Monopoly Games

Who's got the market power?


We have heard much talk about the dangers of too much "market power" lately, in industries from communications media to computer software. The government's decades of antitrust enforcement are built on fear of the dangers of too much concentrated power in the hands of individual businesses. This fear is little analyzed; the weight of government antitrust policy is supported by a tissue of historical myths about the ability of rapacious companies to drive competitors out of business predatorially and then reap monopoly profits and undue market power.

But monopoly profits exist over the long run only when the government guarantees them, as in utilities and cable. And for concentration of market power, no robber baron can hold a candle to the U.S. government.

A recent example of this arose from presidential candidate Robert Dole's assault on the corrosive moral character of popular entertainment. It was much noted, but will doubtless not be long remembered—just another contentless tempest in a teapot, with an insincere politician making toothless pronouncements on an issue about which none of his opponents disagree and about which he has neither the intention nor the ability to do anything. The press dutifully makes a fuss. (Remember the drug issue in 1988?)

But Dole's snipings caused rumors in Hollywood that Time Warner, the entertainment megaconglomerate that sells much of the music, movies, and television that the Doles of the world never experience but still hate and fear, is thinking about selling off its entire music division, even though it's a profit-maker for the debt-ridden company.

The rumored reason? They have a lot riding on possible telecommunications deregulation bills this year, bills that Dole will be influential in shaping, and they don't want to offend him.

Time Warner might be contemplating the sale for reasons other than a fear of Dole—the need for a quick cash infusion to retire some of their debt, perhaps—but the incident is still a naked reminder of something that Department of Justice antitrust mavens ignore: The hugest concentration of market power in this country does not lie with the likes of Rupert Murdoch or Bill Gates, but with the government itself.

The government has recently caused sharp drops in Philip Morris's stock by making threatening noises about regulating nicotine. It has caused newsprint shortages—which were instrumental in driving the Houston Post out of business this year—through recycling mandates. The fortunes of biotech, pharmaceutical, and device manufacturers rise and fall with changes or anticipated changes in regulatory policy.

Stock market averages fluctuate in response to presidential pronouncements and election results. The price of dollars in the world market is always subject to government manipulation. Government farm and trade policies raise the price of food and any imported merchandise. And if the government suspects your business has strategic importance for whatever reason, your venture capital problems are probably over.

No private company, no matter how huge or wealthy, could possibly have as much widespread power over the functioning of American markets as government does. And this power is exercised with essential unseriousness. When Time Warner expressed fear that its cable business might be subject to government chicanery because they market music that the powerful find offensive, a Dole spokesman rushed to assure them that Dole's expressed feelings about the one would have no effect on the other.

This was meant to convey that Dole was a fair man. More accurately, it conveyed that Dole placed no weight whatever on his pronouncements about the entertainment industry. They were merely that week's gambit for press attention. It worked, and now Dole will move on to other business. These people pay no mind to the secondary and tertiary ill effects of what they say or do on markets. At least a business can be expected to make most of its decisions for a predictable reason: profit for its stockholders. Politicians act for reasons that can be wild, whimsical, ignorant, and unpredictable.

And unlike business attempts to make money, which necessarily involve selling something to a willing consumer, government's market manipulations require forcing people into situations—whether paying more for cars or food, paying for R&D on new technologies, or selling off a part of their company—that they would not have wanted to be in but for the government's ham-handed threat of force.

Instead of scouring the marketplace for bullies to cow with antitrust law, Uncle Sam must restrain himself. Nothing could serve the workings of the marketplace better than his leaving it.