recent violence resulting from the George Zimmerman – Trevyon Martin Incident are clear evidence of another Power Transition, this one featuring a challenging Hispanic population and a Black-led cartel.

Unlike States, peoples are able to transcend their current class through wise moves. As the saying goes, “Life is an IQ test.” This is why power transitions among States are less likely to be successful than power transitions within a class. Additionally, Cartels at the Proletarian level seem more willing to initiate violence than Cartels at the State level.

Historic tensions relating to Irish, Chinese, and Korean proletarians largely ended once those groups began transcending the Proletariat and joined the Bourgeoisie in large numbers.

After a middling number of deaths, Hispanics will likewise transcend the Proletariat.

Thus, while it is a sign of strength for one State to remain a leadership position in the Cartel of nations, it is probably a sign of weakness for one People to remain a leadership position among the Proletariat.

Monopoly and Labor

Early last year, Bruno Behrend wrote an article on private sector unions. Bruno’s article itself was in reaction to Marc Oestreich‘s “libertarian defense of unions.” Both Bruno and Marc work at The Heartland Institute, which is definitely a testament to Heartland scholars’ freedom of inquiry!

The full discussion is worth reading. Instead of addressing either Bruno’s or Marc’s views in full, I want to take a moment to call out their views on monopolies:

Marc:

So that you all don’t think I’m a total dunce, I want to share one argument against unions that makes me waver. Keeping with theme, I’ll offer an analogy:

If HP, Canon, Lexmark, and Epson CEOs sat around a table tomorrow and decided to set their prices artificially at $500 for a color inkjet printer, would it be legal? The answer is no. This would be collusion. So why isn’t it collusion when sellers of labor get together and set a price? Well, it is and it isn’t. It isn’t because not all laborers join unions. And it is because they do influence prices.

The way I’ve settled this argument internally is by simply deciding that all collusion should be legal.

Bruno:

Now, I don’t know how much that story might be embellished, but I think all of us in public policy — left or right — know that this anecdote is utterly believable. As an youngster, I was flabbergasted. ”People should be paid by the brick, ” I said.

Frankly, had I been raised in a pro-union household, where a more collectivist-minded person raised me to think that we owed “the union” our very livelihood because of paid vacations, 8-hour work days, and the underpinning the whole of western civilization, then I might have a different perspective. But I wasn’t, thankfully.

The fact is that unions exist to (a) withhold labor from the market, for the purposes of (b) extracting the least amount of labor for the most amount of money/benefits. They are essentially monopolists who must first use government to restrict the supply of labor in their favor, so that they can command a higher than market price from the employer.

A monopoly is a firm that enjoys massive economies of scale, is able to earn an economic profit, and is responsible to be both understand its economic position and be empathetic to other stakeholders in the political-economic system. Monopolies can be formed through collusion, or through other means. There is nothing inherently bad about monopolies, and some industries naturally tend towards monopoly.

In the education sector, teachers formed a monopoly that is currently collapsing due to their failure to educate children and their callousness towards employers, state governments, and others.

The leadership role that teachers once had is being split between stakeholders who have suffered under the teachers’ inability to offer a high-quality education. The intellectual leadership position the NEA, AFT, PTA, and others once had is being replaced by the federal-academic complex of scholars, bureaucrats, and scholar-bureaucrats.

Bruno is right that teachers formed a monopoly, and Marc is right that monopolies are not inherently bad.

What is bad is when the monopoly fails to understand its business and fails to understand other stakeholders.

The articles by Bruno and Marc were narrowly targeted to the debate over private-sector unions, but apply very well to the much more important discussion on teachers unions. I enjoyed reading both of their pieces.

Review of “Who Says Elephants Can’t Dance,” by Louis Gerstner

Louis Gerstner was the recent Chief Executive Officer of International Business Machines at the time he wrote this story of his ten years at the company.

Technology platforms tend toward monopoly, and the monopoly that build IBM was the System/360. IBM sold a high-margin, integrated computing solution for companies that limited the uncertainty large computer buys experienced, at the cost of a higher price tag. Because IT is cost center for most companies, overpaying for computer equipment (relative to market rates) but with the need for a less skilled IT workforce (relative to companies that bought less expensive equipment) made IBM an attractive force.

