Rough Middle 2

General new outline:

Proposed Thesis: Rapid increases in technology cause the consolidation of markets to singular monopolies that can be extremely beneficial in lowering cost, increasing supply, and raising efficiency, but can also create very detrimental economic results if not properly regulated.

    1. INTRO w/ Thesis

 

  • Historical lens

 

      1. Rapid Increase in Technology (Parallels our current situation)
        1. Engelman, Ryan, et al. “The Second Industrial Revolution, 1870-1914.” US History Scene, US History Scene, ushistoryscene.com/article/second-industrial-revolution/.
            1. “After the invention of steam power and the cotton gin by Eli Whitney in 1793, cotton could be shipped from the American South by New England ships to the vast textile factories of Great Britain, producing a reverse triangle trade around a single global commodity.”
            2. Almost platform business model (integrating
              1. “ During the Second Industrial Revolution, innovations in transportation, such as roads, steamboats, the Eerie Canal, and most notably railroads, linked distant, previously isolated communities together.”
            3. “Inventions during the Second Industrial Revolution were interconnected. The railroad spurred the growth of the telegraph machine. Telegraph lines and railroad lines inextricably bound together as telegraph polls dotted the distance of railroad lines. The telegraph, and later the telephone, ushered in the era of instant communication and brought about, in the words of cultural historian Stephen Kern, “the annihilation of distance.” This was a profound change for Americans. The “local” shot outward to the “national” and even “international” as a new sense of world unity was established through these new technologies. These technologies also increased the pace of life and the manner in which people worked and lived.
            4. Major technological advances of the Second Industrial Revolution:
              1. • 1870s – Automatic signals, air brakes, and knuckle couplers on the railroads; the Bessemer and then the open-hearth process in the steel mills; the telephone, electric light, and typewriter.
              2. • 1880s – The elevator and structural steel for buildings, leading to the first “skyscrapers.”
              3. • 1890s – The phonograph and motion pictures; the electric generator, contributing to modern household items such as refrigerators and washing machines and gradually replaced water and steam powered engines; and the internal combustion engine, which made possible the first automobiles and the first airplane flight by the Wright brothers in 1903.”
          1. Cherny, Robert. “Empire Building.” The Gilder Lehrman Institute of American History, The Gilder Lehrman Institute of American History, 23 Oct. 2011, http://www.gilderlehrman.org/history-by-era/rise-industrial-america-1877-1900/empire-building.
            1. “The number of miles of railroad tracks increased more than 600 percent, giving the US a nationwide transportation network; the new railroads also integrated the West into the national economy and accelerated that region’s economic development.”
          2. Gordon, John Steele. “The Importance of Steel.” Engineering and Technology History Wiki, Engineering and Technology History Wiki, ethw.org/w/images/0/0a/The_Importance_of_Steel.pdf.
            1. “In 1856 the British engineer Henry (later Sir Henry) Bessemer developed the Bessemer process for making steel. Two years later the Siemens-Martin open-hearth method was developed. Once perfected, these processes greatly lowered the cost of steel production and allowed the increasingly lavish use of steel for railroads, construction, and other industrial purposes.”

      2. Leads to consolidation of markets, not initially bad, but can lead to:
        1. “A History of US Monopolies”
          1. “higher prices and inferior products.”

 

  • Geisst, Charles R. Monopolies in America: Empire Builders and Their Enemies, from Jay Gould to Bill Gates. Oxford University Press, 2000.
  • HAVE THIS PDF UP THE ENTIRE TIME WHEN WRITING THE HISTORICAL LENSE SECTION

 

