Today Apple Computer won the class-action anti-trust case filed against them. The plaintiffs were seeking a billion dollars in damages (after tripling) for a DRM system (Fairplay) that does not exist any more used on a device (the iPod) that Apple has pretty much phased out. These products were such a threat to the survival of competitors that they don't even exist any more. This is not atypical of how anti-trust often plays out in the marketplace, particularly in the technology sphere. Any day now I will be filing my lawsuit against Commodore for suppressing competition in the home computer market.
Posts tagged ‘anti-trust’
I don't have time right now to editorialize in depth, but I found many of the links in this Reason piece on newspaper bailout proposals to be really creepy. Nothing could be worse for the First Amendment than making news organizations dependent on government largess. This bit from the Nation is not only totally misguided, but it demonstrates an utter lack of understanding of history, to the point of demonstrating contempt for hist0rical accuracy:
Only government can implement policies and subsidies to provide an institutional framework for quality journalism. [...]
Fortunately, the rude calculus that says government intervention equals government control is inaccurate and does not reflect our past or present, or what enlightened policies and subsidies could entail.
Our founders never thought that freedom of the press would belong only to those who could afford a press. They would have been horrified at the notion that journalism should be regarded as the private preserve of the Rupert Murdochs and John Malones. The founders would not have entertained, let alone accepted, the current equation that seems to say that if rich people determine there is no good money to be made in the news, then society cannot have news.
I find the arguments that such intervention is needed because publishing is too expensive and effectively excludes all but the largest players to be hilarious in the Internet age. The real problem of newspapers is in fact that it has become so cheap to publish, and competition is rampant. The problem papers are struggling with is not monopoly, but just the opposite -- that their historic monopoly is gone. (Take yours truly, for example. With a $10 a month hosting fee and some of my free time, I have a circulation of almost 5,000 per day).
This appears to me to be yet another veiled attempt by current incumbents to use the government to give them a boost against competition. Murdoch's empire is utterly assailable -- all you have to do is a better job. The only thing that makes a business position unassailable is government protection or political advantage aimed at selected players.
Which reminds me of an interesting story. Ben Franklin (you know, one of those founders that the Nation refers to as horrified by domination of journalism by moneyed interests) is pretty famous for being among the country's first postmasters. Before the Revolution, he was postmaster of Philadelphia and later one of the lead postmasters for all the colonies. We all read in school how he did all kinds of innovative things, because Franklin was a freaking smart guy**.
What you may not know is why he sought out the postmaster job. Ben Franklin was a printer, and a large source of income for him was running a periodical in Philadelphia (the names changed over time but among them were the Philadelphia Gazette). At the time, there were no wire services (and no wires!) News came via mail. Franklin actively sought the postmaster job as a way to get special, privileged access to the mail, which he monitized via his publications. He had fresher news, and he used the mails to deliver his own publication to customers for free (a right competitors were not granted) In a strategy that he did not invent (it was fairly common at the time, and in fact he took the Philadelphia job from his main journalistic competitor who had pursued the same strategy) the surest route to success in the newspaper business was to secure an advantaged position via the government, specifically in a postmaster role.
I am perfectly happy not to go back to this model.
** Postscript: Franklin seldom gets credit in popular literature for the real areas he contributed to science. Everyone knows the kite in the thunderstorm story, but I always thought this kind of made him look like a goof, rather than a real scientist. But Franklin did some real theoretical science, for example by describing what was really going on in a Leyden jar, and substantially advancing how scientists thought about electrical charge and capacitance.
Nothing makes purity more interesting than temptation. This applies to ideological purity just as much as the physical sort. As a libertarian, my greatest temptation to call for government action comes when I deal, as a retailer, with Visa and Mastercard (V/MC).
This post is not a call for government action, so I guess I am resisting temptation. But I at least need to vent, sort of like a monk pounding his head on the wall after getting the Victoria's Secret catalog in the mail. So here is my rant.
