Monopolies and Inefficiency and Market Distortion - High-Def Digest Forums
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Old 08-22-2007, 05:00 PM
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Default Monopolies and Inefficiency and Market Distortion

People often call monopolies bad, but very few people understand why.

A monopoly exists when one producer--for one reason or another, including but not limited to, legally granted exclusivity, historical momentum, or collusion--gains the rights to produce one product in a market free of price competition.

In this situation, depending on how inelastic the demand for that good is (or in more simple, but less accurate layman terms, how hard it is for consumers to go without that good or replace it), a monopolist can charge a much higher price than it would otherwise normally would. This situation would normally not continue because normally, if there was an above-average profit in one sector of the company, you would see competing producers enter the market thereby lowering prices by competition.

This source of monopoly profit, once esnconced is well-nigh almost impossible to remove, for the extremely large costs to the economy are diffuse while the lesser benefits are concentrated.

Why are these profits bad? Because value is destroyed in the economy that would otherwise exist free of the monopolist. Because prices are artificially high, total demand is actually less and the total revenue inside the market for that good is less.

The simple result is that the loss in the numbers of people enjoying combined with those people that are not getting as great a value out of it due to higher prices far outstrips the profits that are gained by the monopolist.



Allowed to perpetuate a monopoly causes two fairly bad economic side effects.

1) The first is lowered quality and innovation. Free from competitive pressures, not only can a monopolist charge higher prices but also drastically cut costs and quality at the same time. For example, lets say that the monopolized product in question is glass. A monopolist can already charge the highest price possible for the product. The only way to really increase profits is to slash costs. By doing so, they decrease the number of engineers working on producing the glass and use cheaper materials. As a result all products that require glass, such as windows, suffer dramatically in quality, with customers often none the wiser because there are no competitors.

2) The second is market distortion. Depending on the size of the monopoly, the profits attained through monopolies can many-times be huge.

In an economy free of monopolies, every product released is desired and creates value. All businesses exist to make money which means that the product they sale is valued at higher than the cost it takes to produce that product. With perfect competition, consequently, the ratio of profits converge, because anyone gaining excess profit will find new producers entering the market to try to cash in. Subsequently in perfect competition free of monopolies, the profit earned for each dollar invested is the same across all businesses.


Monopolies distort the market. Because they earn above-average profits, they can afford to lose money on other ventures as long as their profits on average are the same or higher than other companies. Depending on the size of the monopoly, a monopolist can distort other markets within an economy that are smaller in size.

For example, let us say, that relative to the amount of money invested into it, a monopolist makes about 4 billion dollars in excess of the average rate of return in the economy over 4 years. They can afford to lose these 4 billion dollars without repercussion because they will not lose investors because they are earning well above or the same as the average rate of return in the market should they lose any or all all of the 4 billion dollars.

Let us say that the monopolist seeks to enter a new market. For example, lets say they sell oxes. The cost of producing an ox in the current market, which involves the cost of the labor tending to oxes and the cost of feeding them, is about $20 for exisiting competitors. Because the monopolist can afford to lose $4 billion dollars, it can afford to waste all of its money, free of normal market forces to exit if one cannot earn a decent rate of return. It can produce inferior oxes that can't do as many things as a competitor's oxes and price well below cost for years to come in an effort to undercut the competition and gain market share. It will also waste more money on ancillary costs such marketing and branding a product that is already failing, for example trying to spur sales by trying to brand its own oxes as a special kind of ox, lets say, an X-ox if you will.

This is deleterious to not only consumers but comepetitors as well because competitors were earning a fair rate of return before and are competing with someone that is effectively dumping product on the market thus cutting into their profit margins. Consumers lose out because many may be tricked into buying an inferior product. And most of all the overall economy loses because if there had been no monopolist around, those 4 billion dollars would've passed into more profitable transactions as demanded by market forces.

As a result, a monopolist is just simply bad. All of the bad points regarding to them are a result of them destroying value in the economy: they release an inferior product to massive profits which they can subsequently use to destroy even more value in the economy.

A normal producer would try to increase the quality of their product by differentiating it in a way that consumers see value in this and are willing to pay more.

A Monopolist can simply use their profits to destroy value in the economy and make unprofitable transactions just to hurt competitors. Like for example, buying exclusivity with a movie studio at a substantial loss.

Bam!
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Old 08-22-2007, 05:01 PM
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So did you just wake up to the shady ways almost ALL major corporations conduct business?
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Old 08-22-2007, 05:03 PM
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Buying exclusivity isn't a monopoly. I guess Sony did a monopoly when they bought Guerilla Games for Killzone 2, and MS did a monopoly when they bought RARE, and on and on and on. You fail.
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Old 08-22-2007, 05:04 PM
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Originally Posted by balpho View Post
Buying exclusivity isn't a monopoly. I guess Sony did a monopoly when they bought Guerilla Games for Killzone 2, and MS did a monopoly when they bought RARE, and on and on and on. You fail.
And I still love how it wasn't a monopoly when SOny owned 7/8 studios...but now that they lost ONE exclusive HD DVD is gulty of anti-trust and monopolizing HD...yet Sony still has more exclusive support from retailers and studios...

What a bunch of illogical tripe this site has had to deal with the past couple of days....
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Old 08-22-2007, 05:10 PM
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Originally Posted by Volume 11 View Post
And I still love how it wasn't a monopoly when SOny owned 7/8 studios...but now that they lost ONE exclusive HD DVD is gulty of anti-trust and monopolizing HD...yet Sony still has more exclusive support from retailers and studios...

