Matt Stoller Explains Monopolies

your trade there. If you're operating in a market which is monopolized, then you have a political boss who sets the prices, the terms of trade, who can buy, who can sell, and you're under their thumb and yeah, it's your trade right. So it looks like the quote unquote economy, but in fact it's really a person has or that firm has political power over you. And if you have enough monopolies in an economy, then at least in the commercial sector, which is a big part of our lives,

we're not living in a democratic society. We're living in a society of a of a bunch of of private governments, authoritarian governments over markets.

over you know, over the Internet. You can see this, like every publisher can tell you that the change in Google's algorithm can be catastrophic or can be you know, hugely important and pactful in some ways. So yeah, very much. So. Google is the private government of the Internet, or at least the gatekeeper of the Internet. And it is exactly it's exactly what you're talking about. They also have political power because they're a big company and they lobby and whatnot.

But just as infrastructure, they are governing that infrastructure.

been monopolized by Google or have been taken by Google. So, in one sense, what happens when you have monopolies, you have you know, higher prices and all the rest of it. But another thing that happens is that businesses that are operating often have a choice of continuing in existence or not. And the choice of whether to continue in existence is often to go down through a business model that can look sleazier, can be problematic, or can be coercive. And

so it's like that's that's the choice. Do you go out of business or do you this do this thing that you know you don't like. Is there's a law, there's a rule of thumb called Gresham's law about counterfeit money, which is, you know, when somebody starts using counterfeit money, then nobody wants to use real money. Because even if you want to use real money, you know, you're like, I'm not going to put real money out there if it's all counterfeit.

even when you get to the hotel. And it's not that every hotel wants to rip you off, but they all know that you're going to be looking at the price and comparing the sticker price that you see on the on the results page, and if their rival is not is not showing you that junk fee, then they're at a competitive disadvantage if they don't lie.

So another statistic would be, you know, there's something called the Wilshire Wilshire five thousand, which is an index of public companies, and we don't have enough public companies for the Wilshire five thousand. They're only about thirty four hundred public companies. Now there used to be around nine thousand in the nineties. Now we have around thirty five hundred. It's largely because of mergers. Even the country per capitis,

you know that the decline is even more significant. So just the number of big companies is smaller because companies have gotten you know, they've merged and gotten much much bigger, and this has a lot of consequences. What you see is wages are much lower than they otherwise would be. So the amount spent on employees with either increased wages or healthcare or training is probably between fourteen and twenty thousand dollars per American in the non in the non

financial corporate sectors eighty million Americans. You see things like the cost of healthcare, which is largely driven by market power, consolidation in hospitals, pharmaceutical companies, insurers. The price of an insured family of four has gone from about ten to fifteen thousand dollars a year in two thousand and eight to about thirty thousand dollars a year today. So that's you know, a lot of the you know, lack of

increase of compensation and wages. If you just take those two facts of just how much lack of ability to move to a new job because of consolidation. That's fifteen to twenty thousand dollars plus the increase that we're paying in healthcare. That's a lot of money. And that's you know, every single year, it's basically almost a new car every single year. That's just extracted from every family by this increased amount of concentration.

do that either because for you know, other reasons, because that Walmart has more bargaining power with suppliers, and so you can't compete. Even if you had a you could do it more efficiently, you still couldn't compete because you couldn't get the supplies that you needed, or you couldn't get them at the best at the same price.

and you need it, You're going to do this. And they just did this across the board, and they literally restructured how American production happens because.

We're not living in a dictatorship or anything. This is still a democracy. But you know, you get bossed around and you get told you can't mean, the amount of fear in commerce is overwhelming at this point. When you when you talk to people in lots of different areas, they're afraid to talk about what's going on in their industry. Because the monopolists can can retaliate against them. And so if you're living in fear, then you're not living, You're

you're not free, right. You may not be living in a dictatorship, but you're not free.