First, let's start with how credit card companies make their money. I will confess that I do not know how the card companies (V/MC) and the card processors (often large banks) split the take, so this is how they make money together. V/MC and the processors charge fees to merchants. Typically this is a fixed fee per transaction plus a percentage. On average, a merchant might be paying 2.5-3.5% of a transaction. The card companies also make money from card holders, charging annual fees, interest fees, etc.
You will have seen of late that most credit cards offer various loyalty programs, from airline miles to cash rebates. You might have thought those were marketing expenses paid by the credit card companies. Wrong. The card companies simply charge merchants a higher fee for processing transactions using these cards. In a sense, the card companies have organized with card users to use their power to extract extra value from merchants.
All of this I can generally live with. Visa and MasterCard, through both their credit facility and their implicit standardization, bring enormous value to retailers and customers. Its a big circular game anyway -- customers get 1% back and think they are getting a deal, merchants pay this extra 1% in fees, and then add it into the price of what they are selling. It's a wash, except to the extent that customers with reward cards in the end extract a bit of value from customers who pay cash (for reasons explained below).
For this value one must accept the typically arrogant and indifferent customer service provided by any monopoly (American Express is particularly awful to deal with as a retailer). But they are no worse to deal with than the government, so its unclear how the government could make the service any better.
What tends to tick me off, though, are rules and restrictions. Like the creeping work rules in the UAW contract, these are in many ways more insidious than the service and pricing. Here is what set me off today, from one of my card processors (in this case Bank of America, which, to be fair, is someone I would recommend for merchant account processing). Click to enlarge.
So, why are businesses breaking these rules so often? Let's take a look:
- No minimum transaction. Remember that V/MC charges a minimum fee, from 10-40 cents or so, per transaction. So if someone buys a pack of gum in our store, likely 100% of the sales price is going to V/MC. Typically it takes at least a one dollar total sale for there to be any money left over beyond paying cost of goods sold and the credit card folks. So merchants logically want to set a minimum. V/MC hates this practice, but it is rampant. I plead the fifth on our own practices.
- Surcharging. Credit card customers cost more than cash customers. Sure, we get some non-sufficient funds checks, but the eventual cost of these is nowhere near 2.5% of sales. Merchants logically don't like having their cash customers having to subsidize the frequent flyer rewards of their credit customers. However, unlike transaction minimums, card processors have mostly been able to drive out cash discounts.
- Requiring ID and Fraudulent Transactions. I will take these two together, since they are so ironic one after the other. V/MC is telling merchants that they can't check ID, which is the only reasonable approach to limiting fraud, but that they can't submit fraudulent transactions. You say that the text says "known fraudulent?" Well, read on --
To the latter point, I think most people assume that the credit card companies are absorbing the fraud, which is how they justify the fees they charge. Wrong again. Credit card companies only absorb credit risk. Over the last 10+ years, they have pushed fraud back on the retailer. If a consumer claims fraud on his card with some transaction, then the credit card company refunds the customer and takes the money from the merchant unless the retailer can absolutely prove he made delivery to the consumer personally (which he can't prove because he can't check identification) . Merchants bear the cost of fraud, not card companies. Which I could accept (since I have more ability than the card companies to control fraud) expect the card companies ban me from controlling fraud. So I have to take financial responsibility for something I am not allowed to prevent. And that really ticks me off.
Anyway, maybe someday we can organize a large merchant boycott, where, even for a day, we all refuse to accept Visa and Mastercard. Of course we would be breaking the rules, because that is not allowed by our V/MC agreement.
Postscript: I suspect that a few retailers with some power are starting to crack this, at least for themselves. Costco only takes American Express. Sams Club only take one card (MC, I think). My guess is that both, with their large size, bargained for exclusivity in exchange for concessions on fees and/or terms.
Postscript #2: I expect comments like, "Well so-and-so always makes me show an ID." I don't doubt you. I am merely saying that by doing so, they have either negotiated an exception to the V/MC agreement (very unlikely, as V/MC holds to these rules like the Maginot Line) or the retailer is breaking the rules.