Monopoly

Copyright© Miklos Szegedi, 2022.

Shareholders of Big Tech have seen lots of trouble with the share price. What can societies do to monopolies?

The cause of having monopolies is capital. Some industries carve money, and such companies require economies of scale and network effects to stay afloat.

The twentieth century’s answer was making them state-owned like Fannie Mae, watch them with scrutiny like Google, or split them up like AT&T.

There are way softer approaches in the twentyfirst century. First of all, computers allow us to analyze more contracts. You can buy from many vendors and appeal to more investors.

You can also run linear models and build and analyze your contribution margin income statement. This statement estimates a fixed cost that does not change by changing the output. Companies can reduce their fixed costs to fight inflation, decrease capital needs, and compete with monopolies and oligopolies.

There is a concern about monopolies like Google that they set the market share for others. They become a landlord that sets the market shares by their marketing contracts. In that case, some customers may eventually favor other marketing partners if they intend to increase their market share above the industry growth. The problem solves itself. There is no need to intervene.

We can fight them. Do we need monopolies?

The answer is that they exist because there is demand for them.

Employees with small children may prefer a stable work environment. If we assume an active period between the age of twenty and sixty-five, families with two children may have a vulnerable period of twenty to twenty-two. Monopolies can provide such stability. It suggests that oligopolies and monopolies will push for at least half of their markets to satisfy this labor demand. Customers will pay higher prices for stable services for the entire society. Financing finds a stable revenue base to support new shops or factories.

Many may favor a stable work environment. Some of these professions are dentists or doctors with higher capital needs. The disabled may prefer jobs with better health benefits. Some positions may be less demanding with less competition.

A stable ecosystem can be helpful in certain situations. Standards of the PC were built on top of the growth of Microsoft and Intel. Many OEMs and software vendors thrived on their decks to compete with others sharing the same standards.

Municipalities have fixed costs as well. It is reasonable to support some large local companies, whose stable tax payments support water supply or stadiums.

Central governments are monopolies. A single buyer builds a single vendor in the long run if there is no real competition.

Security may be another reason. Monopolistic security providers of cyber protection, property security, or insurance can leverage their breadth to fight insurance fraudsters, for example. There is a risk of market setting with this construct. Security and insurance costs drop over time if they are efficient.

Younger investors may favor investing in growth shares with a PE ratio of 40-80. These may bring strong returns during their early working age. Unfortunately, the expectation of high sustained and balanced returns can cause employee burnout, unethical business practices, and hostile acquisitions.

Similarly, many startups may find an acquisition by a monopoly lucrative. Monopolies tend to spend more, and startups with smaller costs can build solutions quicker and cheaper.

A stable dividend may be another reason for favoring an oligopoly. There is a caveat. Changing dividends usually encourages investors to watch the financials of companies. If their investors get used to the stable dividend, companies can become lousy with their costs elsewhere. Such low-margin industries are value funds or payment services. A standard return decreases market efficiency and hinders competition. It is not surprising that there is such a demand for various digital currencies.

The clustering of industries can create major hubs with high costs of housing and employment. While it is lucrative to shop around for financial services in a hub, it prevents many regions from growing at their natural pace.

There are many reasons to have oligopolies and monopolies. Ensuring that there is a healthy entry barrier to such industries as wireless services helps the market balance between big and new businesses.