patrick.net

I don't want to come off defending monopolies (monopsonies, duopolies, cartels, etc.) In fact, they are usually a bad thing for both consumers and innovation.

But there's one thing to keep in mind:

Monopolies are not illegal in the US. Most people mistakenly believe antitrust laws prohibit monopolies. That is categorically false.

What is illegal is:

1) Explicit collusion
2) Price fixing
3) Direct harm to end-user consumers

Therefore, if Cisco were to become an established natural monopoly, did not collude with would be competitors or any other vertical player, did not fix prices for non-economic reasons, then it would not be guilty of violating antitrust laws. Cisco has few end consumers in non-competitive markets, so the Justice dept. doesn't care about their B2B monopoly impact.

That is a common theme. The US Justice Dept. sets an extremely high bar for the argument that any monopoly harming other businesses is relevant to protecting consumers. Almost no such cases make it out of the gate. Therefore don't expect to see SAP, Oracle, etc. ever embroiled in an antitrust suit.

(The standard in Europe is much more liberal, and allows companies to be challenged for merely "having a commanding market position". Ironic, given that Europe is the poster child for illegally subsidizing inefficient, inferior, defacto monopoly industries with state funding, but I digress.)

Bap33,

Big oil in the US has been found guilty of all three on various occasions in the past. At this point, it is pretty unlikely that they engage in collusion or price fixing, at least within the US. They employ a different tactic, common of lots of big industrial, mature concerns. They send all their managers to the same MBA schools, where they all take the same economics classes and learn the same game-theory pricing strategies. Then, they are able to engage in something that looks a lot like price fixing, but is in fact completely legal and justifiable in our legal system.

It's like this: say there are 25 of us in a condo development who intend on selling in the next year. For simplicity, assume we are the only condo development in the area, and no other substitutes exist. Let's also pretend that we are not allowed to talk to each other to fix our sales prices, and we in fact can't talk to each other about anything else that would result in our cooperation on pricing.

Normally, we're screwed, because someone will figure out, hey if I price a little less than everyone else, I'll get the best price because everyone else will have to follow suit on the way down. In the end, we all lose because we didn't cooperate.

Now, we all spend 2 years in school somewhere on the East Coast, where we learn how to play theoretical pricing games. This time, when we run the scenario, no one defects because everyone knows that we'll all get much higher prices by not defecting.

As for international oil, or other cartels, there's little the US can do about it. Diamonds, Oil, bananas, sugar, about everything you can think of is controlled by some type of int'l cartel outside the US, often impacting our prices here, and often even in the vehicle of US multinationals.

And oil companies are a good example of a natural monopoly (oligopoly, in this case). That's because there are enormous natural barriers to entry:

-massive capital investment requirements
-substantial know how and technique implications
-regulatory hurdles
-resource barriers (tie up reserves in long-term contracts)
-capacity barriers (dissuade entrants by increasing existing capacity)

Behold, a lower unit flat selling after 2 weeks on the market for full asking. Oops, I guess armageddon hasn’t hit yet.

Wow when the trolls gleefully post that condos in PRIME areas are going for asking, you know the excrement has hit the cooling device.

Randy,

Absolutely agree. I don't think the government should be breaking up companies unless they can demonstrate a pattern of anti-competitive behavior that ultimately harms consumers. I'm not opposed to monopolies per se, but given their track record, I do view them with prejudice.

I don't think of Microsoft as a monopoly though. They are currently very dominant, but I think that dominance could quickly go away at any time. There are numerous (arguably superior) OSes in existence. The main stumbling block is consumer inertia. I'm 100% Windows based, but MS software is buggy (formating with Word is especially frustrating) and I definitely keep an eye on better software and flatforms on the horizon. Firefox and many of the Google packages weren't even on the radar 18 months ago, but now almost everyone I know uses Picasa or Firefox ahead of other things.

On European monopolies: well, monopolies are legal as long as the State explicitly allows for them. In the US, regulated industries like broadcast TV stations act a lot like oligopolies until cable stations started challenging them for market share.

PS - I'm always surprised by where apparently benign monopolies and oligopolies can show up. There's only one Kingsford charcoal, Clorox is synonmous with bleach, Kodak has 80+% of the 35mm film industry, and allegedly, the Boomers grew up with only campbell soup for their canned soup selection. It seems like technological innovation is the best way to bust a monopoly.

