Monopoly Power Makes You Fat, Dumb and Slow

This post, from Passive Guy, appeared on The Passive Voice on 4/16/12. Taking current fears about the possibility of Amazon becoming a monopoly bookseller or publisher as a jumping-off point, the post provides a lengthy and fascinating analysis of some real-life, past examples of monopolies and what became of them. Passive Guy then circles back around to the implications for publishing.

A reprise of two posts from last October.

A few quotes will warm you up for a discussion of monopoly in the publishing industry.

The best of all monopoly profits is a quiet life.

J.R. Hicks

And a quote from Adam Smith:

The monopolists, by keeping the market constantly under-stocked, by never fully supplying the effectual demand, sell their commodities much above the natural price, and raise their emoluments, whether they consist in wages or profit, greatly above their natural rate.

[Considering allegations of price-fixing discussions over expensive food and wine at a restaurant in Manhattan], a second quote from Adam Smith is timely:

People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary.”

PG hesitates to supplement Adam Smith, but he would point out that monopolists can increase their profits by raising prices for what they sell or lowering prices for what they buy. From authors, among others.

One of the elements in the many predictions of the future of traditional publishers that Passive Guy has not seen anyone discuss is the effect of being a participant in a shared monopoly.

Many people fear the effect of a monopoly on a particular market. Some of the comments regarding Amazon made in response to recent blog posts have reflected this concern. While Passive Guy can certainly understand such worries, he takes a different view of monopolies.

Absent stringent government protection or physical boundaries that protect the monopoly, the long-term effects of overly-dominating a market tend to weaken the company or companies involved. If competition is permitted, the bloated and inefficient monopolist can present an easy target for an innovative and flexible competitor.


Read the rest of the post on The Passive Voice.

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