Re: Coercive Monopolies in Technical Markets (Intro)

From: Jeff Bone (
Date: Fri Apr 13 2001 - 23:19:20 PDT

Gordon Mohr wrote:

> But these are physical plant monopolies, granted by government
> franchise, and/or powered by traditional increasing-returns-
> to-scale.

As I already stipulated. Down boy. ;-) I don't have an answer to your
question off the top of my head. This is musing out loud, not a
well-formed argument just yet.

> They're nothing like this newfangled Microsoft
> monopoly you find objectionable.
> And since when did simply "hard to compete against" become
> "coercive"?

Careful, Gojo --- don't put words in my mouth. I never said anything like
the above. And for the record, I have no problem with "hard to compete
against." And I have no problem with monopoly, by itself, if the free
market can effectively limit such.

> We free marketeers should be very careful about
> calling anything short of violence or fraud "coercion".

I'm using a very specific term of art, straight from the objectivist's /
capitalist's playbook. Coercive monopoly:

     ...Such a monopoly, it is important to note, entails more than
     the absence of competition; it entails the impossibility of
     competition. That is a coercive monopoly's [my emphasis]
     characteristic attribute, which is essential to any condemnation
     of such a monopoly.

          "Common Fallacies About Capitalism," by Nathaniel

I would say that Microsoft's current dominance of (e.g.) the enterprise
desktop operating system market exhibits not only absence of competition,
it in fact makes such competition impossible. (At least for now.) The
savior / regulator of the free market --- the capital market --- cannot
come to the rescue; no right-minded VC would ever fund a play to take on
MS on the enterprise desktop. Microsoft's total domination of the value
network surrounding the enterprise desktop precludes any possibility that
an investment in a competitive interest would yield ROI; if you buy that
argument --- and I certainly see no existance proofs to the contrary ---
then you'll agree that Microsoft meets the above textbook definition of
coercive monopoly.

Now, I'll freely admit that I'm totally warping and abusing the intent of
the author, and that objectivists in general would hate my argument.
That's troublesome, because generally I like and agree with those guys. I
buy Greenspan, Branden, Rand, etc. on their whole antitrust stand --- with
respect to tangible-goods production-oriented business. And Rand (among
many) makes really good arguments in favor of IP, patent law, copyrights,
etc. The problem occurs when network economics come into play; all the
thinking, all the philosophical underpinnings of this, my own closely held
belief, begin to fray in the light of networked markets, value networks,
and economies *predominantly* based on intangible assets.

Nothing like these value networks existed when all the objectivist dogma
was formalized and codified; the face of our economy has changed so
dramatically since then that our intellectual and mathematical tools for
understanding it have slipped behind. (Side note: I believe that
depressions in general occur when this happens; I believe that the Great
Depression occurred when liquidity and investment exceeded the ability of
the then-current tools to support good decision making by investors, and I
believe an identical thing happened over the last few years. My own
struggle to get useful values out of the Black-Scholes Option Pricing Model
over the course of '99 and '00 proves that if nothing else. ;-)

I don't know what the answer is, yet. I'm just trying to get my arms
around the questions. It seems intuitive to me that when a company
dominates a market so effectively that it is entirely written off as a
competitive space by the capital markets regardless of price pressure,
something has gone awry with capitalism. When the only way to effectively
compete is to be *free,* competition in a market has disappeared.

I could be wrong; we've got very little evidence to go on -wrt- the
lifecycle of, let's call them, networked monopolies. The free market may
fix itself. Me, I've got some finite useful (or interested) lifecycle in
this industry, and as an entrepreneur I'd like to be able to enter the
market wherever I feel I can build a better / cheaper / faster mousetrap,
though of course I'm going to steer as clear as possible away from anything
where MS is ever likely to compete. I'm getting sick of hearing VCs ask
the killer question, even if it is a pro forma red herring; even when
Microsoft does not and has no apparent plans to compete in a space, the
possibility that they'll see it and move in before you establish a base is
significant. They can play *anywhere* in their own value network that they
want to, and that simple fact and the FUD it generates is enough to kill

It's an unnerving situation, philosophically: observing firsthand the
barriers to entry created by Microsoft's *existance* is enough to make me
question my own philosophy on a fundamental level. Just some thoughts. If
you don't question the dogma, you aren't really thinking. Right?


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