It is full with compliant Indian and Chinese ….

Just find a company with the right culture.

I don’t think the government should be breaking up companies unless they can demonstrate a pattern of anti-competitive behavior that ultimately harms consumers. I’m not opposed to monopolies per se, but given their track record, I do view them with prejudice.

I have nothing to say.

Is that good or bad?

Boston Transplant,

Thanks for the update. I saw that Globe article about the auction for that downtown condo development. What's interesting about that is the place looks like reasonably high-end finishes, and if units get auctioned off at anywhere near the minimum acceptable bid, that's over 30% off original asking price! The folks who already bought the "old-fashioned" way are going to be "wicked pissed!"

Ha Ha,

"Compliant Indian and Chinese"? Do you mean they're legal? Or that they only produce X units of CO2 per thousand lines of code?

Hey location3,

Did you just crawl out of a cave or something? Or did you just happen to "miss" all the actual hard data about where prices are heading? For example, SF prices down YoY July -0.6%?

http://dqnews.com/RRBay0806.shtm

One example of an idiot late into the game, or even someone who wants to buy for whatever reason doesn't disprove actual data.

Is that good or bad?

Neither. I do not understand enough to have an opinion. I think monopolies are natural products of a free economy yet it is harmful to the free economy.

Hmmm, for some reason I feel no pity for the McDebtors.

tinyurl.com/po4qc

Am I evil?

No, you're not.

People who sign their life over without reading the fine lines (or at least get a relative or a legal fiduciary to read the fine lines) had it coming.

Randy,

LOL! Blame it on the game theory profs!

Hmmm, for some reason I feel no pity for the McDebtors.

Am I evil?

--Mister Ecks

Answer:

Yes you are eevul, but not necessarily for those given reasons.

LOL! Blame it on the game theory profs!

It's a bit tongue-in-cheek, but...there is something to be said for "educating" management to speaking the same implicit language based on the same shared theories and interpretations. For example, has there been any MBA student who hasn't studied at least one HBR case involving Murdoch, and how his successes have been to the detriment of the overall potential benefit for everyone in the media industry, including himself? That sends a very powerful message over time to managers and certainly has an impact on how they make strategic competitive decisions.

>> Like, if all the notes came due tomorrow, does that much money even exist?

My guess is NO, WE DO NOT HAVE THAT MUCH MONEY IN THE SYSTEM …

More than that amount of USD exists in the central bank of China, alone. Most likely more than enough are in circulation as petrodollars as well.

There are a lot of USDs flying around the globe.

so, by proxy, a mass default results in China owning a bunch of houses in Cali? In a nut shell, is that pretty close?

That's a pretty far-fetched proxy.

a) All the notes don't come due tomorrow. Nowhere even close. They can't be called. And even foreclosure doesn't so cleanly "transfer the ownership to China". The US exercises sovereignty over property rights and laws within its own borders, just like everywhere else.

b) Americans own over 60% of the equity in residential real-estate, excluding rental-income real-estate (owned by businesses).

c) Take that remaining 40% that is financed. A nuclear meltdown scenario would be maybe 20% of that defaulting. That gives China (if they theoretically owned ALL outstanding mortgage debt in the entire country) 8%.

d) I don't have the figures, but let's be generous and say China really owns 33% of all outstanding mortgage debt. That gives them 0.26% of the housing stock.

I'm not going to stay awake at night worrying that China will become our masters anytime soon. It is a fear that's popular to overblow, because the absolute numbers are big and scary. But, if I'm not mistaken, the UK still "owns" much more of the US than anyone else. And, the US still owns more of the world than everywhere else, by far.

Anyway, I'd be much more scared of petrodollars from oil exporting countries. Those are more free to use the EUR as a reserve than goods exporters like China, they cause massive inflation in the USD globally, and they are generally held by countries not so generous to the US.

Final figure should have been 2.6% (but I'm still not going to have nightmares).

The US is kind of like one giant Walmart to China. They need to tread really really carefully to get out from under this behemoth, or they're gonna get squished.

If US really gets itself into serious trouble, China will be way too concerned about its own problems to gloat too much over the US. It is in China's interest to pray that US/Japan/EU demand for cheap goods will suck up a good chunk of the surplus labor, give China breathing space to develop (or steal) its own R&D and service based economy.

