Advertisement

Blog

How to Kill a Monopoly

Technological innovation has a greater impact on high-tech competition than government antitrust measures. That’s the conclusion of recent research by the Technology Policy Institute, a Washington think tank evaluating the economics of innovation, technological change, and related US and global regulation.

Taking a closer look at high-profile antitrust cases that put {complink 2470|IBM Corp.}, {complink 502|AT&T Inc.}, and {complink 3426|Microsoft Corp.} under scrutiny, Robert Crandall, a non-resident senior fellow in economic studies at the Brookings Institution, and Charles Jackson, an adjunct computer science professor at George Washington University, found that technological advances, not government action, ultimately led to market changes. Additionally, antitrust remedies did not accelerate competition.

The full report can be downloaded here. Among the key findings are:

  • The ultimate source of major changes in the competitive landscape appears to have been innovation and new technology — technology that was apparently not unleashed by the antitrust litigation.
  • Because the government could not predict how technology would develop over time, it was difficult for the government to design remedies that would accelerate competition when this competition developed from new technologies.

Here’s a quick review of the cases, as provided by the research authors.

  1. IBM:
  2. An antitrust case against IBM, initially filed in 1969, dragged on for 13 years. The government eventually asked the court to dismiss the case because it was “without merit.” In the end, the market's competitive structure shifted after two things happened: Technological changes led to the development of personal computers connected to the Internet and the use of services provided by servers (minicomputers). These were things the government never envisioned when it filed its suit.

  3. AT&T:
  4. Although AT&T’s divestiture stemming from the Justice Department's antitrust decree and the Federal Communications Commission's implementation of equal access affected the telecommunications landscape, the report authors noted that what had a more dramatic and lasting impact on market competition was the development of high-speed Internet access and platform-based competition from wireless and cable TV, both of which came after the decree.

  5. Microsoft:
  6. While the DoJ's Microsoft order and the 2004 European Union mandate called for interconnection requirements and Web browser unbundling, Microsoft remains a top desktop OS player, even as it faces competitive threats from smartphone operating systems, cloud computing, and virtual appliances. According to the researchers, there is little evidence that these emerging technologies were a result of antitrust remedies; moreover, it’s “likely that the antitrust attacks on Microsoft's integration of increasing functionality into its operating system had a deleterious effect on consumer welfare.”

So, what does this mean for the rest of the industry? The research report bodes well for companies like {complink 2294|Google}, which is feeling the heat from regulators as it tries to expand beyond search capabilities. But what about everyone else? I’m not really sure. On one hand, I can’t say I support big businesses squelching the competition. Nor, do I believe that the US or international courts should be tied up in litigation and loophole wrangling for decades. At the same time, I understand that governments must protect citizens from monopolistic activities and take measures that ensure consumer access to alternative providers and fair commerce.

But, I also believe that companies that took a risk and developed new products and services and leapfrogged existing platforms or devices deserve the spoils that come with victory. That’s why most tech companies got in business in the first place — to deliver something new to an underserved market and make a ton of money.

Any way it shakes out, it does seem to follow that high-tech companies and governments will continue to clash on many fronts, given the industry’s history and ongoing global quest for cheaper, faster, and better. (I’m having flashbacks to the late 1990s and early 2000s when all sorts of IP-related and antitrust suits were filed against semiconductor and memory chip suppliers and made news in EBN’s printed headlines.)

Mostly though, I wonder how this trickles down to the supply chain. Do antitrust cases influence what supply chain professionals do every day? What kinds of changes do you have to contend with in the aftermath of litigation and antitrust drama? Any stories to share?

13 comments on “How to Kill a Monopoly

  1. AnalyzeThis
    January 20, 2011

    Antitrust cases have absolutely no influence in any supply chain decisions I might make. As this article somewhat hints at, antitrust cases often take many years to resolve anyhow and the companies involve usually only end up receiving what amounts to as a slap on the wrist.

    Antitrust cases do not concern me at all.

