We Get the Monopolies We Deserve
How consumers can help stop anti-competitive corporate behavior (without government intervention)
Now that tech, from a regulatory perspective, is the new oil, railroads, and telecommunications, it’s time to talk antitrust. But before we jump right into breaking companies up and unwinding anticompetitive mergers, it’s important to examine the role consumers play in encouraging — and more importantly preventing — monopolistic behavior.
First line of defense
Most consumers believe that it is the government’s job to protect us from abusive monopolies and harmful anti-competitive corporate behavior. And they’re right — to an extent. Practical free-market advocates agree that capitalism should usually be allowed to function unencumbered with the government acting as a deus ex machina only when absolutely necessary.
That means we, as consumers, are the free market’s first line of defense. And given that our representatives often fail to grasp gross market imbalances until they have caused extensive harm, and that the regulatory process is easily undermined by lobbyists and special interests, we are also its most vital defense.
In general, monopolies¹ happen in two ways:
- Acquisitions: A dominant corporate entity buys up all or most of its competition. Although the Federal Trade Commission reviews mergers which could result in large-scale anti-competitive behavior, they don’t always get it right.
- Market forces: A corporate entity uses its dominant market position to stifle competition. Although monopolies are not illegal in and of themselves, it is illegal to leverage a dominant market position in predatory or exclusionary ways.
Admittedly, there isn’t much consumers can do to stop anti-competitive mergers (with the exception of voting for representatives who they believe will regulate U.S. business interests appropriately), but we do have much more power over market forces than most of us realize. And it all starts with changing the way we think about money.
We usually think of currency as a form of legal tender that can be exchanged for goods and services. But in a free-market system, money is much more than that. Every dollar we spend is also a vote in favor of the corporate entity providing that good or service and against that entity’s competition. Not only are you receiving a good or service in exchange for payment, but you are also communicating approval of that company’s culture, rewarding its stakeholders, and very possibly — tacitly or explicitly — signing up to hand over even more money in the future.
Money is to a free-market economy what votes are to a democracy. Therefore, spend your money as judiciously as you cast your votes. Just as many people consider voting to be a basic civic responsibility, perhaps consumers have a responsibility beyond just finding the lowest prices or enduring the least amount of product friction.
Money is to a free-market economy what votes are to a democracy. Therefore, spend your money as judiciously as you cast your votes.
The rule of two
From a business perspective, the only thing better than building a highly profitable product or service is building out infrastructure that empowers others to easily stand up highly profitable products or services (and, of course, benefiting financially from their success). These types of businesses are usually referred to as “platforms.”
A single business can only achieve so much scale, but platforms can enable orders of magnitude more growth in far less time. Examples of platforms include:
- Amazon Marketplace. The fastest way for Amazon to scale their inventory was to create an ecommerce platform to empower others to sell their goods under Amazon’s brand.²
- Airbnb. Rather than spending billions over the course of decades building out hotels all over the world, Airbnb created a marketplace for others to instantly monetize existing available properties.
- Rivian’s “skateboard”. Although it’s too early to say, Rivian’s brilliance might not be in the electric trucks and SUVs they are building, but in their “skateboard” platform: a module which contains almost everything other car manufacturers need to build and sell their own electric vehicles.
Something I’ve noticed about platforms is that the market tends to distill them down to binary options over time. For example:
- Windows or Mac
- iOS or Android
- Uber or Lyft
- Xbox or Playstation³
Admittedly, there are some advantages to having a small number of platforms in the market. Software developers often have enough trouble supporting just two operating systems; if they suddenly had to support three or more, we might see less innovation and fewer features across all ecosystems.⁴
But in most instances, consumers benefit tremendously from increased competition. It wasn’t until T-Mobile declared themselves the “Un-carrier” and, in early 2017, discontinued all tiered data plans in favor of unlimited alternatives that Verizon (and later AT&T) began offering competitive unlimited bundles. Just a month later, Verizon began offering even more competitive unlimited plans forcing T-Mobile to go back and restructure their plans yet again. Each time one carrier tries to outdo the other two, consumers enjoy significantly more value.
A similar dynamic is currently playing out across the smartphone space. Although we tend to think of the mobile ecosystem as an epic battle between iOS and Android, within the Android ecosystem, fierce competition has resulted in near-flagship-quality phones at half the cost of today’s highest-end, “pro” devices.
