How Much Has Bill Overcharged America?

[charles mueller <cmueller@metrolink.net>]

           Pieter Nagel wonders if we've reached an important historical
  "juncture," one where a new measure is needed in assessing monopolies:
  Instead of weighing the damages they've caused in dollars, he asks if the
  more important costs might not be better calculated in the currency of
  "information" lost.
  
          Monopolies do indeed cause damages that go beyond their dollar
  overcharges, e.g., by the lowering of product quality, suppression of
  innovation, shrinkage of choice, reduced convenience, and so on.  (A
  colleague of mine, a senior economist who specialized in supermarket
  monopolies and mergers at the FTC for many years, once observed that the 2
  clearest signs of a food store with real monopoly power are (a) dirty floors
  and (b) long check-out lines.  A monopolist, of course, has no need to hire
  a floor-sweeper or an adequate number of sales clerks.  The customers will
  wade through the dirt--and wait in line.)
  
          The courts can issue decrees that eliminate monopoly power (e.g., by
  busting up the monopoly, a la AT&T) and/or compel the monopolist to change
  his behavior (stop doing something that is essential to his monopoly).  A
  well-crafted decree, then--through divestiture (spin-offs) and behavior
  modification--can restore effective competition and thus take care of the
  FUTURE.  (Note the word "can."  They almost never do--but they nonetheless
  have that power.)
  
          But what about the past?  What about all the people the monopolist
  has been abusing for, say, a decade or so--the outrageous price overcharges,
  the shoddy quality, the denial of real choice, the inconveniences he's
  imposed?   Under a just law, the victims of wrongdoing must be made whole.
  And of course wrongdoers must be forced to disgorge their ill-gotten gains.
  In antitrust, both of these ends of justice--the remedying of PAST
  wrongs--must generally take the form of monetary "damages."  And plaintiffs
  do indeed try mightily to prove the bankable value of all their losses, not
  just the dollar overcharges.  
  
          The Congress of 1890 (Sherman Act) and 1914 (Clayton Act) recognized
  that antitrust victims--consumers and small enterprises, the latter often in
  bankruptcy-- were unlikely to ever succeed in proving in court the full
  measure of their injuries.  Accordingly--to compensate for that inherent
  disadvantage--the U.S. law provides for treble damages:  The jury decides
  how many dollars worth of injury the monopolist has inflicted on you--and
  the judge, as a matter of law, must then multiply that figure by 3.  Even
  that has proved inadequate:  Antitrust plaintiffs, over the past 100 years,
  have rarely succeeded in recovering even their actual damages, much less the
  3-times measure that Congress had hoped would act as a deterrent to
  monopoly- building.
  
          All this is by way of emphasizing the "measurement" problem the law
  faces everywhere, not just in antitrust.  You're the victim of a hit-and-run
  driver and end up as a paraphlegic.  The law can't restore to you the
  exhilaration or the ecstasy of, for example, running in a surging surf on a
  pristine beach.  But it will try (if you have a very good lawyer--and a good
  jury) to convert your psychic losses into the crass coin of money damages.
  It's the best the law can do, the only measure of justice it can give you.
  
          Bill Gates is costing America a great deal more than his price
  overcharge--the excess of his price over the one that would prevail in an
  effectively competitive software industry.  An even larger item, I suspect,
  stems from his savage killing of creative competitors who, if allowed to
  grow in a healthy competitive software environment, would have yielded
  untold gains in new and better technology.  In court, though, Bill's rich
  lawyers will portray all those non-price losses as "mere speculation."  
  
          Price is where you can nail him.  The courts have a hundred years of
  experience in dealing with monopoly pricing.  And there's a powerful logic
  behind their focus on it:  It's the focal point of the monopolist's own
  agenda, the tool he uses to get the wealth and power that are his ultimate
  goals.  Monopolists are, in their personal motivations, almost invariably
  empire-builders.  They want power and money is their means of getting it.
  How do you get a lot of money?  Get a monopoly of the critical product of
  your age, minimize your costs (shoddy product), maximize your price (except
  when a competitor appears), and hire a battalion of high-priced lawyers to
  justify your savage bullying and massive theft.
  