    1. Maintenance of these monopolies (IDEA OF REINVESTMENT OF ALL PROFIT, REFER BACK TO THIS WHEN TALKING ABOUT AMAZON)
      1. Rockefeller
        1. Parr, Sam. “The Epic Rise of America’s Greatest Business Tycoon.” The Hustle, 19 Oct. 2017, thehustle.co/the-history-of-john-d-rockefeller-standard-oil.
          1. To continue growing, he went on a buying spree, buying two dozen refineries in 60 days. To finance the everything he reinvested the profits and begged banks for more money. Before this series of acquisitions, few businessmen understood how monopolies worked. Rockefeller was the first to focus on aggressive growth by buying smaller companies, a move that pioneered modern American capitalism.”
          2. “It was around this time that critics began calling out Rockefeller for his ruthless business tactics, which centered around eliminating competition.”
        2. Carnegie
          1. “Carnegie continued building despite the depression—cutting prices, driving out competitors, shaking off faltering partners, plowing back earnings. In 1878 the company was capitalized at $1.25 million, of which Carnegie’s share was 59 percent; from these policies he never deviated. He took in new partners from his own “young men” (by 1900, he had 40); he never went public, capital being obtained from undivided profits (and in periods of stress, from local banks); and he kept on growing, horizontally and vertically, making heavy steel alone. From 1880 onward, Carnegie dominated the steel industry.”
    2. There is always a reason for these companies’ initial successes (limited resources, invention, effective platforming), but they must be monitored to ensure that they do not abuse power. (IT IS POSSIBLE FOR THESE MONOPOLIES TO OPERATE WITH REGULATION, REFER TO ELECTRIC COMPANIES AND ATT, BUT DONT GO INTO DETAIL YET)
      1. Possible benefits of monopolies according to “A HIstory of US Monopolies”
        1. “The benefits of having a monopoly like Standard Oil in the country was only realized after it had built a nationwide infrastructure that no longer depended on trains and their notoriously fluctuating costs, a leap that would help reduce costs and the overall price of petroleum products after the company was dismantled. The size of Standard Oil allowed it to undertake projects that disparate companies could never agree on and, in that sense, it was as beneficial as state-regulated utilities for developing the U.S. into an industrial nation.”
        2. Lower cost, standard products, more reliable distribution.
    3. 1900 monopolies got so out hand they had to be taken down with government power.
      1. “Rockefeller annihilated rival oil firms through committed competition, secret deals with railroad companies, and fixed prices and production quotas. He bought out competing oil refineries and managed all aspects of the operation, including drilling, refining, storage, and distribution. Before long, Rockefeller’s Standard Oil Company controlled a majority of the nation’s oil industry
      2. “By the 1890s, Carnegie dominated the steel industry and had accumulated a fortune worth millions. His steel factories were the most technologically advanced in the world, although this honor came at a price for his workers. Carnegie ran his companies with a dictatorial hand; his factories operated around the clock and workers were burdened with long hours.”
    4. Had to be taken down with:
      1. Congress passed the first antitrust law, the Sherman Act, in 1890 as a ‘comprehensive charter of economic liberty aimed at preserving free and unfettered competition as the rule of trade.’ In 1914, Congress passed two additional antitrust laws: the Federal Trade Commission Act, which created the FTC, and the Clayton Act.”
      2. “The Sherman Act outlaws “every contract, combination, or conspiracy in restraint of trade,” and any “monopolization, attempted monopolization, or conspiracy or combination to monopolize.” Long ago, the Supreme Court decided that the Sherman Act does not prohibit every restraint of trade, only those that are unreasonable.”
      3. “The Federal Trade Commission Act bans “unfair methods of competition” and “unfair or deceptive acts or practices.” The Supreme Court has said that all violations of the Sherman Act also violate the FTC Act. “
      4. “The Clayton Act addresses specific practices that the Sherman Act does not clearly prohibit, such as mergers and interlocking directorates (that is, the same person making business decisions for competing companies). Section 7 of the Clayton Act prohibits mergers and acquisitions where the effect “may be substantially to lessen competition, or to tend to create a monopoly.”