    Other types of litigation or legal action, however, certainly does. If you're working with a small supplier and they're the target of a class-action lawsuit or something of that nature, you REALLY need to take a hard look at a situation like that. I have been involved in a few situations where a company being sued has given me pause, but in all those situations those lawsuits were resolved without going to court, were swept under the rug, and had absolutely no long-term consequences on anything.

    Regardless, I'm still careful and investigate possible litigation issues as they become apparent.

  2. jbond
    January 20, 2011

    I feel like lately the government’s involvement into monopolies hasn't played out too well. For starters, once the case has made it to court, assuming it doesn't just get settled before then, even if the government wins the penalty is nothing but a slap on the wrist. Let’s face it; the only monopoly the government cares about is the one involving large profile companies.  Companies like Microsoft and Apple that are making millions if not billions in total sales and profits.

    As technology advances some of these cases aren't even worth pursuing. By the time they are even presented to a judge, somebody else has come out with something that claims to best the others.

    Seems like the government is not focusing on what monopolies have direct effect on consumers. Not many people care if every new computer they buy has some form of Microsoft’s Windows installed. They do care about the fact that their cable company who is providing them with internet access has jacked up their rates because they are the only ones in the area. They have no choice but to pay the high premiums or go without service. Let the government kill those monopolies. 

     

  3. DataCrunch
    January 20, 2011

    As it pertains to antitrust and so-called “monopolies”, I echo DennisQ’s comments on the subject.  Usually these cases involve industry giants (Microsoft, IBM, Intel, AT&T, etc…) which tend to drag on for many years and by the time a decision is made, the industry has changed where the original case is really no longer as relevant.  So, I don’t think antitrust cases have much of an impact on supply chain professionals’ decision making processes.

  4. Jennifer Baljko
    January 21, 2011

    That was my gut feeling too…It seems the court battles are pretty far removed from the  actual hands-on work that has to be done every day. And, like you all said, by the time there is a ruling or settlement, alls sorts of new gadgets and gizmos are in the market, obsoleting the earlier concerns. Likewise, echoing sentiments posted here – there are plenty of other industries that probably needs a more watchful eye when it comes to monopolistic activities

    DennisQ – Thanks for raising the point about the other kinds of litigation. Class-action suits or matters involving criminal or civil wrongdoing could harm the supply chain much more severely than antitrust cases.  Along those lines, besides monitoring the health of your suppliers and keeping tabs on their legal issues, what are some common ways buyers and supply chain managers protect their own companies from what I'll call “ripple effect liability”?

     

     

     

  5. Taimoor Zubar
    January 21, 2011

    I think supply chain companies may undergo litigation related to antitrust cases in cases of mergers or acquisitions. If the merger of two companies or acquisition of a company is likely to result in an organization which has monopoly powers, then the supply chain company might face lawsuits. Otherwise, as DennisQ also said, litigation related to antitrust cases is not much heard of in the supply chain world.

  6. Ms. Daisy
    January 22, 2011

    Jennifer:

    From all these cases discussed, it's obvious the government has not been too successful on many of these anti-trust cases. The cases seems to create new and unique opportunities for the large companies to benefit from what they are being accused of. I wonder the cost of these litigations to the US citizens the government is attempting to protect or the cost to the international courts with the cases tied up in litigation for so long.  

    It might be better to have other means to ensure consumer access to fair commerce than this “penny wise, pound foolish” decade long litigations that eventually get dismissed or the slap on the wrist fines the companies are fined when found guilty. 

    I agreee that companies that developed new products and services deserve the profit that comes with the success of the products considering the risk assumed before the consequent success. Isn't that the basis of capatalism?

    Supply chain managers need to worry more about acts that might be deemed criminal in the process of doing business. 

  7. Eldredge
    January 23, 2011

    The conclusion that 'technological innovation has a greater impact on high-tech competition than government antitrust measures' seems straight forward. Innovation fuels competition; antitrust litigation deals with unfair practices after innovation has occurred. While antitrust measures may be a necessity, it seems obvious that they are not drivers for innovation, but more likely to be a restraint on it.

     

     

  8. bruzzer
    January 23, 2011

    Intel Corporation hidden price fix paid by procurement in PC Supplier end purchase price on every Intel microprocessor based PC, since March 1993, averages $12.25 from Intel.

