Just sat in a lecture that made me rethink capitalism

[charrison]

OpenTable is a non-government sponsored monopoly. Every Restaurant owner i know hates their ass because they have a monopoly on the online reservation system and they extract way more surplus value from them via economic rents than they deserve and they can't NOT use them. Open Table's monopoly is due to the network effect.

http://www.reddit.com/r/Economics/comments/eajrd/the_open_table_service_a_simple_example/

So opentable, a first entrant to new market has gained large(90%) market share for their services. Not exactly a monopoly and they are already facing serious competition as others enter this space. They will only keep this share if they earn it.

 

[the DRIZZLE]

So I was sitting in my technology commercialization class and the speaker, a former technology commercialization officer at a major bio medical researcher, said: "we had to turn down many discoveries that came out of our basic research; If it wasn't going to return 250million in the first 3 years we just didn't produce it"

Can you imagine the number of amazing discoveries this company simply didn't bring to market because it wasn't profitable enough to them?

Disgusting.

Decisions like this are a great exercise in game theory. Theres all kinds of probabilities and expected values involved because of the multiple stages involved in the FDA approval process. I wouldn't be surprised if the profit from a successful launch has to be in the $250m range to justify the expense of the trials given the low probability of making it all the way to market. Its pretty interesting stuff.

 

[Craig234]

This is happening right now. The government is having the assist pharmaceutical companies to develop new drugs because the companies see it too risking to do the funding themselves:

http://www.internetbits.com/federal-government-to-assist-pharmaceutical-developments/57063/

Again, corporation socialism. Privatization of profit; socialization of risk.

You would think we could at least negotiate the prices of the drugs we develop

You know, I'm not against some 'socialism for corporations', when it's done for legitimate situations where the public interest and corporate interest overlap.

But we need protections that it's not about a one-sided deal that the corporations are having the government serve them at the expense of the public interest.

Currently we have a huge problem corrupting our democracy from the excessive concentration of wealth and power in a corporatocracy.

There could well be times that the public interest of developing medicines that help the public is well-served by incentives to pharmaceutical companies.

That's a far cry from, say big pharma being Republicans' #1 donor and Medicare part D.

 

[Craig234]

I suppose they would, if they wanted to go out of business.

You don't understand a thing about how excessive corporate power can protect them. Why do you think 'tort reform' is such a hyped topic? To do the opposite of what you claim.

Clue for you: look how many pollution policies are handled when government is corrupted.

'Socialize the costs, privatize the profits'.

Pollution = public expense, profit = private.

 

[Phokus]

So opentable, a first entrant to new market has gained large(90&#37 market share for their services. Not exactly a monopoly and they are already facing serious competition as others enter this space. They will only keep this share if they earn it.

HAHAHAHA, how is 90% 'not exactly a monopoly'? Are you serious? That's like DeBeers level market control at the height of their monopoly. Monopoly doesn't mean 100% market share. Also, OpenTable is firmly entrenched into the restaurant industry, thanks to the network effect. Not only do you have to convince restaurants to switch, but you also have to convince the general public as well. Restaurants won't, because OpenTable has captured all the customers, and customers won't because OpenTable has captured most of the restaurants. Open Table is able to keep their dominant position because, not only do they extract value from restaurants for themselves, but they give some of it to customers via buildup of points for free meals. It would be extremely expensive and require an insane amount of capital to compete with that, the barrier to entry is just too big. Just look at Bing - even with Microsoft's ENORMOUS cash reserves and the fact that they were practically giving away money to people, Google is still the dominant search engine. Did they get new customers? Probably, but i highly doubt the return on their investment (the TV/Print ads + cashback rewards) was anywhere near what they would have wanted. Google obviously didn't feel Bing was a true threat, it's not like Google offered the same cashback rewards that Bing offered and started an advertising campaign to keep their search engine customers, they're still the dominant search engine.

 

[Atreus21]

lol. Obviously companies have such a bi-polar viewpoint on drugs and the damages they may cause.

What a fucking juvenile viewpoint of the world.

I don't understand what's so juvenile about it. It seems to make plain enough sense. If I tricked you into buying a product that harmed you, would you buy it again?

 

[Dr. Zaus]

You're in an MBA program and are just now discovering the concept of a hurdle rate? Holy sh!t, remind me not to hire you should you manage to graduate.

http://en.wikipedia.org/wiki/Minimum_acceptable_rate_of_return

Lawlz. I is dumb and don't know bidness, you win the interwbz for being the smart.

That is to say that your simplistic retort to the complex sociological problem posed exposes your own learned ignorance and not the limits of my reasoning capabilities or business background.

I suppose they would, if they wanted to go out of business.

It seems to make plain enough sense. If I tricked you into buying a product that harmed you, would you buy it again?