TALK ABOUT THE VERY REAL POSSIBILITIES OF SUSTAINABLE BENEFICIAL MONOPOLIES, BUT HOW THEY REQUIRE FIERCE REGULATION

  1. Are sustainable monopolies desirable however?

 

  • Large amount of power and wealth fall into the hands of a very few, although there can be lowered prices and better technology, do these individuals deserve to possess such large amounts of wealth? (TALK ABOUT POSSIBLE GOVERNMENT RUNNING OF THESE MONOPOLIES ALMOST AS A PUBLIC SERVICE) AAND RELATE TO ELECTRIC COMPANIES
  • ALL OF THIS PARALLELS TO OUR CURRENT SOCIETY

 

    1. Rapid increase in tech (IDEA THAT THESE RAPID INFLUXES ARE ACROSS SOCIETY, SO USING HORIZONTAL LENSE JUST LIKE HISTORICAL LENSE EXAMPLE)
      1. The Technology increase: Platform Business Model
        1. The platform models connects consumers in multiple ways and through multiple industries, which leads to their commitment to these companies n an unprecedented level.
        2. Integrating software programs together for a more unified, enjoyable experience for the user.
        3. Not possible before
        4. Causing new technologies to be developed on these platforms (according to modern monopolies). Forcing technologies to be on platforms like etsy, ebay, amazon or facebook allows for these platforms to acquire successful startups, and m (ALSO POWER HERE) “orchestrater of this business activity”
        5. Moazed, Alex, and Nicholas L. Johnson. Modern Monopolies What It Takes to Dominate the 21st-Century Economy. St. Martin’s Press, 2016.
          1. “Platforms allow consumers and producers to connect with each other and exchange goods, services, and information.”
          2. These business are created new markets, that were never before possible, but now are larger than any previous markets.
          3. “The open Internet is a myth. The INternet as we know it today is almost entirely dominated by platforms”

 

 

  • Cell Phone industry

 

          1. hardware/software superiority
            1. Touch Screen, siri, battery life, platform idea of imessage/icloud etc… (modern monopolies)
            2. It is not their superior technology itself, its is their connection  of various softwares, which led to their increased popularity, and eventually ability to purchase superior hardwares.
            3. Apple/ Google
              1. “Modern Monopolies” – Moazed, Alex
                1. “Through iOS, iTunes, and the App Store, it  offers platforms that connect buyers and sellers of every kind of digital good you can imagine.”

 

  • Constantly reinvest to experiment in new  markets, to increase power.

 

              1. These markets have high enough barriers where only companies the size of google are able to enter.
                1. “Google is singularly adept at using its core search platform to establish new platforms in other, seemingly unrelated markets… it has already released platforms for wearable devices and health data…. Internet connected thermostat….UBer competitor….”
          1. Superior coverage
        1. Retail industry
          1. Case Study 1: Online Retailing
          2. Their technology
          3. Reinvestment of profit into technology
            1. Initial loss of profit
                1. Creation of a more convenient and personalized user experience through reinvestment of profits
                  1. Jeff Bezos
                  2. Investing everywhere you can, knowing that some  investments will create better
                  3. “experiment patiently, accept failures, plant seeds, protect saplings, and double down when you see customer delight.”
                2. Rao, Leena. “Amazon Prime Revenue Up Nearly 50% In The Past Year.” Fortune, Fortune, 27 Apr. 2017, fortune.com/2017/04/27/amazon-prime-revenue/.
                3. “For $99 annually, Amazon Prime members can stream digital movies, TV shows, podcasts, and Amazon’s original productions in addition to getting free two-day shipping and one-hour delivery on certain orders. Prime is used by the company to encourage loyalty with shoppers who want to access faster shipping on items like toilet paper or coffee or toys.”
                4. Shipping Methods
                  1. McFarland, Mac. “Amazon Only Needs a Minute of Human Labor to Ship Your next Package.” CNNMoney, Cable News Network, 6 Oct. 2016, money.cnn.com/2016/10/06/technology/amazon-warehouse-robots/index.html.
                  2. “On a typical Amazon (AMZN, Tech30) order, employees will spend about a minute total — taking an item off the shelf, then boxing and shipping it.”
                5. Access to multiple
                6. REINVESTMENT OF PROFIT TO INCREASE TECH AND INCREASE MARKETS TO CONNECT
                  1. Cluster 1
                  2. Examples: (whole foods acquisition, prime shipping, amazon music, amazon video, etc..) (not everyone is successful however, but in the long run it pays off, all about market ownership, not short term profit)

