>> Quote from Adam Smith-Wealth of Nations:
>> "A monopoly granted either to an individual or to a trading company
> has the
>> same effect as a secret in trade or manufactures. The monopolists, by
>> keeping the market constantly understocked, by never fully supplying
>> effectual demand, sell their commodities much above the natural price,
>> raise their emoluments, whether they consist in wages or profit,
>> above their natural rate.
First a pedantic point:
Erik does your newsreader have to butcher these quotation? Can you please
consider using a newsreader that is able to requote a paragraph without
turning it into an absolute mess. Matthew posted using Microsoft Outlook
Express 6 so this is no evil Linux * to make your posts look bad.
Look what happens if I press F to follow up:
Quote:> "A monopoly granted either to an individual or to a trading company has
> the same effect as a secret in trade or manufactures. The monopolists,
> by keeping the market constantly understocked, 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.
The above quotation has been automatically reformatted to the correct line
length. See how the last line is a little longer? ("profit, greatly above
their natural rate." whereas in the original post it was "above their
natural rate.") There are two less characters available on each line
because of the extra "> " indentation.
To see if your post is going to be a mess, first save it as a draft. Then
open the draft. You will then be able to manually adjust the length of
each line. It will take ages. But then you will be able to appreciate the
time that a quality newsreader can save you.
Advocacy using an inferior client that messes up quotations makes anyone
doing so look unprofessional.
Quote:> Funny, but other than one situation (the recent shortfall of WinXP Home
> lan licenses) I've never heard of a Microsoft product being
> understocked. Further, since the cost to manufacture the product is so
> slight, Windows is most often OVER stocked.
In this case the scarcity mechanism is the price. Since licenses and media
are not expensive to produce you can 'manufacture' more than you intend to
sell with little marginal cost.
>> The price of monopoly is upon every occasion the highest which can be
> We know for a fact that the price of Windows is not the highest price
> which MS could get. They could charge quite a bit more and get it, at
> the exact same rate of sale they do now. We know this because other
> OS's have sold for more (OS/2 has always been at least $30-40 more
It's traditionally the highest price that can be got to _maximise profit_.
You might be able to sell one copy of Windows for $10,000 but you won't
maximise your profit that way.
But this is also a market with network effects. In markets with network
effects increasing market share becomes very important (and gives you
important advantages). This may be more important than revenue
maximisation in some stages of the product cycle.
Quote:> Another thing is that MS often gives hefty discounts to OEM's and large
> corporations. If they were a monopoly in the sense that Mr. Smith is
> stating, then they would have no need or motivation to give such
See above. Plus monopolists routinely price discriminate to futher
increase revenues. It's no accident there are now Home and Professional
versions of Windows XP.
A perfectly price discriminating monopolist will not limit output of its
product below the competitive output level. But it will result in a
situation where the monopolist gets all the surplus and consumers get
>> The natural price, or the price of free competition, on the contrary,
> is the
>> lowest which can be taken, not upon every occasion, indeed, but for
>> considerable time together. The one is upon every occasion the highest
>> can be squeezed out of the buyers, or which, it is supposed, they will
>> consent to give: the other is the lowest which the sellers can
>> afford to take, and at the same time continue their business.
> In theory, yes. It seldom works that way, even in very competitive
Actually Erik this is a very good description of how it works in 'very
Quote:> Often a company will only meet the price of their competitor, rather
> than go below it (even when they could do so and still make a profit).
> There usually needs to be some stimulus (such as less demand than you
> have supply for) that forces it.
As the number of competitors increases maintaining such implicit collusion
becomes more and more difficult. And the incentive to deviate is large.
Imagine this. 10 sellers each with 10% of the market selling at $1. If one
seller deviates and sells at $0.95 it could capture the entire market. So
if one seller deviates all have to drop their price to $0.95. How do you
keep 10 sellers in line? 20? 30? It's each sellers costs of production
(including an adequate return) that stabilises the price.
What you are describing are markets that are not very competitive.
>> The exclusive privileges of corporations, statutes of apprenticeship,
>> all those laws which restrain, in particular employments, the
> competition to
>> a smaller number than might otherwise go into them, have the same
>> though in a less degree. They are a sort of enlarged monopolies, and
>> frequently, for ages together, and in whole classes of employments,
> keep up
>> the market price of particular commodities above the natural price,
>> maintain both the wages of the labour and the profits of the stock
>> about them somewhat above their natural rate.
>> Such enhancements of the market price may last as long as the
> regulations of
>> police which give occasion to them."
> This also doesn't take into account legal monopolies of today, such as
> public utilities. These monopolies usually have state regulations in
> place to regulate prices.
>> This was written 270 years ago, and are still valid now. The Police
>> mentioned above are the DOJ.
> No, not really. The "police" he's talking about are the regulating
> bodies which grant the monopoly.
Let's not forget exclusive privileges may not be needed to sustain a
monopoly. Network effects can do that. Like if I get extra benefits from
using Microsoft Office because _you_ use Microsoft Office. The more people
that use Microsoft Office the greater my benefits are. As market share
increases that business becomes increasingly capable of extinguishing any
rival. And you can do that legally though the network effects. But you
first need to have a monopoly. Not use a pre-existing monopoly in one area
to create another one.
We know how the story goes. Microsoft didn't have a monopoly in the
browser market. But it did have an effective one on the desktop with over
90%(?) market share. Netscape had very large market share and network
effects to leverage in a browser client. Very strong evidence is available
that Microsoft knew it couldn't beat Netscape by just competing in the
browser market. So it tied the browser to its desktop monopoly. It's all a
part of public record and the findings of fact.
The greatest network effect in human history is probably the Internet. The
Internet is only of benefit to me because you are all on it :-)