     

    Robert Crandall and Charles Jackson in Antitrust in High Tech Industries propose discontinuous technological innovations have greater impact on high tech competition than government antitrust measures focused on incumbent technologies.  

     

    Joshua Wright in a parallel piece entitled Does Antitrust Enforcement in High Tech Markets Benefit Consumers suggests FTC and EUCC challenging Intel business practice raise similar issues concerning the effectiveness of competition policy in dynamically competitive industries.  Both authors miss two fundamental facts concerning innovation.   First, innovation continues regardless.   Second, that distribution channels tied in sales agency by dominant technical regimes are the primary threat to competitive innovation.

     

    Where ever a puzzle to solve someone will attempt to solve it. Whether the opportunity solver foresees evolutionary path for existing technology, bridge toward discontinuous track, from interventions too address hurdles that resist science offering a revolutionary consequence, once solved, that can deliver on the truest forms of technical innovation. 

     

    Antitrust science in no different solving puzzles to deliver innovations that any normal science attempts to deliver. Fraught with hurdles is hypothesis correct, do we have tools capable now, tomorrow or never, from what facts do we work the complete, incomplete,   or arbitrary?   What are the intangibles?   With politics in science can religion get in the way?  Where key to antitrust science must address what matters, rather than antimatters, and when all attempts to discover must focus first on trust and then on innovation. 

     

    Trusts don’t limit innovation they observe it, can adopt and will adapt it possibly through theft.  In commercial environments especially where high value stream’s maintained by incumbent networks guard their established structure.  And will fight and manipulate to insure investments in their network today deliver network rewards tomorrow.   Wherever current future time effects occur pure science must commit itself to guarding competition for Nation, industry, market and consumer good.  Alternative is competition in a warped space by warped science.

     

    That is because trusts are the destructive element in technical industry not innovations or regulators.   In technical science regulators are well understood for ability to stabilize and harmonize or too destabilize if that is their aim.   Because the one fact you can trust in any technical network is that it may not be open or may be only partially open. It is the closed loop nature of some techno-political system’s that inhibit participants to compete on their merit with innovations.  It is the trust in antitrust that prevents them from doing so.

     

    In technical environments innovation can occur individually, randomly, but most often within the framework of its own box. Where individuals working in groups operate in a system structure of established relationships often predisposed to see things the way they are, not as they actually are or could be.  In this world of multipoint network presentation we must look beyond the box the system paints for us.  The box is often incomplete and lacking outside indicators meant too limit, presenting only partial answers, that can bar innovation from bringing competitive solutions to market.   Too go with the flow of the compliment even in open structure?  Or too compete with ideals and solutions that can reconfigure network values on new utility models that end buyer’s value?  Technical networks with market control resist reconfiguration of this second type as a threat to their continued values and margins supporting constituency.   And so goes the market.

     

    Pursuant to Mr. Wright’s address in “Does Antitrust Enforcement in High Tech Markets Benefit Consumers?  Stock Price Evidence from, FTC verse Intel”, I can only advise Mr. Wright trapped in the box of a market creation. Including continued address of a political divergence focused on the potential of antitrust false positives associated with Intel sales contracts that are 1st Dollar discount and Loyalty payments that may not harm consumers.  Recognizing in this instance Intel network political hurdle that defocuses from anti trust true positives; cartel tied sales distribution, monopoly price overcharge, history of money laundering, mail fraud, cross enterprise cross profession network crime that is RICO.

     

    Yes, Intel 1st Dollar Discount and Loyalty payment may well be consumer false positives.  Harming AMD and passed through too consumers?  Tactically, Intel end strategy to shut down AMD, entrapped within a history of Cartel restraints into a 20% market share box.  Systems within Intel industry and market structure have always been dialed to deliver this result. That is to foreclose competition.

     

    According to Mr. Wright it is not on the surface apparent, comparing last decade’s Intel verse Advanced Micro Device stock prices, that Intel monopolized the market in ways which depressed AMD’s stock valuation. Or that stock price data shows Intel’s behavior harmed AMD or vice versa.  So in this first case what’s left out or deleted from analysis?