C.Music Industry

Music Label Superior Branding Refer to Cluster 1

      1. Their technology
        1. New technologies eliminate the need for record labels
          1. Potts, Liza. “Amanda Palmer and the #LOFNOTC: How Online Fan Participation Is Rewriting Music Labels.” Participations, Participations, Nov. 2012, http://www.participations.org/volume%209/issue%202/20%20Potts.pdf.
            1. “ labels have used the strategy of aggressively trying to control content, individual artists have found success in leveraging technology to remove these barriers between artists and their audiences.”
        2. “The Record Labels Of The Future Are Already Here.”
          1. “Historically, artists often carried stronger brands than the labels supporting them (e.g. more listeners recognize “Grimes” versus “4AD,” or “Arcade Fire” versus “Merge Records”). In the future, labels could market their own brands more aggressively, instead of relying on a handful of artists from their roster.”

 

        1. How they own the entire market
          1. Bertoni, Steven. “Why Musicians Must Embrace Spotify And Pandora.” Forbes, Forbes Magazine, 22 Jan. 2014, http://www.forbes.com/sites/stevenbertoni/2014/01/17/why-musicians-must-embrace-spotify-and-pandora/#31ce7df64e9c.
            1. “ both independent artists and superstars alike have criticized the services about the royalties they pay to artists. Spotify hands out “$0.006 and $0.0084” each time a song is played (that money goes to the rights holders, who takes a cut before the artist is paid). Spotify says it paid $500 million to labels last year.

While most artists can’t depend on music streaming for cash flow these days they must rely on Spotify and others for something even more vital–exposure.”

            1. “That’s because traditional radio is becoming both more monotonous and conservative.”
          1. Masonic, Mike. “RIAA Accounting: Why Even Major Label Musicians Rarely Make Money From Album Sales.” Techdirt, Tech Dirt, 13 July 2010, http://www.techdirt.com/articles/20100712/23482610186.shtml.
            1. “the label is still straight up cashing 63% of every sale, which does not go towards making up the advance.”
    1. Music Streaming
      1. Their technology
        1. Streaming Reaches Flood Stage: Does Spotify Stimulate or Depress Music Sales Historical
        1. “Spotify was founded in 2006. It too has grown quickly, particularly since 2013. Between January 2012 and January 2015, total global users quadrupled; paid users rose by a factor of five over that period. As of late 2014 Spotify had 15 million paid users. See top-left panel in Figure 3. By early 2015 Spotify had 60 million users overall.”
        1. “Spotify makes it easier than ever to discover, manage, and share music with your friends, while making sure that artists get a fair deal.” Case Study
        2. “…alternative to piracy. Spotify’s Daniel Ek argues that while “ ‘piracy doesn’t pay artists a penny, ‘ ” “ ‘ Spotify has paid more than two billion dollars. . . . . . that’s two billion dollars’ worth of listening that would have happened with zero or little compensation to artists……if there was no Spotify.’ ”  Case Study
          1. Music streaming is too convenient and too hard to enforce against, it is better to legalize Spotify so the artists get some compensation.
  • The Song Machine: inside the Hit Factory
    • Technologies that increase consumer demand
    • Music can be formulaically analyzed to understand what components make music population
      • Better personalized user experience
      • Increased Demand, and therefore, theoretically increased profit.
  1. Movie INdustry

Creation of online Streaming

    1. Better user experience
      1. Convenience
        1. More convenient platforms will lower the demand for inconvenient watching prices, and the increase in total supply of movie watching platforms lowers the general price.
        2. Ferri, Mickey. “Rent, Buy, or Pirate: Consumer Preferences in the Movie Industry.” The University of Chicago, 2013, search.proquest.com/docview/1418268771?pq-origsite=gscholar.
          1. “Threatened by low-priced rentals and increasing digital options, DVD and Blu-ray sales have been falling every year since 2007. Industry experts have argued over how much of the fall in DVD and Blu-ray sales should be attributed to Netflix and Redbox cannibalization and how much should be attributed to other factors like illegal downloading and increasing legal digital options.”
      2. Recommendation System
        1. Amatriain, Xavier, and Justin Basilico. “Recommender Systems in Industry: A Netflix Case Study.” Recommender Systems Handbook, 2015, pp. 385–419., doi:10.1007/978-1-4899-7637-6_11.
          1. “Given an existing application, an improvement in the recommendation system can have a value of millions of dollars and can be the factor that determines the success or failure of a business. “