bad ideas taking over. So what happened in the we had this populist tradition in America, right, which you can you can find this you know, really the the original Populace was a political party in the eighteen eighties and eighteen nineties. They were farmers from the South and the Midwest. They were upset about a number of different changes in

the economy, the dominance of railroads, dominance of large banks. Basically, they were mad about Eastern capital controlling their business and making it hard to make a living selling farm products. And you control by processors, controlled by railroads. This is very similar stuff that we're seeing today. So standard oil. I didn't like that, But you could go back, you could find this, you know, you go back in the sixteen hundreds and find antecedents in England and so on

and so forth. There has always been this tradition of let's not have too much. No one should have too much power in America, right, that's the checks and balances things, the federalist papers and whatnot. Also, no one should have there we should try to avoid conflicts of interest. I mean, that's in the Bible. No man may serve two masters. Right, So you have this these two sort of basic themes,

checks and balances, no conflicts of interest. And we've we've always kind of understood that that's the way that we should arrange our society. Very bitter fights in the nineteenth century over corporate chartering. We regulated our corporusiness idea that we used to be less a fair and that's always nonsense.

There were all sorts of fights over who could charter it for what reason. Originally it was academic institutions, municipalities. They didn't allow anyone to just charter a corporation. And because they were like this can be really dangerous. Corporations were originally chartered to allow the pooling. You know, eventually they started to charter them in business and they said you can pool capital and men to build things of public works and make a little profit, and we're going

to put very restrictive confidence in there. And it was very restrictive until the eighteen eighties and eighteen nineties, and that's when you started to see federal antitrust laws because the state chartering didn't work as well, and so we needed a new regulatory regime, and that was the that's when we got into the federalization of it. But that's the story. The story is we've always kept a tight

rain on commercial concentrations of power. In the nineteen seventies, there were sort of two different political and intellectual movements that came that won the debate. Each one within the Republican Party, one within the Democratic Party, the Republican the debate. The one on the right was the Chicago School. These were the Libertarians, and their argument was power doesn't matter, Concentrations of power doesn't matter, conflicts of interest don't matter.

Traditional things like usery caps, all that stuff is very silly. The only thing that matters is efficiency. We need to just think about what is most efficient. And to understand efficiency, let's think. Let's ask economists. They are the scientists, right, We're going to move this political question out of the realm of the public and the citizen and move it to the expert, the scientists, the economist. That's why these

political things become the economy. That's why we start using terms like human capital instead of people, or infrastructure instead of bridges. Like it's just a very you know, the language got gets weird and sort of flat distant, yeah, exactly distant alien right. I noticed this in the in some of the documents that I was looking at the government doctor in the seventy eight seventy nine, that like, the language started getting weird and very technocratic, wonky. So

that was on the right. On the left, it was sort of like some quasi socialists who made a similar argument. And they they you know, they they were not they didn't like small business right because they thought that like small business people were like uh racist and and Rubby and Andy. They preferred working with you know, the big the big banks and the and the big chain stores. And they thought, oh, they're cosmopolitans regardless.

run things, right, It's actually very similar. Both the right and the left they kind of hated each other, but they agreed that populism was bad, that small business was sort of foolish and silly, and that what we really should do is is have big institutions running things. And those big institutions, you know, maybe the right thought, well, they should just generate cash because that's more efficient, and the left maybe thought, let's have them be more socialist

and look out for the public interest. But that was the sort of the gist of what both and they won. And then they changed antitrust laws in the nineteen seventies and a whole bunch of regulatory laws in the nineteen eighties, like, for example, deregulation of airlines, which happened in nineteen eighty. The most aggressive proponent of deregulation of airlines was Ralph Nader. Okay, wasn't a right wing thing. The airlines themselves didn't want it.

It was Ralph Nader pushing it very aggressively. He was also very aggressive about pushing for deregulation in banking. You know, I mean, it's a weird history here.

to happen. And you know, even if today if you read like the biographies autobiographies of people who worked in the Carter administration, though like invective, the anger they have towards the teamsters is really weird. Like I've read like multiple people from was his name, Alfred Kahn was kind of the big one. He was like diregular, but he used to talk about like how the goal of a lot of the policies was to just destroy the teamsters and reduce wages like for workers, and.

framework is there. Things aren't basically prosperous, and they stop caring about questions of political economy and concentrations of power and inequality because there just isn't that much of it. I mean, yeah, there's like there's some like rich people. There are rich people, but they're seen as kind of like borish and tacky. They're not like considered powerful. Wall Street doesn't really matter, you know, in the seventies, it's just like a place with coupon clippings of like bonds.