It's one hell of a tightrope. I really admire the post 1978 leadership for doing so well, considering the enormity of their task.

It’s one hell of a tightrope. I really admire the post 1978 leadership for doing so well, considering the enormity of their task.

China had access to excellent astrological and divination systems. Once the cultural revolution was over, decision-making became easy again. :)

SFWoman,

The problem isn't Chinese production. The Chinese are capable of assembling pretty great stuff. Plenty of designers (including European fashion houses) make their stuff in China, especially stuff intended for the Asian market. Almost all our portable electronics are now assembled there - some good, some great, some bad - it depends a lot on the specs of the American designers and their QC.

The problem is that Walmart chose to sell cheaply made goods. They sell this stuff to stupid people fooled by the low prices and doesn't realize how crappy the stuff is and that they'll break within the week.

Falling off and passing the 52nd floor of the twin 54 story condo towers under construction in Sacramento and as you drop past all you can say is;”So far, so good?”

:lol:

SFWoman,

It's okay. I can occasionally sound like Fox News (shudder) and I'm a self proclaimed progressive-socialist-believer in social welfare state!

Believe it or not, a good chunk of the Chinese are not happy about turning swaths of the Chinese countryside in sweatshops. The long term cost of pollution and sweatshop conditions outweighs the short term burst of productivity and revenue (much of profit gets channeled to corrupt local officials as kickback). New York Times occasionally reports these problems from rural China - those are just the very tip of the iceberg, the problem is huge and the common people are not happy about it.

There's not much you can do about the lack of respect to intellectual property. Even India, with its history of Common Law, still have trouble respecting intellectual property. In China, the concept of intellectual property is still very alien and taking a free ride on other people's intellectual property is irresistable. They're like teenagers with late 90's Napster - they don't think it's wrong, they really like it, they can't really afford that much otherwise and they can only be reined in by fear of getting caught.

SFWoman,

(Oops, the last one got caught on Sism again)

It’s okay. I can occasionally sound like Fox News (shudder) and I’m a self proclaimed progressive-soci ali st-believer in social welfare state!

Believe it or not, a good chunk of the Chinese are not happy about turning swaths of the Chinese countryside in sweatshops. The long term cost of pollution and sweatshop conditions outweighs the short term burst of productivity and revenue (much of profit gets channeled to corrupt local officials as kickback). New York Times occasionally reports these problems from rural China - those are just the very tip of the iceberg, the problem is huge and the common people are not happy about it.

There’s not much you can do about the lack of respect to intellectual property. Even India, with its history of Common Law, still have trouble respecting intellectual property. In China, the concept of intellectual property is still very alien and taking a free ride on other people’s intellectual property is irresistable. They’re like teenagers with late 90’s Napster - they don’t think it’s wrong, they really like it, they can’t really afford that much otherwise and they can only be reined in by fear of getting caught.

My boyfriend accused me of having both cat and sheep in my family tree, but I've yet to develop a taste for clover flavored catfood.

SFWoman,

Your view of Chinese manufacturing competition has quite a bit of truth to it. But, as others have pointed out, the issues are pretty complex; especially vis-a-vis Walmart's sourcing strategy.

The real "absolute advantage" that China has (they have no competitive advantage to the US; in fact a huge disadvantage) is easily explained by their currency peg. Even the legal differences, environmental regs, workers' rights, etc. wouldn't be so relevant if the RMB floated against the USD. What China is doing, instead, is taking inflation out of the US economy, hiding it internally amongst their GDP growth, and creating an unfair trade landscape.

But, it's actually a better deal for us than them in the long run. I realize displaced workers won't agree. But, those workers have been displaced because US industry has been unable to compete even given our competitive advantage. So, while China eats dollars and uses this game to advance growth on an unsustainable export-led expansion, we use their cheap products and inflation escape valve to restructure our economy and consolidate our industries to become more productive and more even more competitive. When the music stops, some day, they will be no match for US, hyper automated, industry. Meanwhile, we get a free boost to our standard of living because they're so willing to sit on top of green pictures of dead presidents.

SFWoman,

The US has increased its share of total global mfg output over the past 10 years. Meanwhile, Japan and Germany have both lost global share. The US produces an order of magnitude more global mfg. value than China, though China is growing the fastest. Even at their rate, it would take 40 years for them to equal US share, assuming we don't continue to grow also.