 

  • How this Power is Maintained

 

    1. How they own the entire market
      1. Patent protection expanded on apple case study above
        1. “The Patent Used as A Sword” (Lohr)
          1. “the marketplace for new ideas has been corrupted by software patents used as destructive weapons.”
          2. “‘I have patents that can prevent you from practicing in this market,’ Nuance’s chief executive, Paul Ricci, told Mr. Phillips”
          3. “$20 billion was spent on patent litigation and patent purchases in the last two years”
          4. “Some patents are so broad that they allow patent holders to claim sweeping ownership of seemingly unrelated products built by others. Often, companies are sued for violating patents they never knew existed or never dreamed might apply to their creations, at a cost shouldered by consumers in the form of higher prices and fewer choices.”
          5. “United States patent office has increased by more than 50 percent over the last decade”
        2. How they own the entire market
          1. “Patent as a sword”
          2. Patents
          3. “Some experts worry that Apple’s broad patents may give the company control of technologies that, over the last seven years, have been independently developed at dozens of companies and have become central to many devices.
          4. “Amazon Prime Revenue…. -Rao”
          5. Loyalty programs, offering better deals if customers commit to more. This is a form of creating a market barrier, only these large companies can afford to offer these programs, which pay for themselves in the long run, but temporarily cut the profit per person drastically. Cause smaller competitors to drop out of market”
  • Reinvestment of Profit to expand Markets
          1. Refer to Cluster 1 (Case Study on Amazon)
      1. Legal Power
        1. “The Patent Used as a Sword”
          1. Ability to create very loose patents, where they can claim new technologies as their own, and win these suits with large legal teams, sparing no expense.
          2. “When Mr. Phillips refused to sell [his voice recognition company], Mr. Ricci’s company filed the first of six lawsuits…Mr. Phillips won…But it was too late. The suit had cost $3 million dollars, and the financial damage was done. Mr. Phillips agreed to sell his company to Mr. Ricci.”
        2. One/two more sources here
      2. Market barriers (Pure cost of entry)
        1. Amazon’s ability to buy in bulk, lose money on shipping, to temporarily lose money in order to get rid of the competition.

 

Big Idea: These modern monopolies almost perfect mimic the behavior of many of the industry leaders of the early 1900’s. However, the majority of these still operating at a stage where they are offering low prices, increased technology, and are continuing to reinvest profits. If begin to regulate with existing antitrust laws:

  1. “The AntiTrust Laws”
    1. The Sherman Act outlaws “every contract, combination, or conspiracy in restraint of trade,” and any “monopolization, attempted monopolization, or conspiracy or combination to monopolize.” Long ago, the Supreme Court decided that the Sherman Act does not prohibit every restraint of trade, only those that are unreasonable. For instance, in some sense, an agreement between two individuals to form a partnership restrains trade, but may not do so unreasonably, and thus may be lawful under the antitrust laws. On the other hand, certain acts are considered so harmful to competition that they are almost always illegal”
    2. The Federal Trade Commission Act bans “unfair methods of competition” and “unfair or deceptive acts or practices.”

 

TALK ABOUT WHETHER THESE COMPANIES DIRECTLY VIOLATE EXISTING LAWS, OR IF NEW LAWSWOULD NEEED TO BE MADE TO STOP THEM

  1. GOOD FOR SLIDEDECK Rozenfeld, Monica. “The Consequences of Amazon Becoming a Monopoly.” The Consequences of Amazon Becoming a Monopoly – IEEE – The Institute, The Institute, Nov. 2017, theinstitute.ieee.org/ieee-roundup/blogs/blog/the-consequences-of-amazon-becoming-a-monopoly.
    1. Amazon’s market value as of 30 December was almost US $356 billion, more than the combined value of Best Buy, JCPenney, Kohl’s, Nordstrom, Sears, Target, and Walmart: about $298 billion.”