It doesn't it's not you know, it's not a big deal. And that's kind of the vibe that that most people have. You know, it's in nineteen seventy nine, you could like you could leave high school and you could just get it, get a job making fifty bucks an hour in a factory. Right that it was just a very different society. So there just wasn't the concern over being able to make it.

for that had kind of fallen apart. And when inflation hit in the nineteen seventies, and inflation hit for a variety of reasons, mostly having to do with changes in banking, you know, some some oil shocks, those two movements spent a lot of time convincing people that the American economy

was misshapen because there wasn't enough expertise running things. And so in the nineteen seventies, when you started, when there was inflation, when there were these when there were financial shocks, the argument was we gotta we got to get rid of these new deal rules. Now, there were legitimate reasons to update those rules, like the train system was a mess, and because you couldn't close down unprofitable routes. You know, there was there were there was a lot of like

real problems with our with our transportation system. You know, it was hard to update trucking rules. There were things that needed to be updated. But they just said, you know what, all of this stuff, just throw it out and give freedom to capital, to to unionize, to do whatever capital wants, because that's how to bring down costs. You got to make things more efficient and that will address pricing.

that's actually the Reagan administration. You know. There's this document that a colleague uncovered in nineteen eighty, the Transition, a transition document from two important economists who said we're not going to be able to convince Congress to get rid of anti trust laws. So we're just going to have to change it administratively by not enforcing the laws that we don't like. So that's what Reagan did with mergers. He said, we're no longer going to enforce merger anti

merger law. And so that's why, you know, you saw a huge consolidation wave in the nineteen eighties. You know the movie Wall Street, the nineteen eighty seven Oliver Spill. Yeah, so that's about a merger, right, that is the moment, Like, that's what happens, is that that change. You also saw

in terms of legislation. Yes, there was a tremendous amount of deregulation of particularly of finance, but also of trade, also of shipping, also of you know, railroads and trucking, and there were a lot of legislative changes that fostered the consolidation of economic power in the name of efficiency. So, you know, one of the first laws that changed was one that it was called the Consumer Pricing Goods Act

of nineteen seventy five. They said, we are going to allow discounters to basically charge much less than an item costs in order to kill their rivals. So you know that the idea used to be that if I sold, if I was a producer and I and I sold, say Ingersol watches or something, I could tell the retailer what price minimum price they could set, and that way that retailer couldn't price below cost to draw people in

and kill their rivals. Let's say, like, you know, they don't do that with Ingosole watches, but they did that with milk, right, you know, price below cost to kill your rivals. If you can price below cost, this is what Amazon does, right, Like. The reason Amazon was able to kill its rivals is because it could borrow from Wall Street for as long as it took, whereas its

rivals couldn't. That's called predatory pricing. Uber did something similar that used to be illegal, and one of the laws that made it possible was the Consumer Pricing Goods Act of nineteen seventy five that was put in place by the Democrats who had just gotten elected reacting in a reaction to Nixon, and they didn't know what to do about inflation. So this is something that the Natorites told

them to do. They did it, and Walmart exploded as a result, nineteen seventy, Walmart was about had about, I don't know, twenty thirty million dollars in sales. By nineteen eighty it had a billion dollars in sales by nineteen eighty five. Sam Walton richest guy in the country. But so a bunch of stuff, like a bunch of legal changes happened, deregulation of finance, deregulation of all of these different areas, and now so the relaxation, dramatic relaxation of

antitrust laws. And so when you make when you legalize monopoly, which is effectively what happened, then you get a bunch of monopolies. And this is to our earlier point. If you don't monopolize, then you get eaten, right, and you get destroyed. So you could say Mark Zuckerberg did what he did, and that's bad by rolling up, you know,

the social media space. But if it hadn't been him, it would have been somebody else, right, And same thing with Google, same thing with all of these guys like it was gonna When you create a legal environment like that, that's what happens. So these big companies now they're big, Now they're powerful, and they use lobbying, they use infrastructure, and they're governing. But it didn't start out that way. Now we have a political economy problem, but the ideas

have changed. So the intellectual framework they were operating on of Google, we don't do evil, right, which is a fundamentally a statement about governing. I think there's like a general view that whatever you think about Google's business model, it is inappropriate for a private entity to be used to be wielding sovereign power. That's not it shouldn't be up to them, right.