It is a myth that "nothing is made here anymore". What has happened, is that we've lost mfg jobs and agriculture jobs. But somehow, our output has increased, as has the value of that output. If that isn't due to automation then it's the mystic ether.

To be fair, what the anti-globalists always quote is either in units or tonnage, both of which the US has lost dramatically (in mfg, not agriculture). But, that's primarily due to Korean hyperscale steel industries (tonnage) and Chinese cheap-plastic-thingies (units). Neither of those are terribly high in output value. In fact, even in materials mfg, the US has experienced a renaissance in custom micro-plant fab, most of which are almost entirely automated and unrivaled in most of the rest of the world.

I'm no fan of Walmart or low-quality Chinese dohickies. But I'm not ideological, and I don't buy the protectionists' arguments that the US is going down the drain either.

ajh,

With respect, that sounds like a RealtWhore explaining why prices can never fall.

With appropriate respect, at least I made a reasoned argument instead of indirectly just calling names with nonsensical analogies. I enjoy disagreement, but calling me a "realtwhore" because I disagree with whatever it is you believe (which I cannot divine from the above), isn't very convincing.

Early indications before the actual CAR/DQ reports come out. If you are interested click on the report and go to the next page. It has an interesting table. The damage is widespread.

From http://rereport.com/scc/csper/index.html

Home Sales Rise in August as Prices Dip
Trends at a Glance
(Single-family Homes)
....................................Aug 06.......Jul 06..............Aug 05
Median Price:................$770,000....$805,000........$760,000
Average Price:..............$944,004....$977,524........$924,431
Home Sales:.................1,080.........973................1,404
Inventory:....................3,889.........4,023.............2,816
Sale/List Price Ratio:......99.4%.......99.6%............100.3%
Days on Market:............42.............40..................29
Days of Inventory..........108...........124.................60

The median price for single-family re-sale homes in Santa Clara County fell 4.3% in August from the month before. Year-over-year, the median price was up 1.3%. The average price fell 3.4% from the month before, but was up 3.4% compared to August 2005.

SMS quote of the day:

"2 b or not 2 b that is the ? wthr ts noblr in the mnd 2 suffr the slings n ↔ of outrgs $$ or 2 take rms agnst a c of troubles n by opposing end them?"

maybe Peter P is the mutated ship's cat off Red Dwarf? or near relative...

speaking of prosperity doctrines, sydney was blessed by a visit from tony robbins recently. he, at least, walks away with $300-400K per day for each of his circus performances... truly 'a tale told by an idiot, full of sound and fury, signifying nothing...' - Enter the YES man

DS! Where have you been? Nice to have you back...

oh, been in and out... time zones, you know how it is...

Bap33 poses a legitimate question. Are there enough bucks in "the system" to reckon with FB's wildest imagination? (And it's pretty wild)

My short answer is; I have NO idea!

I'm now willing to challenge (as Muggy has w/FL alleged population growth) that the "sixty percent home equity" is bunk also. To say that "on average" or "the average American has 60% home equity" is (in my mind anyway) misleading at best. I for one would love to know just how it is that they arrive at that figure? Maybe that's a "dumb question" too. With unabated MEW and Zip Down programs it may be comforting to lean on this number (however skewed) but I fear the truth may be more alarming than any of us might suspect. If we were to take OH, IN, IL, WI, MN, IA, and MI out of the formula would it hardly make a dent, or push us off a cliff? I don't know. Surfer X once asked, "Maybe one of you finance types can answer why it is if we basically have a negative savings rate where exactly are the banks getting the money to lend out?"

I sure don't want to get on a soapbox first thing Monday morning but how does a fully paid off family farm in Indiana help some negative equity/upside down like you wouldn't believe FB in Sacramento?

SFWoman,

I don't know. Perhaps you've got more insight than the OECD. As to trade deficits, they don't exactly work that way; they are very highly dependent upon FX and capital flow balances.

Also, if nothing is made here anymore, then why is over 80% of US GDP internally generated?

There are great anti-walmart arguments to be made. Unfortunately, they do not lie with manufacturing. The simple reason being that nearly every US job "lost" over the past half-century has been lost to automation, not to foreign low-cost labor competition. If you want to argue against automation then I'll have to direct you to read a Vonnegut book or two.

Robert C,

Thank you and good morning!