     

    On the contrary, to his latter point, Mr. Wright omits three antitrust discoveries. A cartel price fix for closed loop product routing which raises consumer computer purchase price average 6% calculated on Intel processor price to OEM embedded into computer system price.  Second, a consumer monopoly over charge on multiple first quarters of production, which is incontestable, examining Intel price on limited output in relation to monopoly competitive output.  Finally, opportunity cost lost by end users who made their Intel intra platform computer purchase decision based on Intel + Media benchmarks rigged to over state Intel microprocessor performance.

     

    All these acts harm end customers revealing monopolist per se administration in a destructive sales triad. A distribution cartel between Intel, Microsoft, PC Companies, Media Sales Agents and heavily influenced by their closed system value generation to investment banking.  Structure is rigged, players key to the cartel know of the fix, all players including AMD do the best they can within the box that has been defined for them. Where AMD must continue successful operation within the confines of Intel’s exclusive dealing ties in what appears to be a disintegrated distribution system that is not.

     

    Here note that innovation is not being limited within technical industry, as much as it is being limited by channels; PC Company entry points and Media Sales Agent exit points, competing for exclusive Intel margin values in a tied sales system up until just recently.

     

    On Mr. Wright’s first point, Intel monopoly affect on AMD stock valuation, I cannot say without extending analysis taking into account Intel and AMD product runs.  What I can infer as industry participant and once AMD employee is that limits, set by Intel Network on AMD a long time ago, boxed the enterprise into no more than 25% share position and often less.  Informed traders including those educated on MDR QUANDA know this and play duopoly stock valuation accordingly where aim is never to loose on margin. So even in 20% box AMD can do well within certain perimeters associated with product although their ability to leap frog with self managed process has been eliminated by Intel Network. And continues too harm Nation, industry, markets and consumers by continuing too place burden on AMD.  By restricting channel flows regardless of capacity restrictions that also remain in face of Intel exponential capacity the result of multiple monopoly foreclosures.

     

    Robert Crandall and Charles Jackson in Antitrust in High Tech Industries are also limited from certain information that could affect their view of Microsoft.  And that is Microsoft tied to Intel systems structure accelerating monopoly potentials for both enterprise tied in horizontal combination. Because Microsoft not only tied its OS contractually to PC OEM computer offerings, but tied its self a second time to Intel microprocessors, being routed by the cartel through tied distribution channels collecting Intel price fixing charge buried into every computer chassis.

     

    Where Intel Inside tied charge back system, not a two but three step sales system, aligns Microsoft with Intel horizontally.  With both engaged in vertical by horizontal product routing through PC Dealer to Media Sales Agent distribution tied attraction. In a closed loop system where Intel charges all microprocessors with a commission value, for media agent to recoup as their Wintel content production reimbursement fee.  A system driven on mass weight of PC company microprocessor purchase’s from Intel.   PC Companies who are microprocessor broker dealers purchasing quantities from Intel exceeded by 2:1 their actual PC end systems demand. Intel microprocessor broker dealers who are also PC sellers earn more charge back values for media to capture, on every future Intel computer sale, operating in cartel tied sales agency.   The reason current time future time effects are so important too catch and correct when administering real time antitrust remedies.

     

    All are dealers in Wintel system sales. Intel notes weight of PC company microprocessor purchases and accrues charge back for media sales agents to capture on every sell through. PC Company’s trigger media access to accruing commission values on ad insertion order.   Directed media then invoices back for their equivalent PC Company kick back from Intel for sales agency. This act of media charging Intel back the equivalent PC company media price registers Intel microprocessor & Microsoft operating system sell through PC Dealer and Media Sales Agent tied channels.  And is meant to feedback too Intel as a metering device.

     

    This sales system can be accelerated on the weight of PC company sales values accruing at Intel for media charge back too release their per unit sales commission.   Commissions are high to low on Intel microprocessor price to PC OEM routed inside the PC Company central processing unit or computer chassis.   Here media will focus accelerating specific computer brand model’s known to carry the highest charge back values. Including on the sheer weight of this media production cost offset accumulating in PC Dealer brand pools.