So the that's like the in anti trust law. It didn't always used to be this way, but we interpret it to really since the sixties to the eighties, depending on what case you look at. If you are if you are a monopoly and you and then you do something to maintain that monopoly or to extend your monopoly,

that's what makes it illegal. Right, Like if I just create a new product category, some widget that no one's ever heard of before, and I start making it and it's popular, I'm by definition going to have one hundred percent of the market. That doesn't that's not illegal, right. What it would be illegal as if I had one hundred percent of the market and then I said to my distributors. Hey, if you want my thing that everybody wants, you can't distribute my rivals. Think that's what makes it.

That's what turns it into an illegal conspiracy, and that's effective the argument about what Google was doing with search.

will say, no, I don't think that's right. This is what you need to cure the monopoly. And there will be another, effectively a trial, and then the judge will rule and make a decision, and then it will go on appeal, probably the Supreme Court, or depending on who wins in you know, this election, they could settle it as the Bush administration did with the Microsoft suit in two thousand and one. So all of that being said, we don't even know what the Justice Department is going

to ask for. So the Justice Department could ask for something very small, in which case that's the most you're going to get, or they could ask the end of it, right well, I mean it's not the end. There's going to be you know, yeah, that's the most you're going

to get. Or they could ask for you know, breaking up the company and you know, opening up the data vaults to let anybody use the data that that Google collected, or you know, opening up their IP vaults and saying anybody gets to use that, or you know, there's a ton that the DJ could ask for. We're going to sort of find out more about that in the next

month or two. The Remedy phase conference the have they're they're just going to talk about the scheduling of the remedy phase in I think September like sixth the ninth or something like that. So, well, you know what we're gonna be covering, mys be covering that. You're going to hear about that if you if you want to see it.

But it's I know, it's very exciting. I mean, this is the first big tech company that's been deemed to be a monopolist and the anti trust law, you know, a lot of anti trusts law is is just not so much what the law says, but whether you use the law. You know, the Department of Justice didn't bring a monopolization case pretty much for twenty years since Microsoft, like the Google case was the first one first, certainly

first big one. FDC brought a few. There have been some private cases, but this is really the first big one since since Microsoft. And what's gonna happen and what is already happening is, you know, every big company is we're you know, every CEO in a company that has market power has to ask their general counselor could this are we doing something that could get us into hot water?

They didn't have to ask that a few years ago, because you could just the general counsel or their anti trust council could say, eh, don't worry.

Basically the way you would deal with that is you would have Google pay for a like a special master who would kind of like run who would run a like a technical committee that would make a lot of decisions.

That's what Microsoft had to do after they lost There was a technical committee that came in and basically was a regulator for Microsoft's a couple hundred people something one hundred to two hundred people who were just making sure that Microsoft's software was compatible with other entity software, and they had certain legal authority over Microsoft. You do that for for parts of Google where you can't actually do

a breakup, and there you know, there you go. This is a remedy is not that hard depending on what you want to do.

dot com domain. Like I know, it's like a small Yeah, it's just so obviously if you want to register a domain name and you want a dot com or you own a dot com and you need to reregister, you know, you need to renew it, you're going to pay a you know, you're gonna pay registration company and they're gonna have to remit whatever whatever they charge. I think they charge like nine dollars and fifty cents and it's it's

like seventy percent operating margins. And because they manage the dot com domain name, because the government charters them told them, you can you get to manage this. They have contract government that lets them do it. Just a very clear one hundred percent of the market for you know, renewing dot com domain names, and just everybody that owns a dot com domain gives them nine dollars and fifty cents a year. They should give them probably ninety cents a year.