Like all monopolies, IBM faced challenges relating to understanding the market and empathy for other stakeholders. Unlike Microsoft, IBM was able to avoid a consent decree, but the defensive market practices that IBM engaged in during the lawsuit (1969-1982) may have harmed IBM’s long-range competitiveness. The trust threat to IBM’s System/360 monopoly came not from the Department of Justice, but from Unix, a family of operating systems that was born in 1969 at the AT&T Bell Telephone Laboratories. (The 1969 date is probably not a coincidence. If IBM had been able to protect its business Unix would have been irrelevant. )

Unix, an operating system family for ‘computer computers’ (which is now featured on many smartphones), was soon joined by the down-market competitor of PCs running Microsoft operating systems and Intel computer chips. The cost advantages of Unix and Microsoft against IBM soon became substantial enough for corporations to save money buy building their own IT departments to handle Unix and PC systems, and IBM’s System/360 fell behind..

Many in IBM supported breaking up the company into smaller, nimbler, competitors. The madness of that period can summed up in this chart, part of an article insisting that IBM be broken up:

Gerstner understood the market IBM was in was technology services. In the 1960s, as today, most companies do not want to be in the Information Technology business. Wheter you talk about “software as a service,” or “cloud computer,” or whatever, the basic concept is the same: moderately-priced reliable service is better than internally-sourced attention-demanding IT. Sadly, by the early 1990s, the System/360 family not was just one of many computer architectures, along with Unix and Windows, and so IBM was no longer a one-stop shop.

This is the situation that Gerstner inherited.

There were two naturally roads for IBM in the 1990s to return to being a sole-provider. One was to double-down on the System/360 family, and fight off Unix and Microsoft. Another was to abandon any hope of reestablishing a monopoly in computer equipment, and flee up the value chain by being a consulting & integration computer. Gerstner, who several times in the book decries the focus on technology platforms as irrational, chose the second.

I’ve been thinking about monopolies a lot recently (which has inspired excellent posts on other blogs, as well), and have written about IBM in the past, as well. Who Says Elephants Can’t Dance is the fascinating story of a former monopoly reborn as a competitive market player.  While like other books (including On China by Henry Kissinger, and Deng Xiaoping and the Transformation of China by Ezra Vogel) you need to read between the lines on occasion, the book was well worth it.

I listened to Who Says Elephants Can’t Dance, unabridged, on my Kindle.

The Life Cycle of a Monopoly Enterprise

Every monopoly is born, lives, and dies.

First, a monopoly enterprise is born thru:

  • organic growth of one competitor
  • a trust between several competitors
  • an outside firm using cash to buy a monopoly position
    government fiat
  • a privatization of a governmental function

Standard Oil was created as a trust. China Mobile had originally been a branch of the government in China.

Second the monopoly enterprise acts like a monopoly by:

  • Enjoying economies of scale
  • Extracts economic profit
  • Experiences regulation by the political economic system, which itself requires the monopoly to:
    • flatter existing power-holdings
    • Assist other stakeholders in achieving their objectives
    • Avoid enraging any stakeholder that can kill the monopoly

I’ve previously discussed dangers that monopolies face.

Third, the monopoly enterprise loses monopoly status and capitulates. This can be because of:

  • Not understanding the market
  • Not being empathetic to other stakeholders

The unpopularity of the term “monopoly” comes from this process of capitulation from a consumer’s perspective.

Following capitulation, the monopoly might be

  • Broken up into multiple successor firms
  • Reduced to single competitor firm in a market
  • Incorporated into the government

At some point in their history, Hudson’s Bay Company and General Motors both operated as monopolies, and all have now been reduced to being single competitors in their respective markets. AT&T used to be a monopoly and was broken up into several successor firms.

Monopoly!

My friend Mark Safranski leads a dual life online, running the fantastic honest-broker site Zenpundit that focuses on military-security issues, and critiquing education reform on twitter from the perspective of a labor activist. Recently on twitter Mark made the following comment [edited to account for twitter’s telegraphic character limit):

There will be no evaluation of test quality, barring a PR disaster. Education publishers are dividing the market – i.e. forming a cartel – not competing.

