Dr. Pre Bylund's Presentation on Monopoly Power
Introduction
The common perception of the word monopoly is that a company with a choke holds onto the market over a certain product or service. Consumers have no control on how this company chooses to price its product or service, forcing them to pay the inflated price that this all-powerful company decides upon. In this scenario of monopoly, since this company lacks competition, the control of the price by the buyers is very low since there are next to no other substitutes. This common perception of colors monopoly is a taboo word, one to avoid in any market, however to Dr. Per Bylund, monopoly has a different meaning.
Monopoly; One Seller
To Dr. Per Bylund, the word monopoly should be defined only by using its more original definition. Strip down to its roots, a monopoly is if there is one seller in the market. Monopoly, an industry with one seller, is the base in his lecture “Monopoly power.” In his lecture, he claims that a monopoly is not a bad thing. It is more common, with the stripped-down definition, than one would think. A new industry started by an innovator is technically a monopoly. Dr. Bylund used the example of Apple’s first smartphone. There might have been other technical smart phones, the Apple smartphone was the first of its kind, thus Apple had a monopoly on this product. Another example is when automotives were first created. There were no other automotive creators, other than the sole start up, so automotives had a monopoly to start. However, as Dr. Bylund pointed out, this industry did not stay monopolist forever, with competitors coming out of the woodwork to seize onto this profitable new idea. Other companies, like flip phones and carriages, failed to compete with these new industries and died off. In this whole endeavor, with an innovation hitting the market, competitors scrambling to get a bite out of this idea, and older companies failing to keep up, there has been the driving force that has forced these companies to progress. This force is the consumers. In Dr. Bylund’s example of the smartphone, he points out that consumers had many other options than buying the smartphone. They could remain with their flip phone, email over computer, use a landline phone, or refuse to use a phone of any kind. However, many consumers saw the smartphone’s value and chose to pay for it. Some decided to wait a bit for the price to fall and for competitors to make a more polished version of the device. The customer did not have to buy the smartphone, but they chose too anyway. This monopolist situation, all the power lies with the consumer. Because the consumer put no value on the old products, those companies failed. Since the consumer saw value in the new product, they allowed the new product to flourish. The new product could not put any price on what they were selling because they knew that the consumer’s value would shift if a cheaper and/or better product came from somewhere else. A monopoly of this kind has no power over price. This part of Dr. Bylund’s presentation is hard to argue since he has not gotten to core the issue of why monopolies are formed. When I refer to monopoly here, I refer to the more original perception as discussed in the first paragraph. Instead of trying to argue against or for Dr. Bylund’s argument right now, I will instead choose to guess the core problem, or at least the one I see, to why original monopolies are formed. This problem, I believe, is that a company has found a way to undermine the consumer, dodging their power to place value on a product or service. Normally, a consumer seems to have majority of power in market transactions, so I believe that monopolies can only form if this power is undermined or destroyed.
Barrier of Entrance
Monopolies, however, exist in the original definition of the word. Dr. Bylund would define this traditional description as monopoly power. Dr. Bylund has pointed out that there is nothing technically wrong with this first part, so the true issue lies with the word power. Power, in this context, is what gives the original description of monopoly its disdainful coloration. Power boils down to the idea that a product or service has no competitive threat, thus the company behind this product or service is not afraid of consumers placing value on something else. As in the example explored before, in the end, the smartphone did not win because it forced the consumers to buy it. It won because the consumer chose it as the best company. It competed to prove its value to consumers. However, in a monopoly power situation, a company does not have to prove its value to consumers. It does not have to innovate to better itself, or lower prices to make it the better option. Something is allowing it to be the monopoly in this situation. This entity, as Dr. Bylund says, is the government and the regulations it passes. An example of a governmental monopoly is the utility industry in America. Governmental regulations have made it very difficult for other utility companies to compete with these now standing companies, resulting in lowering the options for consumers and lowering the innovation from the companies. Innovation is only needed if the consumer can place value. Competition inspires innovation. If there is an unnatural barrier to industry, then a monopoly can grow. And by what Dr. Bylund says, the only thing with that kind of power is the government. As I said before, consumers need to be able to place value. However, this is where I want to deviate from Dr. Bylund’s original argument, which is against regulations, and even question him slightly. Dr. Bylund claims that regulation destroys innovation, which is something I can agree with. Regulations lower competition, and competition grows innovation. He also said that companies will take advantage of regulations. Bigger companies will see regulations that will lower competition and support these regulations. The example he uses here is Amazon’s support of the minimal wage, since Amazon can pay minimal wage, while many upstart companies cannot. With this knowledge, I would like to bring up the concern of companies not only using government to stay on top, since we already know what they are willing to do to lower competition. For example, what if companies make it hard for upstarts to get loans from banks. They bribe the banks to expect large collaterals and to even ignore clients. How would a company overcome this barrier? Of course a new bank could be formed to help upstarts, but the big company could make it not fiscally attractive to do so. My main concern is that corruption exists everywhere, and how should companies overcome these other problems that do not involve the government.