I don't play video games. I don't believe in fun. I don't like, you know, I don't think there should be any joy. But I lost that, so, uh, but as long as you're not going outside, that's my main concern,

not a problem. Okay, good. So you know, the these long term monopoly arrangements are like are I think there's something really problematic about it, But I don't exactly know what to do about the But but the you know Madden has gotten is it's not that it's gotten worse, it just hasn't improved, right, And and they're there there's also some of the other sports games they're like extracting more and more money. But did you see this with

fanatics too? They've made the experience in sports worse. So it's what we need to look at is these kind of long term exclusive contracts. And there are some there are some questions like should the NFL be able to leverage its brands to create you know, obviously they have obviously they have a right to profit from their brand, right and obviously the players and they all have right to profit from their brand, just as movie company. You know,

they get a copyright of the movies they make. But the question is should you able should you be allowed to take that brand that is a government granted monopoly, which is fair because you are generating you know, you're making the product, right, but should you be able to turn that into another monopoly? Should be you able to leverage that you know, or should you have to say, okay, well we will. I'm in a profit from it. Anybody that uses the NFL in a game has to pay me.

But I can't restrict who gets to use that in a game, right. That was a little bit like there have been anti trust cases on that. There was one in the forties that restructured Hollywood. So there were a bunch of movie studios and they owned or they controlled theater chains, and they wouldn't let rival movies into the theaters. So it'd be like, if you want to get you know, like Gone with the Wind, which everyone wants to see, then you have to take our other movies and you

have to keep rivals out of your theater. And it was just a way of controlling the commons. It was a way of tran of turning their monopoly over legitimate copyright monopoly over Gone with the Win, which they had made,

into a monopoly over distribution of movies in general. And this feels the Madden thing feels a little bit like it's turning their brand into control over over, just like football related video games, and that that doesn't feel it's had the consequences that we don't like higher prices worse quality.

It's not a critique of big business. It's a critique of not allowing business to get big right, And this is a case where they are preventing more business from being done by paying explicitly so others won't get that that NFL licensing brand.

to the Supreme Court. And you know there is a you know, Thomas Jefferson wanted to put an antime monopoly plank in the Constitution. That was his one of his critiques. You know. You see, like historically, the anti monopoly lens is kind of a critical way to understand American history. And you can see this like over and over and over. There is this fear of monopoly power and it comes from the the the recognition that we do not want

to be run by a king. Right, So John Sherman, Sherman Anti Trust Act, said that, you know, if we wouldn't be will not be ruled by a monarch, we should not be ruled by an autocratic trade. Right, very explicit about the link between monarchy and authoritarianism and monopoly. And they were using the term monarchy because fascism hadn't happened yet, right, so, but monarchy did exist, right then in the nineteenth century, Americans were looking across the ocean

and they were seeing a bunch of kingdoms. There was a little bit of democracy, but that's what they were really looking at, and they were like, we don't want that. And today we would just say fascism, right, but like you, you know that we did analogize monopoly to fascism in the nineteen twenties, thirties, forties. But it has always been foundational in America that concentrations of power are what we

escaped and they are not what we want here. And there's always been this tension because you do need to consolidate capital and effort to do great public works and to do great works in general, like you often do need to do that, But how do you control the power of that. How do you control the power of industry? If you're going to put a billion dollars together to build a railroad across the country, you know, that's awesome.

Now you have a transcontinental railroad, but who runs that railroad and the prices they charge, the ability for them to charge different prices to different classes of people based on who they want to succeed. Now, all of a sudden, you're talking about a political problem. Well, of course you don't want to say you can't have a railroad, but you do have to deal with the political power that's concentrated. And it's true with telegraphs, it's true, you know, the

Internet going all of these things. So this has always been a problem, a political problem that we've tried to address. And I think what happened in the seventies and eighties, and this has happened the last forty years, is we just kind of forgot about it, and then all this consolidation happened, and now we're trying to get a handle on it again.

signs of price fixing? What are the bad signs?

