Markets and Monopolies

Article excerpt


How many companies sell computer software? How many companies sell telecommunications services?

The answer to the first question is tens of thousands, and the answer to the second question is thousands. Both industries are clearly highly competitive. Competitive markets are a goal of economic policy. Hence the government ought not to be concerned about software and telecommunications, yet it is engaged in destructive meddling.

Both the Justice Department and the Federal Communications Commission employ many lawyers whose job is to prevent monopolies. But what happens when there are no monopolies to prevent? Being able bureaucrats, these antitrust lawyers know that, to keep their jobs, they need to find monopolies, whether real or not. The way they do this is by defining a market more and more narrowly until they find a monopoly.

As an example, you as a customer decide you want to buy a sports utility vehicle. There are many automobile companies marketing various types of SUVs in the United States, so there clearly is plenty of consumer choice and no monopoly.

Now suppose you want to narrow your selection of an SUV to one that has a sliding rear roof that enables it to also serve as a small pickup truck. As far as I am aware, General Motors is the only company that now produces such a vehicle. Hence, GM has a monopoly in such a vehicle and the consumer has no choice. We are not concerned about it - because if the vehicle proves popular, we know other companies will come out with similar models.

Oracle made a bid to buy another large software company last year, PeopleSoft. The Justice Department put a hold on the merger claiming it might monopolize a subset of the software market, called business application software. The Justice Department claimed the German company SAP and Oracle would be the only major competitors in this software sub-market, even though Oracle would still be No. 2.

I do not know if the merger makes economic sense for the stockholders of Oracle and PeopleSoft, but as an economist I do know the Justice Department complaint is nonsense. There are many companies selling products that can be fairly characterized as "business application software," even though they do not provide the full range of products that SAP, Oracle, PeopleSoft and some others do. Microsoft, IBM and others are quite capable of providing a full range of products if they so choose. There is no problem with market entry and consumer choice, properly defined.

What the Oracle/PeopleSoft case illustrates is not a problem with monopoly, but a problem of overstaffing in the Justice Department Anti-trust Division. …