What about when the cause is not immediate or obvious?

 

[the DRIZZLE]

I personally don't know, but how many customers a restaurant would lose by dropping opentable would probably be determined by a) The type of restaurant they are, b) Their location and c) Their already established popularity and d) Their competition.

For example, i live fairly close to NYC and i occasionally dine there. The clientele in NYC is typically more technologically literate than someone in bumbfuck nowhere. At the same time, a mom and pop pizza delivery place probably wouldn't need to use OpenTable.

OpenTable has a fairly pernicious effect on the restaurant industry. If you think about the extremely low profit margins that restaurants already have and the fact that OpenTable can charge as much as $10 (!!!) per reservation, that wipes out your profit, so you're stuck in a very bad situation on deciding whether to go with OpenTable and wiping out your profit or risk losing too many customers (and wiping out your profit). OpenTable's effect is similar to what the credit card oligopoly does if you think about it. Credit cards offer you ease of use and also gives you rewards for using them. OpenTable gives you ease of use and you can build up points for free meals, the benefits are obvious to the consumer and the rewards are great, but to the proprieter it hurts a lot. I personally stopped using OpenTable because of this, but for the average consumer, they wouldn't give a damn even if they did know about it.

The question is does OpenTable make the pie bigger or are they just taking a cut for themselves at the expense of restaurants? If using OpenTable results in more people dinning out, or dinning out more often then they are making the pie bigger for everyone.

 

[Dr. Zaus]

The question is does OpenTable make the pie bigger or are they just taking a cut for themselves at the expense of restaurants? If using OpenTable results in more people dinning out, or dinning out more often then they are making the pie bigger for everyone.

More importantly, the ability to make a market is the ability with the greatest value because it improves efficiency; just because Othas mind and market share docent mean that a competitor couldn't innovate and make more money by being even more efficient.

 

[MagnusTheBrewer]

Capitalism, like religion, is confused by the masses with those who practice it. Capitalism is a good idea, unfortunately, the corporations who practice it are game players instead of idealists.

Further, the fans of capitalism, as it is practiced, stridently oppose any ideals as the 'enemy' of the free market. Corporations have only one goal, to make a profit. Fans of the status quo say, what's wrong with that? What's wrong with that is that it limits competition, lowers investment, decreases revenues in the long run and, is not healthy for the continued financial future of anyone including the profiteering company. But hey, I got mine so screw you.

 

[drebo]

So I was sitting in my technology commercialization class and the speaker, a former technology commercialization officer at a major bio medical researcher, said: "we had to turn down many discoveries that came out of our basic research; If it wasn't going to return 250million in the first 3 years we just didn't produce it"

Can you imagine the number of amazing discoveries this company simply didn't bring to market because it wasn't profitable enough to them?

Disgusting.

It's probably already been covered, but capitalism has nothing to do with this.

It probably costs the biotech company $250m just to produce it and go through the requisit rounds of testing and retesting and rereretesting and paying off the various lobbyists in the FDA and paying the lawyers. No one in their right mind is going to make a product at a loss.

This is why I don't mind the 7 year patent on drugs.

However, I'd much rather see the process simplified and litigation removed so that the entire production of a potential medicine is simpler and cheaper and doesn't take as long.

Not going to happen, though. Too much of a good-ol'-boy system.

As Rand Paul said in one of his speeches, you're a fool if you think capitalism has anything to do with the heathcare field right now.

 

[charrison]

HAHAHAHA, how is 90% 'not exactly a monopoly'? Are you serious? That's like DeBeers level market control at the height of their monopoly. Monopoly doesn't mean 100% market share. Also, OpenTable is firmly entrenched into the restaurant industry, thanks to the network effect. Not only do you have to convince restaurants to switch, but you also have to convince the general public as well. Restaurants won't, because OpenTable has captured all the customers, and customers won't because OpenTable has captured most of the restaurants. Open Table is able to keep their dominant position because, not only do they extract value from restaurants for themselves, but they give some of it to customers via buildup of points for free meals. It would be extremely expensive and require an insane amount of capital to compete with that, the barrier to entry is just too big. Just look at Bing - even with Microsoft's ENORMOUS cash reserves and the fact that they were practically giving away money to people, Google is still the dominant search engine. Did they get new customers? Probably, but i highly doubt the return on their investment (the TV/Print ads + cashback rewards) was anywhere near what they would have wanted. Google obviously didn't feel Bing was a true threat, it's not like Google offered the same cashback rewards that Bing offered and started an advertising campaign to keep their search engine customers, they're still the dominant search engine.

Well first of all monopoly means there are no competitors.

Yes they have a large share, but there is no guarantee they will keep as more people are entering the market. If the market is as lucrative as you claim and opentable is as bad as you claim, there will be others that are successful in this market.

