Why netarchical ‘monopsonies’ are not good for society

Amazon is following a decades-long model for the tech industry. It begins with the rollout of cheap or “free” services – typically based on the efforts of others — offered at minimal cost in order to capture a monopoly share of the market. Once that monopoly is obtained, the tech vendor uses it to extract usurious and typically unanticipated costs. These costs may be borne by its customers, its vendors (a condition more accurately characterized as “monopsony”) or society as a whole.

Excerpted from Richard Eskow, who explains why tech monopolies are a bad thing for society as a whole:

“The social and economic cost of this behavior is extensive, but difficult to measure. How do you quantify the jobs, consumer savings or new revenues that were lost because of innovations that never took place? Other costs, such as price-fixing, are easier to measure. Monopoly also expresses itself in an increased concentration of wealth, as fewer companies are able to compete for market share. That means worsening wealth inequality – about which Bill Gates, to his credit, recently expressed concern.

Despite its self-promoted reputation for “disruption” and invention, Microsoft’s monopoly approach is Silicon Valley’s real business model – and it’s been faithfully followed, in one form or another, by all of the massively successful tech ventures that have come since. (As a note: We use “monopoly” as shorthand, although in many cases – including Microsoft’s – we’re also describing monopsony practices.)

Facebook is the textbook example. Although it was never distinguished by smart design or ease of use, Facebook moved aggressively to capture a monopolistic share of the social media market. Then came the ads, the interference, the invasions of privacy, manipulation of users’ news feeds for the corporation’s own purposes – not to mention invasions of privacy and the sale of personal data to third parties.

Facebook builds nothing, manufactures nothing, creates nothing. Instead it encourages its users to do the creating, then “charges” them in invisible ways – by redirecting their time and attention to produce profits for itself.

YouTube, like Facebook, never generated its own content. It built its monopoly position by offering free access to the creative work of others. Once firmly established on its monopolistic throne, it began forcing viewers to watch advertisements before viewing videos.

That’s the model: First lure them in and establish your monopoly, then monetize.

YouTube is now owned by Google, which also commands a monopoly share of its market. Unlike some of its less-gifted peers, Google is a genuinely inventive and talented company. But, like its peers, it has relied heavily on government-funded technology (the Internet, computers, smartphones) and government-funded research to capture its monopoly share. It has used its monopoly to redirect users’ attention, and to exert frightening levels of control over users’ experience of the world.

Now a new generation of would-be monopolies is on the move. The most aggressive of them is the martially named “Uber,” which recently distinguished itself by earning an “F” rating from the Better Business Bureau.

Uber is following the path laid down by its forebears: First, identify a core market. Second, establish a monopoly position. Then capitalize on that position, either by squeezing customers and/or vendors or by using it to expand into additional markets.

Uber’s CEO has already described his long-term vision for the company as that of an “instant gratification” service that could provide customers whatever they want, whenever they want it. That has led to publicity stunts like “Uber ice cream” delivery, “Uber roses” for Valentine’s Day, Texas barbecue, helicopter rides and even “Uber kittens,” which were delivered to customers for 15-minute snuggles. (Did anybody ask the kittens how they felt about that?)

As Paul Krugman has noted, Amazon is behaving more like a monopsony than a monopoly, using its market position to drive down vendor prices rather than jack up consumer prices. Uber’s doing both. It has been using market position to force drivers into accepting lower wages. And it has telescoped the “lure ‘em, then monetize ‘em” strategy into a very short time frame. First it attracts customers with low-cost rides, then it uses something called “surge pricing” to jack up charges at peak times (and, it has been charged, to make unseemly profits from Hurricane Sandy).

When Franklin Foer launched an anti-Amazon broadside in the New Republic last week, Annie Lowrey and Matt Yglesias were among those who argued that the Bezos outfit was not in fact a monopoly. Lowrey, offering the more balanced argument of the two, acknowledges that Amazon has “something like a monopoly” over the books market and that this position “has become harmful.”

But, Lowrey adds, “this is cherry-picking.” She goes on to observe that Amazon has only about 15 percent of the overall e-commerce market and “faces fierce competition from traditional retailers.”

