Posted: 9/14/2014
Trigger
Just read in the wall street journal review section of this weekend’s U.S. print edition of 9/13/2014 Mr. Peter Thiel’s piece titled “Competition Is for Losers/If you want to create and capture lasting value, look to build a monopoly”. In this article Mr. Thiel argues several times that Google is a monopoly.
Games People Play
So here is this financial wizard Peter Thiel accusing Google of being a monopoly at exactly the time when the business news ar full of reports that the European Union trust busters want to scrutinize Google much more intensely. I am sure the EU commissars (oops Commissioners) will read his piece with delight.
Worse, Mr. Thiel describes in detail how alleged monopolists try to hide that they are in his view monopolists again using Google as his posterchild.
His exhibit B for Google being a monopoly is the entry of Google into the Oxford English Dictionary. This is more than laughable, Mr. Thiel.
Or Mr. Thiel earnestly claims “A monopoly like Google is different. Since it doesn't have to worry about competing with anyone, it has wider latitude to care about its workers, its products and its impact on the wider world.” Are you nuts, Mr. Thiel? Google could be challenged at any moment from anywhere on the Internet from the most unlikely companies. Many Internet darlings have already disappeared in almost a blink of an eye.
Armchair Economist
Now lets look a bit more at the substance of Mr. Thiel’s argument. Unfortunately, he comes away as an armchair economist using a very shallow analysis.
Google is definitely not a monopoly as Mr. Thiel so strenuously claims. Google is very competitive, constantly striving to be the best in what it is doing. However, any of its leading businesses, e.g. search engine or Web advertisement, could be seriously challenged at any time by other private sector competitors barren any stupid government interventions.
Even under perfect competition profits do not get competed away as Mr. Thiel claims. This might be basic economic textbook representation, but it is wrong. If there are no profits to be had, there would be no entrepreneurs doing it.
Many of Mr. Thiels chosen examples like airline industry, restaurants in Palo Alto are amusing at best.
The best Mr. Thiel can argue for is that Google has achieved a temporary monopoly, but it is under constant pressure from competitors.
Culmination Of His Argument
Perhaps this is the culmination of his argument (emphasis added): “Before that, IBM's hardware monopoly of the 1960s and '70s was overtaken by Microsoft's software monopoly. AT&T had a monopoly on telephone service for most of the 20th century, but now anyone can get a cheap cellphone plan from any number of providers. If the tendency of monopoly businesses was to hold back progress, they would be dangerous, and we'd be right to oppose them. But the history of progress is a history of better monopoly businesses replacing incumbents. Monopolies drive progress because the promise of years or even decades of monopoly profits provides a powerful incentive to innovate.”
Mr. Thiel, did you not know that AT&T was a big government imposed monopoly that for decades exploited the American consumers with shoddy technology?
Mr. Thiel Got One Thing Partially Right
In his long article, I found one morsel of wisdom by him, “Even the government knows this: That is why one of its departments works hard to create monopolies (by granting patents to new inventions) even though another part hunts them down (by prosecuting antitrust cases). It is possible to question whether anyone should really be awarded a monopoly simply for having been the first to think of something like a mobile software design.” (emphasis added). But again, he did not think deep enough, because he limits his insights to mobile software design! Perhaps, patents or other intellectual property rights should not be granted at all by government in the name of human progress and better living conditions.
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