          Maximize "information?"  The way you do that is by maximizing the
  number of creative PROVIDERS of information, i.e., by multiplying those
  garage start-ups that have spawned your industry in the first place.  How to
  do that?  Break-up Microsoft (via spin-offs) into at least a number of
  enterprises comparable to the AT&T 'Baby Bells,' e.g., 7 'Baby Softs.'
  Freed from the grasp of the Octopus, 'information' will rise--and PRICE will
  fall to the socially-efficient competitive level.  It's a good 'proxy' for
  all the other benefits of effective competition:  When the price drops to
  the competitive level, innovation will return, costs will shrink, and so on.
  But be sure the country also collects from Bill for all those price
  overcharges of the past--those Adam Smith aptly called the "absurd tax" of
  the private monopolist.
  
          Charles Mueller, Editor
          ANTITRUST LAW & ECONOMICS REVIEW
          http://webpages.metrolink.net/~cmueller
  
                                                       ****************
  
  
  At 05:26 PM 11/22/97 +0200, you wrote:
  >On Fri, 21 Nov 1997, charles mueller wrote:
  >
  >>         Pieter Nagel has raised a super question:  "The majority of consumer
  >> software is vastly OVERPRICED."  By how much?
  >
  >Ever since your "economies of scale" post I have had the uneasy
  >feeling that we're kind of missing the mark somewhere; your
  >question about overpricing relates to that.
  >
  >Let me first try to understand the thrust of your economies of scale
  >question from an antitrust perspective: The goal of antitrust is to
  >protect consumers, competition and the economy against one particular
  >threat, monopoly. The theory is that the biggest threat to consumers
  >is overpricing. As you say:
  >
  >>         The overcharge is the measure of "damages" in antitrust
  >
  >Supposing that the maximum economy of scale in an industry is found
  >when a company has, say, 8% of the market share. If the entire
  >industry consists of little companies with no more than a 2% share
  >each, they are operating at an inneficient and costly level;
  >antitrust is then not relevant..
  >
  >If, however, greater economy of scale is found at all level up to
  >100%, we have a "natural monopoly". The theory is that by employing
  >antitrust to prevent a company from reaching that size, you are
  >preventing consumers from enjoying further price decreases which
  >could only be realised by a monopoly. But in such industries stricter
  >government control is needed, because left to their own devices the
  >monopolies would not realise the theoretical minimum price. 
  >
  >It is in this context I understood you question about software
  >economies of scale.
  >
  >But I am increasingly uncomfortable with price and overcharge as
  >sole, or major, measures of damage.
  >
  >If I may allow myself to be a little bit speculative: we are moving
  >deeper into a so-called Information Age, and by extension an
  >Information Economoy. Information in itself is becoming an
  >economically valuable resource. We are reaching the point were
  >information becomes a medium of economic exchange; and I'm not only
  >talking about e-cash.
  >
  >Minimizing price is no longer a sole measure. Maximizing information
  >is also.
  >
  >All this sounds a bit fuzzy. What precisely do I mean by
  >"information"? I think that this relates to issues such as
  >interoperability, openennes, and even consumer choice. It is in this
  >context that something like Linux with is open source code, or the
  >pure Internet protocols for whom anybody can download the entire
  >specifications and develop compliant applications for, have more
  >"information value" than a similar, closed product by another vendor.
  >Even if, for the sake of argument, Linux or the protocol specs
  >cost some money and the propretary system cost less.
  >
  >I'm struggling to put this concretely, precisely because I believe it
  >is a fundamentally new factor which we never really had before in
  >history. I suppose there were all kinds of economic issues that were
  >never realised until people moved from bartering to money; the same
  >when the economy became industrialised, and maybe now we are in the
  >midst of a another juncture point?
  >
  >
  >     ,_
  >     /_)              /| /
  >    /   i e t e r    / |/ a g e l
  >
  >