That’s missing the point – although, to be fair, it’s a point that Foer never gets around to making. It’s true that Amazon isn’t a monopoly or monopsony in anything except books – yet. But it has demonstrated through its actions that it intends to become one in every market it serves. It has used its enormous cash flow – cash flow based on government-provided tax breaks – in order to act proactively and ruthlessly to eliminate future competitors. While it’s far from a monopoly in diapers, for example, it used its revenue base to engage in brutal price competition with Diapers.com (which it then acquired).

This strategy could be described as “serial monopoly” and “serial monopsony.” It enters a market, leverages an economic advantage (sales tax exemptions, revenues from other product lines) and then preys on competitors until it reaches something like a monopoly position. Serial monopolists are always thinking about the next market to be dominated. Today’s revenues are often directed toward that end, rather than to short-term profits.

That’s why arguments like Yglesias’ miss the mark. When Yglesias writes that “’low and often non-existent ‘profits’ and ‘monopoly’ are not really concepts that go together,” he’s working from an old playbook. In the new “serial monopoly” model, they go together very well.

Uber’s leaders may not be as shrewd as Bezos, and their early move to “surge pricing” may have tipped their hand too soon. But “serial monopoly” is Uber’s model, too. That’s what those ice cream cones and kittens were really all about.”

In conclusion:

“In one way the serial monopolists are a new creature, spawned from technology that allows them to enter new markets without initially manufacturing or warehousing the merchandise themselves. In another sense theirs is an old tactic, one that would have been familiar to the railroad tycoons who were setting the price of grain in 19th century America.

It should come as no surprise that these third-variety tech companies share strategies and worldviews. They also share many board members, venture capital firms and social connections. Companies like Amazon, Facebook and Uber represent the culmination of Silicon Valley culture that has been developing over decades. This culture combines old-fashioned monopolistic practices with the latest technology – along with a kitten or two.

This new culture conflicts with more broadly held social values in a number of critical ways. Its leaders aren’t concerned with widely held values like competition or fair play. They’re even less interested in foundational principles like artistic freedom, personal privacy or unbiased access to information. These values, which are so elemental to the nation’s spirit, don’t fit with business models that depend on the manipulation and exploitation of your time, attention and personal information.

They’re extracting more old-fashioned social costs as well. Silicon Valley has colluded to drive down the cost of its own engineers, as Mark Ames and other have reported. And tech companies are forcing down wages for everyone from cleanup and security staff to warehouse workers and drivers.

These corporations are monopolists – and much more. They’ve quickly assumed extraordinary influence over our lives. They control what we know, what we see and how we spend our time. They decide who knows our most intimate secrets. They are acquiring the kind of power totalitarian governments of the past could only dream about.”

2 Comments Why netarchical ‘monopsonies’ are not good for society

  1. AvatarIra Dember

    Walmart was, and is, the poster-child monopolist on the vendor side. (I hate the pointless, hifalutin’ term monopsony and won’t use it except in this sentence.)

    Walmart has long used its vast scale to extract from vendors ruinous concessions of price and terms. Some vendor companies see this trap and won’t do business with Walmart. (This choice may carry its own perils.)

    Walmart could accomplish its monopolistic feats only because it developed by far the most advanced, integrated IT systems for inventory control and supply chain management, in some cases perhaps decades ahead of their time.

    Because of this enabling technology, I’d call Walmart a “tech company” from the standpoint of this article. Without its early IT lead, I believe Walmart would have remained just another company with unfulfilled monopolistic aspirations, unable to viciously oppress vendors as successfully as it has.

  2. AvatarKeith

    More a rant than a an article worthy of serious consideration.

    We are moving to a world caught between two competing forces, Caliphate of ISIS and serfs working Death Star apps.

    Uber, Amazon, Apple, facebook, exploit labour, pay no tax.

    Amazon and Apple and Spotify, force down what they pay to suppliers.

    Writers and musicians do not have to use these services, they can encourage their fans not to.

    E-books can be published on leanpub, music and the spoken word on bandcamp.

    No one is forced to book a fake taxi through Uber.

    All capture externalities.

    Facebook steals our personal data, which is then sold, no respect for privacy.

    Amazon is fa more subtle, and could even be seen as a benefit to users.

    If I choose This Changes Everything, PostCapitalism, a clever algorithm will note my choices, present to others.

    On TripAdvisor, users provide the reviews, other users benefit, although there are now so many fake reviews, the utility is of limited value.

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