On the Definition of Monopoly

by on November 16, 2010 · 8 comments

Adam Thierer’s claim that I am redefining monopoly in my Wall Street Journal piece is sowing confusion and misleading the public.  Hence this corrective.

A monopoly is any firm that has a dominant share in the market for a given good or service (legal definitions range between 40% – 70%) resulting in power over that market.   That is the beginning and the end of the definition.   There is no further requirement that the firm be evil, gigantic, have caused consumer harm, be long-lasting, or anything else.

What Adam is thinking about is what a lawyer would call an “actionable” or “unlawful” monopoly; or perhaps a monopoly that violates s. 2 of the Sherman Act.   But I never said in the Wall Street Journal that the Internet monopolies are unlawful.   The point was that these are firms in the early age of monopoly, indeed in a kind of Golden Age.

To be more specific, by the economic and legal definition, in one or more markets, Google, Apple, Facebook, and eBay are pretty clearly monopolists.   Google has market power over search.   Apple, portable music players and iTunes downloads.   Facebook, social media sites.   eBay, online auctions.

Amazon and Twitter are closer cases; it all depends on market definition.  Twitter’s market may be small, but the size of the market isn’t the point.

The key is understanding — and this is where a law degree can come in handy — that monopoly by itself is not unlawful in the United States.  It is abuse of monopoly that is actionable.

I post this corrective because, for example, Techdirt has become confused by Adam’s post, writing that “domination of a market, by itself, does not create a monopoly.”   Actually, Techdirt, it does.   That is exactly the definition of monopoly.

Finally, whether the monopoly may disappear tomorrow is an important question.   But it doesn’t mean there isn’t a monopoly right now.

One more corrective.  Adam says the piece  “completely ignores the competition taking place among many of these giants.”

From the Wall Street Journal:  “There are digital Kashmirs, disputed territories that remain anyone’s game, like digital publishing. But the dominions of major firms have enjoyed surprisingly secure borders over the last five years, their core markets secure. Microsoft’s Bing, launched last year by a giant with $40 billion in cash on hand, has captured a mere 3.25% of query volume (Google retains 83%). … Though the border incursions do keep dominant firms on their toes, they have largely foundered as business ventures.”

End of corrective.

(Tomorrow:  a full response to Adam’s Master Switch review.)

  • Thomas Sydnor II

    Dear Professor Wu:

    Hi, this is Tom Sydnor, Adam’s former IP-focused colleague at PFF. I have been familiar with your work for years, and I have consistently found it more thoughtful than most of the work done by law professors aligned with the so-called Free Culture Movement.

    That said, I beg to differ with your post: It is not a “corrective,” it is a confession. In effect, you concede that Adam caught you, a leading law professor, trying to re-define the legal term of art “monopoly” so this term now understood to refer only to dominant firms engaging in anticompetitive, antisocial conduct can be used to refer to all dominant firms, no matter how well-behaved. Such wordplay has obvious and serious potential to mislead, and I find it most difficult to believe that you did not realize this. You say:

    “Adam Thierer’s claim that I am redefining monopoly in my Wall Street Journal piece is sowing confusion and misleading the public. Hence this corrective.”

    “A monopoly is any firm that has a dominant share in the market for a given good or service (legal definitions range between 40% – 70%) resulting in power over that market. That is the beginning and the end of the definition. There is no further requirement that the firm be evil, gigantic, have caused consumer harm, be long-lasting, or anything else.”

    “What Adam is thinking about is what a lawyer would call an “actionable” or “unlawful” monopoly; or perhaps a monopoly that violates s. 2 of the Sherman Act. But I never said in the Wall Street Journal that the Internet monopolies are unlawful.”

    In short, Professor Wu, you tried to engage in some too-cute-by-half wordplay and got caught. As you use the term, a “monopoly” means “a firm that has market power.” But you admit that under American law, the term “monopoly” means “a firm that engages in anticompetitive, antisocial conduct to gain or retain market power.” You are thus a law professor misusing a legal term of art in a way that equates even the most fairly competing dominant firm to the most malign felon.

    Nor did your WSJ piece cite any support for this creative misuse of terms like “monopoly” and “monopolize.” You said: “[P]eople like Theodore Roosevelt, Louis Brandeis, and Thurman Arnold regarded monopoly as an evil to be destroyed by the federal courts. They took a rather literal reading of the Sherman Act, which states ‘Every person who shall monopolize… shall be deemed guilty of a felony.’ But today we don’t have the heart to euthanize a healthy firm like Facebook just because it’s huge….” According to Joel Klein, neither would Thurman Arnold:

    “Arnold emphasized… that ‘it is as meaningless to say that small [business] units are better than big units as it is to say that small buildings are better than big ones.’ And, he added, if the antitrust laws were to become ‘simply a religion which condemns largeness as economic sin,’ they would soon be ‘an anachronism.’”

    If a 100-year-old law uses the term “bad” to mean “evil,” then any law professor who implicitly redefines “bad” to mean “big” violates the rules of reasonable legal discourse. That is what you seem to have done in your piece. Adam could fairly criticize you for that. He was not the one “sowing confusion and misleading the public.” Respectfully, Professor Wu, the party most guilty of that sin was you. –Tom

  • glennm

    Tim, a monopoly is a firm with dominant market share which, protected by barriers to entry, has power over price. Your application of share alone is an incorrect shortcut, and without entry barriers (other than $$) none of the network effects players (Apple, Google, Facebook) has monopoly power. Tom is right. In antitrust law, big is not bad, bad is bad.

  • Patrick

    Would The TLF please exercise their monopoly on sensible tech policy reporting and not allow posts from Tim Wu?

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