Re: Coercive Monopolies in Technical Markets (Intro)

From: Jeff Bone (
Date: Sat Apr 14 2001 - 11:31:44 PDT

Up front, Gojo: before critiquing my use of the material, maybe you'd like to
read it? ;-)

> Whoa! First, let's not equate objectivists and capitalists. Second,
> I don't have a copy of that source, and it looks like you've removed
> preceding context. "Such a monopoly..." would seem to refer directly
> back to some unquoted antecedent, which is probably a monopoly backed
> by violence or state force.

Actually, I don't particularly like the term coercive in this context; even
the objectivists use it in this context in an inflammatory and almost
meaningless sense; the definition of "coercive monopoly" speaks entirely of
effects rather than behavior which achieves those effects. No mention of
violence or state force, though the larger context goes on to argue that these
are the only causes of coercive monopolies. The important thing to note is
that the definition of coercive monopoly is a separate thing from its
speculated cause. Here's the immediately preceding context.

     "It is imperative that one be clear and specific in one's definition
     of "monopoly." When people speak, in an economic or political
     context, of the dangers and evils of monopoly, what they mean is a
     coercive monopoly - i.e., exclusive control of a given field of
     production which is closed to and exempt from competition, so that
     those controlling the field are able to set arbitrary production
     policies and charge arbitrary prices, independent of the market,
     immune from the law of supply and demand. Such a monopoly..."

I don't think Microsoft determines pricing from any kind of *competitive* price
pressure, do you? They're only competing against themselves. In setting
upgrade prices, they probably look for the maximum price they can charge to get
people to upgrade from the previous price of the product; in licenses, they
probably look for the maximum per-seat bump that they can have which they
expect their licensees to pay to renegotiate their license for the new version.

As for exclusive control, there are several fine-grained markets where
Microsoft can be said to have exclusive control, and their presence creates
lack of available capital for competitive interest, hence the field is closed
to and exempt from competition. I think Microsoft meets the definition, as
stated here.

> Branden seems to be talking about "monopolies which are coercive",
> and then pointing out they can be impossible to compete against.
> You're saying Microsoft is *so* hard to compete against that it
> rises to the level of being "coercive". That's backwards.

No, actually they're defining a term of art, I'm just following it. I'll admit
that the term may be a bit misleading, but it's *their* term. Read either of
the essays I mentioned, Greenspan's or Branden's. If the logic is backwards,
I've inherited it from them.

> > 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.)
> In everyplace else except the narrowly defined "enterprise desktop OS
> market", Microsoft has namable and often even profitable competition.

I actually don't believe that. I believe that, for all intents and purposes,
they have control of the consumer desktop and the enterprise IT server markets
as well. (Macs are sold into more educational / creative environments,
typically, and UNIX servers have been *losing* ground steadily inside the
corporate server room to the point that they're insignificant at this point.
Note that they've been gaining ground elsewhere, and in those fields of
competition Microsoft cannot be regarded as monopolist.

Again, though, it's a matter of literal vs. practical definition. I'll opt for
the latter.

> Even in "enterprise desktops" there are islands of alternatives,
> especially for engineers and creative types.

I would define these as different market segments (markets.)

> And yet even in "enterprise desktops", people keep making alternative
> OSes and basic-productivity-suite apps. Don't you think venture-backed
> Eazel and Ximian have hopes of, deep in their future, cracking into
> enterprise desktops, with the help of all the other big companies
> resentful of Microsoft?

I'm sure they have hopes; OTOH, you have to question whether these hopes
indicate a willingness on the part of rational investors to take on competition
in response to price competition-based market opportunity, or whether they are
an example of a few irrational people waging a religious war. The latter
doesn't invalidate the argument. For that matter, Larry Ellison has and is
backing a long-term crusade to entirely overthrow the PC with NCs.

BTW, an aside: having worked very closely with many of Eazel guys before, I
gotta tell ya, just because a company exists doesn't mean there's a good
business reason for it to exist. ;-) I wish those guys all the best ---
seriously, hope they win --- but look at the history. I have no interest in
religious wars anymore, and they have no place in this analysis.

> Look at what you're saying: that a coercive monopoly must exist everywhere
> VCs choose not to invest. That's a nonsensical progression: VCs are only
> a tiny part of the competitive matrix, and their investments indicate fads
> as much or more than they indicate any underlying ability to make a living.

Read the material. I'm not making this stuff up, I'm working directly from
objectivist scripture. Greenspan's own argument is that capital investment is
*the* --- singular, all-important --- check-and-balance against / regulator of
the occurrance of coercive monopolies.

> And still, what of Eazel and Ximian? (And before them, Corel and Netscape?
> And before them, OS/2 and Apple?) Your zone of "no competition" actually
> seems pretty full of motivated contenders, testing alternatives, at any
> one point in time.

I'm not interested in defining all the people that Microsoft competes with in
some particular area; Microsoft has (or has announced plans to have) product
and service in just about *every* single conceivable market in this industry.
Of course they have competition in some of those. I note that, with the
exception of Corel, and that only loosely, none of the above players even
*attempted* to compete in an operating system space. (Andreesen's comments
aside.) OS/2 was pre-dominance; Apple (I would claim) cannot be considered
true competition in, for instance, the enterprise desktop market. You have to
define a market in terms of who's buying what for what purpose. If you
gerrymander the market segmentation, sure, you can claim that Microsoft is not
a monopolist.

But work with me for a moment. Grant me Microsoft's monopoly status --- evil,
coercive, or otherwise, it's unimportant --- for the enterprise market. Now
look at how it uses that monopoly status and the power attendant it to in order
to compete more effectively in those areas where it does not have control.
Would Microsoft have lived long enough (i.e., through enough product releases)
to make IE the fine product that it is if it had been on equal footing with
Netscape in the browser market? Same question for MSN Messenger? Same
question for Windows Media Player? What about how the SQL Server / Sybase
episode? Etc. etc. etc. etc. etc. The pattern is obvious for even the most
casual observer. One hallmark of harmful monopoly behavior is in its use of
dominance in one area to drive out competition in others. Even the most rabid
free marketer with any experience in this industry at all must agree that
Microsoft *does* in fact do that. So the only argument, really, is how to draw
lines around and define "markets" in order to determine whether Microsoft is a
monopolist in some particular market.

> That Microsoft has a decade-long track record of fending them off isn't
> alone enough of a reason to call them "coercive". "Savvy, ruthless,
> intimidating, possessing great market power", sure. But "coercion" means
> more than that, especially to the free-marketers and objectivists you're
> claiming as inspiration. You should use the word more carefully.

I'm not making the argument you ascribe to me, though I indulge it a bit in the
previous paragraph. I'm calling them a coercive monopoly because they meet the
definitional test, no more, no less, and when I say it I mean specifically what
it is defined to mean, which strangely enough doesn't have much to do with
coercion. :-/ :-)


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