Would we have seen such rapid and remarkable improvements in customer value had these dynamics played out across only two competitors? It’s impossible to say for sure, but I think it’s safe to speculate that we would all be paying more for less. The difference between two platforms and three may seem trivial, but it represents a 50% increase in competition, and can make all the difference in disrupting monolithic and complacent market leaders.⁵
The difference between two platforms and three may seem trivial, but it represents a 50% increase in competition, and can make all the difference in disrupting monolithic and complacent market leaders.
When it comes to platforms, the Rule of Two is difficult for consumers and even enterprises to combat, but not always impossible. For instance, if I were a heavy user of cloud computing services, I would be looking for ways to spread my usage across AWS, Azure, and Google Cloud Platform to help ensure that three major players remain in the game (as it stands, Amazon and Microsoft are dominating the space). And now that we’re down to only three significant providers of telecommunication services (T-Mobile and Sprint recently merged), I decided to switch from AT&T to Google Fi — an MVNO, or mobile virtual network operator, that combines the T-Mobile, Sprint, and U.S. Cellular networks into one. Even though I get my internet service through Verizon and could probably save by purchasing a bundle, I’m playing the long game by betting that I will ultimately pay less by helping to ensure robust carrier competition.
No pain, no gain
Unfortunately, being a competition-conscious consumer isn’t always easy. It could mean:
- Enduring the learning curve of a new application and/or the friction of not always going with the industry leader.
- Missing out on certain social experiences because of your platform of choice, or because a company’s ethics and principles may not be in line with your own.
- Taking the time to read privacy policies and end user license agreements, and sometimes walking away from compelling products or services because you aren’t comfortable with their terms.
- Paying slightly more for a product in exchange for privacy guarantees.
- Tolerating the inconvenience and often expense of being an early adopter in order to support disruptive new technologies or business models.
- Changing the way you shop in order to support a wider variety of both online and brick-and-mortar retailers.
- Communicating to others what you have learned in your research to help them make better-informed purchasing decisions.
None of this is to say that consumers should settle for blatantly inferior products or services. Nobody is doing anyone any favors by artificially keeping a company in business that does not have what it takes to compete in the marketplace. But where an equivalent product or service is available, or when an identical product or service can be purchased through a competing retailer, a little bit of sacrifice in the short term could mean tremendous and far-reaching long-term benefits.
Use it or lose it
There are aspects of economic theory that seem to assume consumers are mindless, mechanical automata who will always gravitate toward the least expensive or otherwise most enticing products and services. Maybe as a whole, that’s true. But as individuals, we can make our own informed decisions. And when enough individuals accumulate, they become a meaningful and influential demographic. Consumers have never been better equipped to both make informed purchasing decisions, and to coordinate their immense combined economic power.
A free market system is only as free as its ability to support competition. And relying solely on the government to maintain a sufficiently competitive landscape is overly optimistic.
A free market system is only as free as its ability to support competition.
Every dollar we spend is a vote that helps determine how competitive the economy will remain. As you cast your votes, remember that market choice is not an inalienable right. It is more like a muscle in that it only remains healthy and viable for as long as we make the conscious decision to exercise it.
 The better word may be “oligopolies” — markets dominated by a small number of product or service providers. But the definition of a monopoly includes the idea of there being no close substitutes which gets into subjective territory (is Twitter a close substitute for Facebook? Is Bing a close substitute for Google? Is a Pixel phone a close substitute for an iPhone?). Rather than getting mired in semantics, I’m going to use the term “monopoly” and its derivatives to refer to any corporate entity engaged in anti-competitive behavior.
 The problems under-moderated third-party sellers have caused in the form of counterfeits, deception, and fake reviews is a subject for another article.
 I haven’t forgotten about Nintendo, but because of their incredibly compelling IP, I’d argue that Nintendo does not compete directly with Microsoft or Sony. You don’t buy a Nintendo system to play games you can play on Xbox or Playstation; you buy a Nintendo system to play games you can only play on Nintendo. If you stay current on video game technology and platforms, you may be wondering how Google Stadia fits into the Rule of Two. My guess is that nobody is more curious about that than Google.
 This is one of the primary reasons Linux never got much traction as a viable, mass-market desktop alternative. The applications most of us depend on every day seldom even have parity across just two platforms.
 Two dominant market leaders can result in what I call an “implicit cartel.” Before Verizon and AT&T had to worry about T-Mobile, they each introduced multi-year contracts and exorbitant early termination fees. I don’t believe Verizon and AT&T explicitly colluded (which is illegal), but I do believe the lack of a third viable competitor allowed them to make market decisions — more or less in lockstep — that were clearly detrimental to customers.