     

    Brand fees earned by PC Dealers on microprocessor purchases, triggered by advertising insertions, collected as Intel kick back by Media Sales Agents, administered by Intel in contract and combination with two laterals of the cartels dealing group.

     

    In this Intel Inside example, 1993 through 2006, which is a predecessor of 1st Dollar kick back and Loyalty bribes, dealer to media tied sales attraction is relied on by media for collecting their brand fee commission. Relied on by the cartel for artificial acceleration of Intel and PC Dealer product’s out of inventories onto consumers.  System restraint drives up competitor cost of sales, limits market participation for competitors outside cartel tied distribution system.  Microsoft rides this distribution system through two ties; its own OS license restricting PC Company software modification and Intel price fix which combines media with PC Companies in joint sales agency. 

     

    There is a second social industrial harm here unforeseen in Microsoft litigation affecting software companies and alternative compute platform suppliers.  And that is the number of Intel microprocessors on which Microsoft ties by license below one of 3 levels of Intel cost; less than Intel average total cost to produce, less than Intel fixed cost, less than Intel variable cost to produce.  Processors produced by Intel intending to monopolize markets on surplus dumping and the tied price fix charge attached to each and every one of them.

     

    Alternate microprocessor and other computer platform player’s outside cartel distribution system become non participants in Wintel gaming system structure. Here the key antitrust consideration is not accelerating competition, where media agents are competing for Intel Dealer accruing brand fees, but to free the total system structure from Intel and Microsoft contractual requirements that drive artificial acceleration of computers on consumers for an Intel kick back collected by media on every future sale for their continued agency.

     

    In such an environment innovation rarely leads to market power. Market power becomes the result of 18 years participation in cartel distribution network.   Wintel price fixing tied with limiting systems intended to monopolize is undeniable on how Intel systems operate in a semi closed channel structure. Structure, contract and economic proofs of monopoly are easy to catch and error correct with less than 200 document requests.   Each speaks for their very own system structure intent.   And require no more correction than to eliminate anticompetitive systems within structure and removing people responsible for concealing them.  Advantage is conduct proofs become secondary in support.  Sherman Act Section 1 and Clayton Act address avoids question of Section 2 false positives. An open structure delivers Nation, industry, enterprise, market and consumer dynamic efficiency.

     

     

    Respectfully submitted,

    Mike Bruzzone

    U.S. Attorney NCD recognized 31 USC 3279

    Government Services Adminsitration Title 48 Relator; 2008

     

     

    FTC Invited field reporter Docket 9288, 1998-2000

    CDOJ and NYDOJ first to report; 1998

    CDOJ lettered to work report; Intel Section 1 Framework; 2000 –

    SEC Notice; 2007

    FTC voluntary analyst Docket 9341; under Labor Code 3363.5; 2009

    Prior Cyrix, NexGen, ARM, AMD, IDT Centaur Marketing Manager

    FBI Original Source of Intel Network RICO; 1996

     

     

     

     

  9. Jennifer Baljko
    January 24, 2011

    @bruzzer: Thanks for bringing up the AMD-Intel example, acknowledging your (former?) ties to AMD, and the role the distribution channel may play.

    Anyone from Intel or the distribution sales channel want to respond?

     

     

  10. stochastic excursion
    January 24, 2011

    For a while there were buzzwords, “disruptive technology” and “killer app”, describing innovation that took away long-established companies market share.  I don't hear these buzzwords much after years and years of recession. Many start-ups promoting new technology have sputtered out.  Companies with sufficient resources to weather the storm have lasted and maintained the leverage required to strongly influence the pace and direction of innovation.   So, I'm inclined to believe monopolistic practices can and do limit innovation.

    The question of whether the government should be busting trusts, or any organization with a subversive or corrupting influence, is one of long-standing controversy.  Interesting that, in colonial New England, there was a law on the books that defined subversion as seeking to substantially alter the form of government.  But the emphasis of anti-trust has shifted away, from its original use as a check on private sector influence on government, to a check on whether consumers are getting a good deal or not.  Also apparent is the government's focus on newer tech sector companies, while being soft on the older blue-chip concerns.  When something like anti-trust litigation becomes more about window dressing and maintaining the status quo trusts, my view is that it loses its credibility and should be scrapped in favor of other tools for protecting the public good.