What a bunch of illogical tripe this site has had to deal with the past couple of days....
And I still love you you are falsifying information to fit your own goals.

Sony doesn't own seven studios, they own Sony Pictures and Columbia. They have a minority share of MGM in a non-controlling way. At the most, it's 2.2 studios they own.

Sony doesn't have exclusivity from any studios other than Sony and Columbia.

I think what you're trying to say is that 7/8 studios supports a format, and one of those studios quit supporting that format, but that format still has more support than the competing format.

Of course you're twisting words and concepts to make certain entities seem sinister and evil, so I guess you got your point (FUD) across.
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Old 08-22-2007, 05:12 PM
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Gee, the DVD forum has the IP of DVD, that surely slowed things down. Blu-ray/hd dvd are formats, not products in themselves..

Pull the troll plug..
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Old 08-22-2007, 05:15 PM
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Originally Posted by glocks out View Post
And I still love you you are falsifying information to fit your own goals.

Sony doesn't own seven studios, they own Sony Pictures and Columbia. They have a minority share of MGM in a non-controlling way. At the most, it's 2.2 studios they own.

Sony doesn't have exclusivity from any studios other than Sony and Columbia.

I think what you're trying to say is that 7/8 studios supports a format, and one of those studios quit supporting that format, but that format still has more support than the competing format.

Of course you're twisting words and concepts to make certain entities seem sinister and evil, so I guess you got your point (FUD) across.
No, you're splitting hairs..you're good at that.

Like I said, Sony/BDA still has more support and more exclusive studios than HD DVD...so how is Paramount going HD DVD exclusively a monopoly when HD DVD is STILL on the losing side of studio support?

Im not twisting anything. If anything, you are twisting words to take away from my point and make Sony out to be this greaty corporation who would never stoop to buying exclusivity..when in fact they did...not only with their exclusive studios, but with end caps and retail deals...

Like I said, youd have to be 12 to not realize that floor space for special endcaps and BB rentals deals are a product of a handshake and BD superiority.
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Old 08-22-2007, 05:21 PM
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Originally Posted by Volume 11 View Post
No, you're splitting hairs..you're good at that.
You have to when someone like yourself is good at tying knots in those hairs.

If you were putting "Sony" in place of the Blu-ray format, you're still entirely wrong because the format doesn't own the studios either. The format is a medium for distributing property. The format doesn't own anything.

Quote:
Originally Posted by Volume 11 View Post
Like I said, Sony/BDA still has more support and more exclusive studios than HD DVD...so how is Paramount going HD DVD exclusively a monopoly when HD DVD is STILL on the losing side of studio support?
I would not call HD DVD a monopoly either. I couldn't say anything they've done falls under the category of anti-trust and/or monopolistic practices.

Quote:
Originally Posted by Volume 11 View Post
Im not twisting anything. If anything, you are twisting words to take away from my point and make Sony out to be this greaty corporation who would never stoop to buying exclusivity..when in fact they did...not only with their exclusive studios, but with end caps and retail deals...
You most certainly were twisting words and concepts. There is no evidence provided by anyone to show that Sony bought any studio's exclusivity. There is no evidence to suggest Sony bought Target's exclusivity. Target's stance is that they chose Blu-ray as their initial high-def offering, and they approached Sony about the end cap.

Quote:
Originally Posted by Volume 11 View Post
Like I said, youd have to be 12 to not realize that floor space for special endcaps and BB rentals deals are a product of a handshake and BD superiority.
I don't have to use insulting words to describe to you that retailers don't just have end-caps available to the highest bidder.
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Old 08-22-2007, 05:31 PM
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Quote:
Originally Posted by glocks out View Post
You have to when someone like yourself is good at tying knots in those hairs.

If you were putting "Sony" in place of the Blu-ray format, you're still entirely wrong because the format doesn't own the studios either. The format is a medium for distributing property. The format doesn't own anything.


I would not call HD DVD a monopoly either. I couldn't say anything they've done falls under the category of anti-trust and/or monopolistic practices.


You most certainly were twisting words and concepts. There is no evidence provided by anyone to show that Sony bought any studio's exclusivity. There is no evidence to suggest Sony bought Target's exclusivity. Target's stance is that they chose Blu-ray as their initial high-def offering, and they approached Sony about the end cap.



I don't have to use insulting words to describe to you that retailers don't just have end-caps available to the highest bidder.
Yes, you are right. Best Buy CEO Joe Blow just woke up one day and said, "Gosh, BluRay is the shizznet, its clearly much better than HD DVD. I think that I will mandate that ALL Best Buys have at least one endcap and one seperate display with a Sony HDTV and a Sony BD player...especially considering BOTH formats are selling poorly and they are both technically wastes of space for thr store".

Likewise, target CEO Bobby McGillicutty woke up and saw the awesome sales data of BD and said, "you know what?....I think ALL targets should, no, NEED to carry ONLY a BD player....no, thats not enough...we NEED an endcap display as well...someone get me Kaz on the line cause I need to tell him that out of the kindness of my heart Im going to force ALL targets to carry BD players and have displays/endcaps...I mean...70% of a 1% percetn DVD market....those are CRAZY numbers......Gosh, tell KAZ its for free, too! BD is so effin awesome Im willing to waste floor spcae that thousands of companies would KILL for to showcase their products"

Honestly, dude, wake up.
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Old 08-22-2007, 05:33 PM
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With the start of most colleges....did you have your first class of macroeconomics today???
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