The Solution to Monopolies? A Monopoly

Henry Farrell writes, in regard to Microsoft?s market dominance:

[T]he real costs of monopoly are much greater than the inefficient prices they maintain to extract rents. Monopolies are lazy. They have no reason to respond to their customers - where else, after all, can dissatisfied customers go? Without the threat of exit, monopolies face few incentives to improve their service.

This is, of course, quite true. But how does Microsoft prevent consumers from using other browsers? Netscape still exists, although it is not very popular. Mozilla, on the hand, is very popular and arguably a much better browser than Internet Explorer. The only advantage Microsoft has over Mozilla in this respect is that Internet Explorer comes preinstalled with the Windows operating system. But it is only out of laziness that consumers do not switch; the benefits of switching simply do not outweigh the costs.

What is Henry's proposed solution to the problems of monopoly?

[W]ithout competition, there?s no restraint on firms? ability to abuse consumers, and sometimes (as here) the maintenance of competition requires vigorous state intervention.

So the solution to a monopoly is...a monopoly?

To put it another way, the problems with government are much greater than the inefficient prices they maintain to extract rents. Governments are lazy. They have no reason to respond to their customers - where else, after all, can dissatisfied customers go? Without the threat of exit, governments face few incentives to improve their service. Which is why their "services" tend to be so horrible compared to market provided services.

Jeffrey Friedman, in his excellent essay, Theory Gets a Reality Check, contrasts the exit available in market relations to the "voice" available in political relations:

...[I]n making economic decisions, insufficiently informed people, prone to errors in reasoning, have one advantage that they usually lack in politics. In making economic decisions for themselves ? as opposed to evaluating theories about the economy (or the civilization) as a whole ? people don?t need to be well informed, and they don?t need to think about things clearly. All they need to do is react to positive or negative stimuli, with no more of an accurate grasp of what they are doing, or of why, than is possessed by rats in a maze.

Politics produces positive and negative stimuli, too. But in our political behavior, unlike our economic behavior, we cannot simply leave the negative stimuli behind, by means of Exit: unless we physically emigrate from the political jurisdiction in which we live ? as my Rumanian and Russian great-grandparents did ? the only way to address a negative political situation is to exercise the feeble power that Albert Hirschman contrasted against Exit: Voice. Voice requires us not merely to react to stimuli, but to think through the cause of a negative stimulus so as to infer what policies would correct the problem. ...

Democracy is, as Winston Churchill famously pointed out, the worst political system except all the others. But to the extent that capitalism offers an alternative to all ?political? systems, including democracy ? and, therefore, an alternative to the excessive cognitive demands that politics makes on us ? we should embrace that alternative eagerly. When there are Exit-friendly alternatives such as capitalism, we might be advised to tolerate as little ?political? interference with them as possible ? perhaps not even for purposes of redistribution to the poor, since in the real world that opens the door to measures that only hurt the poor, without actually redistributing anything to many of them.

We might, in other words, be advised by the real world of politics to accept the real world of economics, in all the enormity of its unfairness, as the best we can do to achieve Rawls?s goal ? as long as we then do whatever we can to unleash as much unregulated capitalism as possible, allowing the poor to exit from their misery in the same way our great-grandparents did. Unregulated capitalism would pull the poor out of poverty, just as Rawls the philosopher recommends. But it would do so more slowly than would happen in the ideal world of the economist ? or in the ideal world that Rawls the man assumed was possible.

If we compare the browser market to some utopian ideal of what a perfectly competive market should look like, the brower market clear fails in comparison. If we compare how governments actually work in the real world to some utopian ideal of how governments should work in a world of perfectly informed voters, actual governments clear fail in comparison.

Henry's proposed solution--vigorous state intervention--is no solution at all; it merely sweeps the problem under the rug.

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Free market monopolies are

Free market monopolies are (by definition) denying consumers the choice of Exit (beyond the option of permamently living without the good or service under monopoly). In contrast with democratic governments, but analogous to authoritarian governments, free market monopolies also deny consumers a Voice.

Weak as a Voice may be in comparison to Exit, I see absolutely no advantages of free market monopolies over democratic government monopolies.

BP: it's unlikely, in a

BP: it's unlikely, in a market where government does not set up artificial barriers to entry, that exiting consumers will be *permanently* denied the ability to buy the now-monopolized good or service. Exit generally brings only temporary deprivation-- and in the cited case of web browsers, it doesn't even bring that; I'm writing this post quite happily from a Mozilla window. Besides which, since when did people have a right to be provided with any given good or service?