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When Capitalism Fails -- The Ugly World of Monopolies

Monopolies have virtually no competition and can dictate prices to their customers unless they are restricted by regulators. One company that many would call a monopoly is Facebook.
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I mentioned recently that capitalism fails when consumers don't have the chance to make informed choices between desirable options. Monopolies are one example of capitalism failing. Monopolies have virtually no competition and can dictate prices to their customers unless they are restricted by regulators. The customer either has to pay the price demanded by the monopoly or not receive that good/service.

Monopolies can lose their control through a number of mechanisms including government intervention (AT&T break-up, Teddy Roosevelt's Trustbusting days), competition from a new product in a related market, new competitor with an innovative product in same market or shifting customer needs. For example, while owning more than 90% of the market for black and white TV's would have been a tremendous asset when my dad was growing up, the market shifted.

One company that many would call a monopoly is Facebook. Facebook dominates the online social media world with only a few small competitors creeping up around the edges. So far Facebook has wielded its power mostly through its ever-changing privacy settings designed to open up consumer information to companies so Facebook can increase its advertising revenue. Customers who don't want this personal information broadcasted widely either need to stay offline, become an expert on the ever-changing privacy policies or avoid Facebook, since this monopoly in social media gets to set its own rules until a viable competitor enters the marketplace, and no, I am not betting that MySpace will have a comeback. For those surprised about Facebook's desire to loosen privacy settings to improve their profitability, they should recall that (1) this a for-profit company that needs to make money to survive, not a public service designed for reconnecting with long-lost friends and (2) whenever you post something online, you are inviting the world to view it with all the benefits and problems associated with information sharing.

Another company that many have labeled a monopoly is Microsoft, who dominates the PC operating system with 90% of the market. This market dominance has allowed Microsoft to gather major profits while also enabling them to expand into other areas of the computer market including browsers (recall their famous antitrust case with Netscape) and software such as the Microsoft Office products. Many people report that Microsoft's dominance and market capitalization are waning. Innovations and changing customer needs are shifting people away from traditional PC's and laptops as computer users gravitate to advanced mobile phones, cloud computing, iPads and other new technology.

Lastly, let's chat about my local situation. Where I live, there is only one provider for cable television. For years, you could either chose to purchase one of their packages or not have cable. The consumer had virtually no choice, as best paraphrased by, "you can have any color car you want, as long as that color is black". Much like Microsoft, my local cable company's strength is waning. I can now access the internet easily via my cell phone and can watch many cable TV shows with a short delay either online or through Netflix.

Monopolies reduce customer choice, but in some areas such as technology, they eventually can be overcome by the market forces themselves. But, during the time it takes for capitalist forces to catch up to the monopolies' power, the customer usually suffers.

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