 

[HendrixFan]

Well first of all monopoly means there are no competitors.

Not true. That is one example of a monopoly, but not the only one.

Market power also determines whether or not a company is a monopoly. You can have "competitors" that for all intents and purposes don't compete with you and be a monopoly. See microsoft in the OS market for years, see Intel in the CPU market.

 

[charrison]

Not true. That is one example of a monopoly, but not the only one.

Market power also determines whether or not a company is a monopoly. You can have "competitors" that for all intents and purposes don't compete with you and be a monopoly. See microsoft in the OS market for years, see Intel in the CPU market.

# (economics) a market in which there are many buyers but only one seller; "a monopoly on silver"; "when you have a monopoly you can ask any price you like"
# exclusive control or possession of something; "They have no monopoly on intelligence"

Do not confuse a dominant player with a monopoly.

 

[Genx87]

Bit of a public policy problem, isn't it, when an important discovery isn't profitable for a big company discovering it to produce, but it in their interests to lock up the rights from any competitor profiting from it. Turns the intent of the law to increase the public's access to inventions on its head, instead preventing access.

Perhaps we should have a law requiring inventions to be produced or licensed.

This I actually agree with you. Patent and copyright law were designed to benefit the public by creating an incentive to innovate and profit for a period of time by people and companies. If companies are sitting on patents and not producing products using those patents. The period they can sit on them should be shortened to allow the product to be brought into the market.

 

[CitizenKain]

I don't understand what's so juvenile about it. It seems to make plain enough sense. If I tricked you into buying a product that harmed you, would you buy it again?

"Hi, we the drug company make the only heart medication that works on X condition, the downside is there is a side effect that eventually poisons the person. Sure, we *could* send it back to the lab for a bit longer to iron that out, but this fiscal quarter is almost over and we have all the marketing ready. Oh well, people will thank us for it."

 

[tk149]

Not when other companies thought of it first and have a patent on it.

From what I heard, companies like exxon buy up free energy patents to keep them from ever going into production.

Overall, I think pure Capitalism is a very bad thing.

"I do not think that word means what you think it means."

1. U.S. Patents are only good for 20 years.
2. During most of that time, anyone can get a copy of the patent application.

http://www.google.com/patents

 

[hal2kilo]

Capitalism the worst form of government besides all the others tried.

Capitalism isn't a form of government. It is a form of economic system. Hell, China's rapidly becoming the biggest economy in the world. Capitalism does not equal freedom.

 

[tk149]

HAHAHAHA, how is 90% 'not exactly a monopoly'? Are you serious? That's like DeBeers level market control at the height of their monopoly. Monopoly doesn't mean 100% market share.

I'll just leave this here.

Library of economics and liberty
A monopoly is an enterprise that is the only seller of a good or service. In the absence of government intervention, a monopoly is free to set any price it chooses and will

Dictionary.com
1. exclusive control of a commodity or service in a particular market, or a control that makes possible the manipulation of prices. Compare duopoly, oligopoly.
2. an exclusive privilege to carry on a business, traffic, or service, granted by a government.
3. the exclusive possession or control of something.
4. something that is the subject of such control, as a commodity or service.
5. a company or group that has such control.
6. the market condition that exists when there is only one seller.

 

[Phokus]

Well first of all monopoly means there are no competitors.

Yes they have a large share, but there is no guarantee they will keep as more people are entering the market. If the market is as lucrative as you claim and opentable is as bad as you claim, there will be others that are successful in this market.

Only in a very literal sense, in an economic sense and legal sense and in journalism, the term 'monopoly' is still used even if there is not 100% market share.

http://en.wikipedia.org/wiki/Monopoly

In economics, a monopoly (from Greek monos / μονος (alone or single) + polein / πωλειν (to sell)) exists when a specific individual or an enterprise has *sufficient* control over a particular product or service to determine significantly the terms on which other individuals shall have access to it.

Miltron Friedman called DeBeers a monopoly but they never had 100% control of the market:

A monopoly can seldom be established within a country without overt and covert government assistance in the form of a tariff or some other device. It is close to impossible to do so on a world scale. The De Beers diamond monopoly is the only one we know of that appears to have succeeded. - - In a world of free trade, international cartels would disappear even more quickly.[92]

DeBeers, Standard Oil, and Microsoft never had 100% of the market, but people refer to them as monopolies.

Here are examples listed of monopolies. Note that not all of them had 100% control.