  11. hwong
    January 24, 2011

    I am just wondering how much more each consumer ended up paying with Intel as the monopoly. Compared to NCAA or Laidlaw, Intel might not be that bad. Except Intel has higher profile and got caught in their business practice. Who never watched NCAA game or rided the Laidlaw bus? I guess we all victims but nobody complained they hurt our economy. These two are just examples among a big pool of monopolies.

     

  12. bruzzer
    January 25, 2011

    Calculation of consumer and industrial recoverable are calculated on Micro Design Resource estimates of Intel production quantities by quarter, March 1993 through 2003, on Intel 1,000 piece price weighted on frequency speed split.

     

    MDR QUANDA is the intra industry regulator itself, that became an inter industry stock trading game by Intel insiders, and certain stakeholders, including Intel PC Dealers and Media Sales Agents.

     

    While the recovery amounts are always evolving on refined analysis, currently;

     

    $6,770,709,206 consumer monopoly price over charge on infra marginal units representing 1st quarters RISK product across seventeen production short runs; Pentium Classic through Pentium 4 Northwood B.

     

    $21 billion in Intel price fixing, 1993 through 2007, substantiated on Intel contract and tacit administration of the channel tying system between PC Dealers and Media Sales Agents.  Price fix is misrepresented in Intel financials as cost of cooperative advertising.

     

    $21 billion in PC Dealer matching funds on Intel contract between Dealers and Media Sales Agents, 1993 through 2007, misrepresented as cost of PC company advertising.

     

    Noteworthy, Media Sales Agents accrue 100% of this $42 billion representing ½ of the Intel price fix kicked back to media for sales agency.  Which follows PC Dealer media ad insertion triggers which represents PC Company’s matching half of the tied charge on contractual requirement.   Certainly Intel’s ½ of kick back value is in violation of Title 48 GSA procurement regulation including the Anti Kick Back Act of 1986.

     

    Before and following Northwood B, Intel production data and contracts are required for court discovery outside FTC 9341 administrative investigation, for confirming consumer monopoly overcharge and price fixing values as a legal proof.  I am certain by hearing record FTC, DOJ, EUCC maintain this production.

     

    Economic and system structure analysis supports FTC 9341 discovery January 1, 1999 through 2003, for confirming Sherman Act Section 1, Section 2 and Clayton Act per se violations including racketeering.

     

    9341 finding 1999 through 2003, is supported by earlier analysis March 1993 through December 1998, to confirm Intel inter nation cartel obstruction of justice manipulating the result of FTC 9288.

     

    Intel price fix calculation is 3% of the PC OEM price of the Intel microprocessor embedded into each PC, times 2, representing PC OEM matching contribution to Media for sales agency. 

     

    Actual price fix range is $5 to $90 for each single processor in system.

     

    Average Price Fix recovery amount per PC from Intel as follows:

     

    Year                Intel ½ of Price Fix Charge

     

    1993                           $9.65

    1994                           $10.27

    1995                           $11.92

    1996                           $13.76

    1997                           $14.06

    1998                           $14.29

    1999                           $14.68

    2000                           $14.34

    2001                           $10.37

    2002                           $10.15

    2003                           $10.59

    2004                           $12.00

    2005                           $14.69

    2006                           $12.78

    2007                           $10.27

    2008                           tbd

    2009                           tbd

    2010                           tbd

     

    For complete report see:

     

    http://www.ceopaulotellini.com/2010/12/novermber-8-2010-nations-interest.html

  13. SP
    January 25, 2011

    Well the article headline says how to kill Monopoly but found that it showed its not monopoly but technological advances. Well I oftern debate on this subject. I am for big businesses as long as they do their social responsibilities in pure sincerety. Not only they grow but they also take society ahead with them. Problem comes only if businesses grow but society doesnt.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.