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I read an article a few years ago that in a small town somewhere in the South, a Wal-Mart store opened. A few years after it had opened, all the mom-and-pop stores that sold commodity items went out of business. Many local residents lost their jobs. Competition dried up and the town’s economy was destroyed. It is stories like these that give monopolies a bad reputation.
Monopolies are often associated with high price, a lack of innovation, a lack of options to choose from, too many restrictions, and poor quality. People generally accept the fact that the monopolies are always bad for the consumers. However, there are many times when monopolies are good for the consumer and even cultivate innovation (rather than stifle). People do not see it because they are inconspicuous.
Here are my two prime examples:
As of today, Microsoft Windows has a 90% market share, with Apple being a distant second and Linux a dismal third. While I do like competition, I feel that there should only be a single OS in the marketplace. Having a dominant OS is good for consumers because it creates a standardization. If someone has a computer problem, it is much easier to ask for help if everyone else used the same OS. Back when I was in college, there was a computer novice using XP who needed help in setting up a wireless router. He was able to get quick assistance from a fellow student who lived right down the hallway from him. Had he had used a Linux OS, he would have had a harder time in getting help. Every time the Mac students had computer problems, they had to contact the school’s Residential Computing Helpdesk, which was painful.
When a software maker decides to write a program, they would only need to write the program just once. This way, they can spend less time rewriting the same program on different OS and devote more time innovating and making their program better. Eliminating the need to rewrite the same program significantly cuts down on the development cycle time and makes their company more lean. After all, why reinvent the wheel more than once?
If the OS market had more competition and had 10 companies, each with an equal market share of 10%, then it would be very difficult for software programs to be available to everyone. Either software companies rewrite their code 10 times or not have their program be easily available to every single consumer. Even today, with only 3 major OS’s available on the market, it is still very difficult to find programs available on all 3 OS’s. As dominant as Microsoft Office is, you will not be able to find it on Linux, only on Windows and Apple. While there are alternatives to MS Office on Linux, there are many advance features on Office that are not compatible with the “alternatives” (e.g. conditional formatting in Excel).
Why this monopoly is good: Creates Standardization
While it is subjective that Wal-Mart “destroys” local communities, what isn’t subjective are their ultra-low prices. The reason why Wal-Mart is able to put many mom-and-pop stores out of business is because of their efficiency. Wal-Mart’s hyper-efficient supply chain is what enables them to supply the same commodity goods to the consumer at a lower price. Allowing Wal-Mart to wipe out competition is good because it enables them to crush inefficient businesses. As a consumer, if a company can offer me a can of Coke for $0.50, then I can care less about the number of companies who can offer it to me for $1. Keep in mind here that efficiency is defined by how cheaply a business can deliver a good to the consumer. I once had a discussion with someone who argued that Wal-Mart eliminating small business was bad because it reduced competition. Reduced competition is only bad if it is achieved by barriers to entry, such as economies of scale (e.g. the airline industry), intellectual property (e.g. Apple’s multi-touch technology), supplier agreements (e.g. cable and telecommunication), etc. However, if consumers prefer a particular company over others, then a reduction in competition is not a bad thing.
For example, if I am holding a basketball tournament to find the best basketball team (a consumer finding the lowest price), I would like as many teams to join into the tournament as possible (more competition is good). Preventing teams from joining would be bad (barriers to entry). However, as the tournament progresses, teams will be eliminated (consumers choosing not to shop at expensive businesses). Eventually, there may be a winner (e.g. Wal-Mart). In most industries, the tournament never ends and there is not a winner because many teams are often equally matched and/or new teams continually enter the tournament.
In the end, the consumers are the ones who choose who the winner is. And in this case, that winner is Wal-Mart.
Why this monopoly is good: Elimination of non-efficient businesses