I think the general principle behind this comment is that any organization in a monopoly position is unconcerned with quality. This viewpoint is generally held, and wrong.

Monopolies differ from other competitors in three primary ways:

1. They are able to exploit massive economies of scale
2. They are able to extract an “economic profit” from their business
3. They are regulated by the political-economic system, rather than just by its subset, the economic system

“Economy of scale” refers to the decreasing per-unit costs experienced when a given fixed cost is split over a larger production run. This is a well known concept, and I won’t talk more about it here.

“Economic profit” refers to the difference between the revenues of the firm and the total costs (including opportunity costs) of a firm. Under perfect competition in settled markets, economic profit is impossible, because the presence of economic profits would simply drive more competitors to enter a market until the economic profit returned to zero. That is, if it is worthwhile to be in a market, someone will jump in, making it no longer worthwhile. Because monopolies create barriers to entry into a market, they are able to earn an economic profit in the long-term.

The third point is the most important here. All firms can fail by lack of understanding — that is, thru the economic system — whether they are monopolies or not. Both GM (a monopoly) and Wang Laboratories (not a monopoly) saw their position decline because of terrible product and marketing decisions. While monopolies have a greater buffer and farther to fall (because of their economies of scale and economic profits), sustained stupidity can still do the monopoly in.

Monopolies, however face an additional risk. They can fail by lack of empathy. A monopoly that fails to flatter sources of political power can be broken through political means, regardless of economic realities. The Bell Systems, for example, flouted the ideal of unregulated competition (thus alienating a radicalized political right) at the same time they were a major supporter of hard sciences research and engineering (thus alienating a radicalized political left). Even though AT&T consistently understood the market’s desire for a reliable, predictable, and always-on communication layer undergirding business, AT&T’s monopoly was destroyed due to their lack of empathy.

In the education sector, the monopoly held by teachers front organizations. By failing to provide the services they were supposed to provide — educating the young  — the teachers drove parents into debt, employers into the immigration debate, and States into powerlessness over education policy, teachers displayed a lack of empathy. This unconcern for the well-being of other stakeholders has consequences.

Publishers are as self-interested and greedy as teachers. They also, like teachers, aspire to monopoly bargaining power. But this does not mean that publishers won’t create tests, evaluate tests, or even improve tests.

Ultimately, the correct way to view the publishers v. teachers debate is structural. Teachers are focused primarily in protecting the interests of the teaching labor force, and as such are hostile to techniques that would cause some teachers to lose their jobs or miss out on pay increases. Publishers are focused primarily in protecting the interests of shareholders and management, and are thus indifferent to the quality of teachers or tests.

I’ll take indifferent over hostility any day.

Review of “Bell Labs: Life in the Crown Jewel,’ by Narain Gehani

At one point, listening to this book while running on an eliptical, I wanted to throw the remote control at the television.

bell_labs_life_in_the_crown_jewel

Bell Labs: Life in the Crown Jewel is a first-person history of the Bell Labs – Research, as told from the perspective of a Computer Science Ph.D. who began n development, transferred to research, and eventually became head of Bells Labs Silicon Valley. The book suffers from numerous flaws, and I finished it merely so I could give it a negative review.

In a way, comparing Bell Lab: Life in the Crown Jewel with other stories of innovation engines (such as Where Wizards Stay Up Late and Dealers of Lightning) leads to the same comparison of The Man Who Stayed Behind and I Chose China. Both of these latter two books concern American Jews who went to China in the early post-War years, aligned themselves with the Communist Party, and witnessed Maoism first-hand over a period of decades. However, while The Man Who Stayed Behind is carefully organized, I Choose China is a collection of reminiscences that go nowhere in particular. Bell Labs: Life in the Crown Jewel is a collection of reminiscences that go nowhere in particular. The tenacity with which Narain repeats that there is a conflict between basic and applied research is impressive, but ultimately pointless.