We will be able to operate with the high level of efficiency of monopolies without the detrimental price fixing and low quality productions that economically naturally occurs without proper regulation.

What we have to do:

While prices remain low, we must ensure that industry leaders know that the government has the authority to shut them down if they begin price fix and prevent competition:

-“The Consequences of Amazon Becoming a Monopoly”

-”The federal government forced AT&T Corp. to split into separate companies in 1982. AT&T at the time was the sole provider of telephone service throughout most of the country—which meant it had full control of pricing and quality of service. “

Good monopolies are possible in today’s modern age:

SDGE CASE STUDY:

Writer, DAVE DOWNEY – Staff. “SDG&E Rebuilding Monopoly: Activists Debate Whether Trend Is Good or Bad.” Sandiegouniontribune.com, San Diego Union Tribune, 28 Aug. 2016, http://www.sandiegouniontribune.com/sdut-sdge-rebuilding-monopoly-activists-debate-whether-2007apr01-story.html.

“The utility is driven by what it can charge for,” Powers said. “They have explicit automatic profit for so-called steel in the ground (plants and wires).” The California Public Utilities Commission determines what level of profit is appropriate. Stephanie Donovan, spokeswoman for San Diego Gas & Electric, said the utility currently is entitled to a 10.7 percent return on its investment

USPS CASE STUDY:

Office, U.S. Government Accountability. “U.S. Postal Service: Key Considerations for Potential Changes to USPS’s Monopolies.” U.S. Government Accountability Office (U.S. GAO), U.S. Postal Service, Key Considerations for Potential Changes to USPS’s Monopolies : Report to Congressional Requesters., 24 July 2017, http://www.gao.gov/products/GAO-17-543.

With regard to USPS’s mailbox monopoly, legislation enacted in 1934 prohibited the delivery of unstamped mail into mailboxes, essentially granting exclusive access to mailboxes (“mailbox monopoly”) to USPS which remains in place to this day.9 The U.S. Supreme Court upheld the constitutionality of the mailbox monopoly in 1981, stating that mailboxes are an essential part of national mail delivery and that postal customers agree to abide by laws and regulations that apply to their mailboxes in exchange for USPS agreeing to deliver and pick up mail.1

USPS’s mission is to provide universal delivery service while operating as a self-financing entity. Congress has provided USPS with monopolies to deliver letter mail and access mailboxes to protect its revenues, which enables it to fulfill its universal service mission, among other reasons.

Maybe monopolies cannot operate today as they once did because market entry is MUCH LOWER? (They cannot eliminate all competition and fix prices since others will be able to compete always)

  1. Peters, Scott. “How Evolving Tech Has Changed Music Production.” TechCo, TechCo, 25 Jan. 2016, tech.co/music-production-evolution-2016-01.
    1. “By eliminating the necessity of a third party (the record label) musicians are now able to deal directly with their audience. This brings with it benefits and conflicts, as creative control is returned to musicians they also find themselves responsible for the business side of the music industry. Self-promotion has never been more important, but it’s also never been easier or cheaper. Social media and online advertisement are powerful sources to those in the entertainment space.”
  2. Potts, Liza. “Amanda Palmer and the #LOFNOTC: How Online Fan Participation Is Rewriting Music Labels.” Participations, Participations, Nov. 2012, http://www.participations.org/volume%209/issue%202/20%20Potts.pdf.
    1. “ labels have used the strategy of aggressively trying to control content, individual artists have found success in leveraging technology to remove these barriers between artists and their audiences.”
    2. Case Study: Amanda Palmer working around her labels.
      1. Works with idea that
    3. Branding is able to done through social media, without the usage of music labels
      1. “The Record Labels Of The Future Are Already Here”
        1. “ native branding on social media sites, perhaps at the expense of immediate incremental revenue.”
  • Amanda Palmer “In addition to her own blog, website, and forum, Palmer has a presence across numerous social sites such as Twitter, YouTube, Vimeo, Facebook, Instagram, and MySpace. An earlier adopter, she has quickly learned how to move across these spaces, communicating with her fans, distributing her materials to them, and sharing their work with a wider audience.”

LOWER COST OF STARTUPS

 

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