Wallstats

8 Comments

1. Virginia Llorca, October 26, 2010:

   I love your work and your mind, but I think it’s ‘an’ historical. I know it doesn’t make sense and my Chicago Book of Style is more than twenty five years old, but just maybe. . .
   Why would you say I’m new here? I’ve visited your site multiple times and spread the word.

2. Richard Pallan, February 11, 2011:

   Jess,

   A legal definition is great for attorneys, but not very useful to the rest of us. My personal definition of “monopoly” is a practical one. Does the company control an essential market such that consumers are affected by limited choices and prices charges are not subject to competition. My background is the investment management industry, and so I tend to look at it from a corporate perspective, as well. In that case, extraordinarily high Return of Equity is an indication of monopolistic pricing power. That is, admittedly, a technical term, but anyone at all aware of fundamental financial analysis will get it.

   Here are a couple of examples:

   Microsoft: It sells about the only operating system an independent computer maker can buy. It limits it’s customers’ ability to control the welcome screen and, until the government made them stop (correctly), it controlled browsers and individuals’ access to the internet. It’s pricing was absurdly high, it’s margins way too high and it’s historic returns on equity off the charts. It has $40 BILLION in cash accumulated, it has a 31% pre-tax margin and 44% ROE (vs 28% for the S&P 500). BTW, once a company becomes a monopoly, it doesn’t matter how they got there, even, as in MSFT’s case, the “earned” it. A monopoly is a monopoly, and the rules in a capitalistic society have to be different for them. Capitalism depends on COMPETITION and FAILURE for its success as a system.

   AT&T was a monopoly until the government broke it up in 1984. Until then, if you wanted a telephone, your choice was to rent one of the few models from AT&T and wait until they decided to come and install it. Long distance rates were so high that calls were rare. The problem was that AT&T wrote off it’s investments over 20 years or more, so it had no incentive to innovate new technologies, but no one else could use their network. The breakup led to the explosion in telecommunications we have today, around the world.

   The list goes on: Major drug manufacturers, etc.

   Under these definitions, I don’t think Google is, at least for now, a monopoly.

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