The Interview: Real World Part 2
W: Let’s say for example that if we’re Intel and we’re approaching the limit of silicon shrinks, they’re still working on it but Intel used to have their Tick-Tock cadence and now is shifting to a Tick-Tock-Tock cadence lengthening out the node shrink cycle. The point is of course that in the old days it was easier for them to gain performance. So if your top end was a lot better than your nearest competition, I would be thinking “what is the point of trying to innovate and push more and more when I can make slower progress and milk the consumer for longer.”
JI: I think being a bit paranoid, Intel would think if they don’t, someone else will which is why AMD is providing a valuable service even though people like Intel CPUs, there’s definitely an argument that you have to keep AMD alive because without AMD, they will slow down, but with AMD in the frame, they can’t afford to too much because this is still a competitor although they have been weakened, they’re still there. Again, going back to Boeing and Airbus, without one do you think the other would be as keen in their pricing? No, so you say that European governments pumping money into Airbus are actually providing a service to worldwide airline travel consumers because that’s what they do to keep Boeing on their toes.
W: What if someone were to say to you that a monopoly is better because it means a single firm is better off and profiting from an industry that might otherwise be at risk of failure due to strong competition?
JI: I don’t think strong competition always means a failure in the industry, strong competition is actually the sign of a healthy industry simply because it is an industry that provides goods and services that are in demand, which is why people want to jump in and supply that industry, demand is there and the industry is healthy, otherwise why would people go and provide the goods and services because if it’s not profitable to do so they will eventually stop. Some industries, of course, may have a high barrier of entry like airlines again as an obvious case and success or failure is sometimes very iffy so yeah, government support of Airbus Industries is a clear case.
Look at the Trabant with its 2 stroke oil polluting engine the East Germans used and they had no choice but to queue up to buy that thing, but once the wall came down they could buy other cars but then *laughs*, they were no longer competitive, so a clear case where a monopoly doesn’t really serve the interests of the consumer and you can see that once competition was introduced they went under.
W: So in this scenario, the market should balance itself to the point of profitability for competitors to the benefit of consumers by virtue of there being competitors?
JI: Yes of course and if the market fails to provide that balance, a lot of the time, governments will step in like I said before for regulated industries. If some industry lends itself to a monopolistic situation and it’s very difficult for others to step in due to the high barriers of entry, governments tend to step in and regulate them to provide a balance between profits for the producer and reasonable prices for the consumer.
W: What about the argument that supernormal profits of monopoly enable competition and innovation in other industries which they can only do because they are a monopoly in the first?
JI: Now you’re talking about cross subsidies between industries. There is discussion about that with all the Japanese industrial conglomerates and Koreans that are big in one sector and get their fingers into all the different pies, but as long as there are others doing the same thing and competing, they can keep each other sharp. It’s not an argument for a monopoly because you still have detriment to the customer because the monopolist producer’s gain is a loss and the loss is to the consumer.
On a welfare perspective, if you look at the overall economy as to who gains more and who loses more, the monopolists gain is far less than the consumers loss so from an economic welfare standpoint, monopolies are still detrimental overall.
W: So from another standpoint, if someone is saying, well a monopoly is good because they have supernormal profits and provide jobs and housing and a good standard of living for employees and that sort of thing. That argument from an overall welfare perspective doesn’t hold up?
JI: No, it doesn’t hold up.
W: And on the other example in graphics cards where nVidia has a high degree of monopoly power, but is still pushing to innovate against underdog competition, they can afford to invest and innovate more but increase prices significantly as the competition is behind them in the release cycle?
JI: Now, to the extent that for a brief period of time, the Titan is the top performing video card, that is a monopolistic situation which is what businesses are always trying to create all the time, so that for the early adopters, if you want that performance, you have to pay the price, otherwise you will have to wait for others to catch up and then you can get that sort of performance for a more reasonable price. That’s absolutely a monopolistic power situation. These are the kinds of situations that companies want to be in until the advantage gets competed away, which is why consumers like perfect competition and businesses like monopolies.
W: So what about people who say that the supernormal profits of monopolies allow greater investment in research and development for the betterment of the industry and efficiency?
JI: Well, it’s all back to the incentive point isn’t it. If there’s no competition, there is no incentive.
W: So in general it sounds like it’s fair to say that monopolies are good for the company which is a monopoly and competition is good for consumers?
JI: Yep!
W: Thanks very much for your time today John!(/Dad). It’s been a very informative interview.
So, to conclude. Still think monopolies are a good thing? Go to jail! Go directly to jail! Do not pass go! Do not collect $200! Competition helps us all in our capacity as consumers.
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