Bell Labs: Life in the Crown Jewel appears to want to be a popular business book. I say this because technical and research skills are regularly mocked, but little is learned from a research perspective, either. For instance, in one anectdoe, Gehani disputes whether a colleague actually saved a Business Unit a large amount of money through some new technique. The colleague, the colleague’s manager, and the Business Unit all assert that he did. Gehani’s “test” — to see whether the Business Unit would grant a bonus of a large amount of money, because that employee might again be so productive the next year, ends the anecdote as an example of Gehani’s cleverness. The technical details of what this innovation might have been are not discussed. But neither is any business thinking exhibited. Questions of headcount, corporate fiefdoms, and the such aren’t even raised. Instead, in this anecdote and others, the reader is intended to exist with a sense of Gehani’s unique cleverness.

The book is a nauseating example of how corporate lawfare retards actual innovation. For instance, in a sickening passage, Narain discusses how he “invented” and patented co-browsing, and urged Bell Labs’ general counsel to sue others who use this “invention.” The patent(s) Gehani refers to appear to be:

These ridiculous patents exist only because corporate corporations attempt to use the law to club possible competitors. None of these “inventions” are any more impressive than, say, “A Method to Repair Shoe Laces with Scotch Tape in the Event they Break Instead of Buying New Shoelaces.” However, large companies that hire lawyers are able to cause enough problems litigating these pattens (that they get by flooding the underfunded USPTO with applications) that they are able to carve out de facto monopolies contrary to the intent of U.S. law. A search on the Patent Office’s website indicate that Gehani’s first patent was granted in 1995, considerably after he joined Bell Labs. My obvious conclusion is that Bell Labs, ever closer to its decapitation by Lucent, began generating patents in order to force competitors to “license” obvious methods, or else face hundreds of thousands in legal bills. This is not discuss.

The tragedy of Bell Labs: Life in the Crown Jewel is that it might have been one of the best case-studies of an innovation engine written. Perhaps Narain Gehani will still write that book. He is no longer with Bell Labs, and currently serves as the Chairman of the Computer Science Department at the New Jersey Institute of Technology. His publication list is impressive, and Google Book Search brings up numerous other works written or co-written by Dr. Gehani. I hope that I will have a chance to read a more complete first-person perspective, perhaps titled Bell Labs: Decline and Fall, sometime soon. Narain could structure such as book as follows.

Introduction: What Went Wrong
Chapter One: My Early Life
Chapter Two: From a Professor to a Researcher
Chapter Three: (Mis)Adventures with the Unix Team
Chapter Four: Concurrent C/C++
Chapter Five: The Object Database Environment
Chapter Six: Years of Transition
Chapter Seven: The Columbus GPS System
Chapter Eight: Maps On Us
Chapter Nine: Cell Center Capers
Chapter Ten: Commuting from Jersey to the Valley (by Jet)
Chapter Eleven: From a Researcher to a Professor:
Epilogue: What Went Right

Such a book would be a wonderful read, a great “technical autobiography” of a man, and a first-person history of Bell Labs. It would explain obviously important parts of Narain’s career which are discussed but never described, such as his database and C/C++ systems. Additionally, it would provide a coherent chronology and frames of reference, that do not exist in the current book.

A Game Called Treason!

So Mother of tdaxp, Cousin of tdaxp, a friend, and myself were playing Monopoly this morning. The game was going well, with every potential Monopoly being foiled along the way by some other player’s purchase. My only ray of light was owning 3 railroads, so at least that was some steady income.

Then, the last color-group fell my way: I gained a monopoly on Balti and Mediterranean.

As quickly as I could I purchsed hotels on each, and the money began rolling in.

Better, the near corner of the board was dangerous for everyone else, with Short Line, Luxury Tax, Baltic, Mediterranean, and Income Tax all standing there to take their money.

But then: treason! A conspiracy unfolded in front of my eyes, with the “anyone but tdaxp” faction far too powerful.

Rapidly all remaining properties and cash were collected under one player’s control, as a Trust most foul ruled the board.

A game called Monopoly? Ha! More like… a game called treason.

(Relatedly, courtesy of Electronic Anomie, how to win at Monopoly and Probabilities in he Game of Monopoly.)