Search giant Google is in the news today for two different stories*.
One story has to do with the Italian government trying to hold the company responsible for a video posted on Google's YouTube website, but the more significant story from a business standpoint is the indication by the European Union that it is launching an anti-trust investigation based on allegations that the company is violating an "abuse of dominant position" clause.
The anti-trust investigation stems from a complaint filed by competitors of Google (including one owned by competitor Microsoft*) alleging that Google ranks search results unfairly and charges unfairly for advertising.
Regardless of whether this allegation is true or false, we would argue that consumers are capable of making such decisions without government assistance.
As we noted almost two years ago in response to the ironic news that the European Union was supporting a monopoly on the use of the term "champagne" by seizing and smashing the bottles of non-French champagne competitors using the term, "the use of EU government force against Microsoft and the use of EU government force against makers of non-French champagne are consistent in that both are restrictions of free markets."
In a free enterprise system, no matter how big a company becomes, if they attempt to charge too much for an inferior product competitors can arise to offer customers a better product or a better price. There should not be a rule that companies need to help their competitors beat them, however.
Conventional wisdom may hold a view that is similar to that depicted in the cartoon above in which big monopolies (or trusts) threaten freedom and democracy to such an extent that only the government can rein them in. However, it is our view that this idea is false and is countered by the ideas of economists such as Schumpeter, whom we have discussed before.
Further elaboration of the alternative to the conventional ideas about monopoly is given by economist George Reisman, who explains it in terms of human freedom: individuals, and the corporations that are composed of individuals, should be allowed to do whatever they are capable of doing, short of the initiation of violence (he includes fraud as a form of violence). To read further, visit his online text Capitalism, particularly chapter 10.
The idea that Microsoft was so big and powerful that the EU (and the US Department of Justice) needed to restrict them with government power twelve years ago seems laughable today, when Microsoft's software-based business model is under serious and potentially mortal threats from the arrival of a new cloud-based paradigm (and cloud-based competitors such as Google). How ironic that the EU does not recognize that Microsoft (the target of their previous anti-trust fears) is now trying to claim that they are helpless in the face of a new monopoly.
We have previously noted research suggesting that the "topple rate" at which dominant companies fall out of their dominant positions in various industries appears to be increasing. This is really the important point for investors to understand, since they cannot realistically hope to change the thinking of the European Union's anti-trust commissioners, or those of the US DOJ either for that matter.
A few of the many important points we feel come out of this topic include the importance of having a solid sell discipline and of staying apprised of potential paradigm shifts that may unseat the dominant players in the industries of companies to which you commit capital.
* The principals of Taylor Frigon Capital Management do not own securities issued by Google (GOOG) or Microsoft (MSFT).
Subscribe (no cost) to receive new posts from the Taylor Frigon Advisor via email -- click here.
for later posts dealing with this same subject, see also:
One story has to do with the Italian government trying to hold the company responsible for a video posted on Google's YouTube website, but the more significant story from a business standpoint is the indication by the European Union that it is launching an anti-trust investigation based on allegations that the company is violating an "abuse of dominant position" clause.
The anti-trust investigation stems from a complaint filed by competitors of Google (including one owned by competitor Microsoft*) alleging that Google ranks search results unfairly and charges unfairly for advertising.
Regardless of whether this allegation is true or false, we would argue that consumers are capable of making such decisions without government assistance.
As we noted almost two years ago in response to the ironic news that the European Union was supporting a monopoly on the use of the term "champagne" by seizing and smashing the bottles of non-French champagne competitors using the term, "the use of EU government force against Microsoft and the use of EU government force against makers of non-French champagne are consistent in that both are restrictions of free markets."
In a free enterprise system, no matter how big a company becomes, if they attempt to charge too much for an inferior product competitors can arise to offer customers a better product or a better price. There should not be a rule that companies need to help their competitors beat them, however.
Conventional wisdom may hold a view that is similar to that depicted in the cartoon above in which big monopolies (or trusts) threaten freedom and democracy to such an extent that only the government can rein them in. However, it is our view that this idea is false and is countered by the ideas of economists such as Schumpeter, whom we have discussed before.
Further elaboration of the alternative to the conventional ideas about monopoly is given by economist George Reisman, who explains it in terms of human freedom: individuals, and the corporations that are composed of individuals, should be allowed to do whatever they are capable of doing, short of the initiation of violence (he includes fraud as a form of violence). To read further, visit his online text Capitalism, particularly chapter 10.
The idea that Microsoft was so big and powerful that the EU (and the US Department of Justice) needed to restrict them with government power twelve years ago seems laughable today, when Microsoft's software-based business model is under serious and potentially mortal threats from the arrival of a new cloud-based paradigm (and cloud-based competitors such as Google). How ironic that the EU does not recognize that Microsoft (the target of their previous anti-trust fears) is now trying to claim that they are helpless in the face of a new monopoly.
We have previously noted research suggesting that the "topple rate" at which dominant companies fall out of their dominant positions in various industries appears to be increasing. This is really the important point for investors to understand, since they cannot realistically hope to change the thinking of the European Union's anti-trust commissioners, or those of the US DOJ either for that matter.
A few of the many important points we feel come out of this topic include the importance of having a solid sell discipline and of staying apprised of potential paradigm shifts that may unseat the dominant players in the industries of companies to which you commit capital.
* The principals of Taylor Frigon Capital Management do not own securities issued by Google (GOOG) or Microsoft (MSFT).
Subscribe (no cost) to receive new posts from the Taylor Frigon Advisor via email -- click here.
for later posts dealing with this same subject, see also:
- "The price of protectionism" 06/14/2010.
- "Freedom and the rescue of the Chilean miners" 10/13/2010.