a lot of banks, right. Not totally clear to me that you could have a lot of say, auto producers, right, not going to have a family, you know, artisanal auto producer that makes a lot of cars, right, So same with chemicals, same with lots of different I mean you can like there's there's just there are some industries where you're going to have a small number of producers semiconductors, there's you know, they're not going to have like so

cloud computing. When I look at it, to me, it's just a it's a capital story, right, Who has the capital to put to build out the data centers to get the power that you need to design the compute that you need. And it might be the case that you really can only have three or four of them, maybe have some specialty cloud computing. I don't know. This

isn't an area I've studied extensionly. But typically when you do have an entity where entity is where you have like a huge capital investment and you can't have you have their natural limits on the number of competitors, you have some form of public utility regulation, which usually takes the form of saying you can't engage in price discrimination, like you can raise your prices, but you can't charge more to that entity for the same service than you

charge to this other entity. And you can't you know, and you can't say, engage in like surveillance of your clients to give yourself an advantage that would be or you know, there's certain like you can't pick winners and losers. You have to you have to be a public utility. It's a little bit like it was a little bit like a railroad or a granary or something which is clothed with public interest but is owned by a private entity. There.

You know, it gets a little tricky with things, you know, with companies that make open source tools on top of of uh you know, for cloud computing entities, do those cloud computing anties just like absorb those tools make their own version of it like there are you know, I don't have an answer to all of the questions about how to run a cloud computing infrastructure, but generally what you want to do is you you want to say, all right, we're gonna we're going to try to pull

the power out of we want the economies of scale, but we're going to try to pull the ability to be arbitrary and coercive out of the business model through antitrust law or regulations or whatever we can do, or just you know, transparency of pricing. You know, I know there's some egress pricing. I mean that's you know, being able allowing people to get out of the cloud computing

pull their data out if they want so. There are different techniques, but the basic idea is to recognize that there is a there is a public interest in this private in these in these these in this private infrastructure, and so the public has some right, not total right, but some right to control how these entities are are operating.

a monopoly. However, what if you've bought the phone now, all of a sudden, you you know, you can't it's not easy to switch, right, so you're kind of locked in. Is Apple a monopoly? Kind of kind of? Okay, Well, you can look at it from a different point of view, which is what if you're an app developer right now, you have to get on the I phone because some of your customers are there and you can't not be on the iPhone. So getting into the app store for Apple,

that's a monopoly question. And the same thing is true for Getting So it's a little bit like you're you know, sure, maybe you can. There's a lot of railroad options, but there's only one railroad that goes from one town to another. So there might be a bunch of different railroads, but for what you need, there's only one option.

on Facebook? Or can you just avoid Facebook entirely? This is one of the questions in the Google case, and this is the question in actually multiple Google cases, And it's been a question in a different case involving medical advertising, which had to involve a company called IQBA, and the court found that in fact, yes, if you are doing specifically pharmaceutical marketing, IQB is is there is market power involved in these very narrow places where you have to buy.

It's kind of like that smaller railroad, that one place you put at the one the only one that goes to the place that you need to go, the jack up prices and control who gets to use it. So the question, I think the question I would ask is, if you're an advertiser, do you have to buy on Facebook's products? If you are, you know, a company, do you have to communicate through Facebook's tools? Right? I know WhatsApp is really embedded in a lot of different business

arrangements at this point. So that's where that's kind of how I would I would look at it, and I think you could make a pretty good argument that Facebook has immense market power in social networking in general. You know the definition. There's different ways to test for monopoly. You could just say, well, can they raise prices without really losing very much? It's been, which they have been,

and I think it's pretty clear that they can. And if there were another option, right, you could you probably would. They would they would see loss of customers bleeding going somewhere else, and they don't see that. Another way to understand it is, after some of the scandals that they've had, do they lose customers because of it? Do they lose users because of it? And the answer is no. Right, So there doesn't really seem to be an effect of

the quality of the product. It doesn't seem to affect whether people you it or not.

for other companies. So it's interesting as well because it almost feels as if we need a full consumer awakening just to the concept of monopolies writ large, so that people can start looking at these companies and acting and even just discussing them differently.