Examples of legal (and or) illegal monopolies
The salt commission, a legal monopoly in China formed in 758.
British East India Company; created as a legal trading monopoly in 1600.
Dutch East India Company; created as a legal trading monopoly in 1602.
Western Union was criticized as a price gouging monopoly in the late 19th century.[87]
Standard Oil; broken up in 1911, two of its surviving "baby companies" are ExxonMobil and the Chevron Corporation.
U.S. Steel; anti-trust prosecution failed in 1911.
Major League Baseball; survived U.S. anti-trust litigation in 1922, though its special status is still in dispute as of 2009.
United Aircraft and Transport Corporation; aircraft manufacturer holding company forced to divest itself of airlines in 1934.
National Football League; survived anti-trust lawsuit in the 1960s, convicted of being an illegal monopoly in the 1980s.
American Telephone & Telegraph; telecommunications giant broken up in 1982.
De Beers; settled charges of price fixing in the diamond trade in the 2000s.
Microsoft; settled anti-trust litigation in the U.S. in 2001; fined by the European Commission in 2004 for 497 million Euros. [88] which was upheld for the most part by the Court of First Instance of the European Communities in 2007. The fine was 1.35 Billion USD in 2008 for noncompliance with the 2004 rule.[89][90] At it peak Standard Oil had less market share than Microsoft. Pre-installed Windows and Microsoft using their monopoly to buy other companies should be brought to the attention of the public sector and or the private economy.
Joint Commission; has a monopoly over whether or not US hospitals are able to participate in the Medicare and Medicaid programs.
Telecom New Zealand; local loop unbundling enforced by central government.
Deutsche Telekom; former state monopoly, still partially state owned, currently monopolizes high-speed VDSL broadband network.[91]
Monsanto has been sued by competitors for anti-trust and monopolistic practices. They hold between 70% and 100% of the commercial seed market.
AAFES has a monopoly on retail sales at overseas military installations.
SAQ is a monopoly.
Long Island Power Authority (LIPA)
Long Island Rail Road (LIRR)

 

[charrison]

Only in a very literal sense, in an economic sense and legal sense and in journalism, the term 'monopoly' is still used even if there is not 100% market share.

http://en.wikipedia.org/wiki/Monopoly



Miltron Friedman called DeBeers a monopoly but they never had 100% control of the market:



DeBeers, Standard Oil, and Microsoft never had 100% of the market, but people refer to them as monopolies.

Here are examples listed of monopolies. Note that not all of them had 100% control.

Most of what you list are govt back monopolies. Those are by far the most prevalent, and they usually do not last when a free market exists. Freedmans comments was made in the 70s and Debeers stranglehold on the market is largely broken at this point.

 

[Phokus]

Most of what you list are govt back monopolies. Those are by far the most prevalent, and they usually do not last when a free market exists. Freedmans comments was made in the 70s and Debeers stranglehold on the market is largely broken at this point.

Most of what you list are govt back monopolies. Those are by far the most prevalent, and they usually do not last when a free market exists. Freedmans comments was made in the 70s and Debeers stranglehold on the market is largely broken at this point.

I wasn't talking about whether a particular company was a government backed monopoly or not, i was responding to your (and others) assertion that a monopoly has to mean 100% control.

1. You can use the term to mean only 100% market control or use it the way i was using it and we'd be both right in the usage of the term.

2. Yes, Debeers stranglehold is mostly broken (they certainly have less market power than before), but they still had a monopoly for WELL over 100 years. Monopoly doesn't mean 'permanent'.

3. Also, you just admitted that there are monopolies that are not government backed, when your original post suggested that it didn't exist.

Originally Posted by charrison
Care to name a market where a monopoly exists and preferably one that is not govt supported.

Mom and pops died, because they lacked economy of scale. The little shops got beat. And now blockbuster will soon be dead because new competitors killed them.

 

[Phokus]

Also, Charrison, the reason why it's so hard for the restaurants to switch from OpenTable to another service is because the customers who use OpenTable have little reason to switch. OpenTable a) Gives them ease of use in setting up reservations that they previously didn't have before b) has a shit ton of restaurants and c) Customers build up points for free or discounted meals edit: and d) they're already users of opentable of course. OpenTable can raise their prices on the restaurants but that doesn't really affect the customers, unless they raise them so high that all the restaurants start going out of business en masse (monopoly also doesn't mean that you have unlimited ability to raise prices).

 

[charrison]

I wasn't talking about whether a particular company was a government backed monopoly or not, i was responding to your (and others) assertion that a monopoly has to mean 100% control.

1. You can use the term to mean only 100% market control or use it the way i was using it and we'd be both right in the usage of the term.

2. Yes, Debeers stranglehold is mostly broken (they certainly have less market power than before), but they still had a monopoly for WELL over 100 years. Monopoly doesn't mean 'permanent'.

3. Also, you just admitted that there are monopolies that are not government backed, when your original post suggested that it didn't exist.

1. monopoly by definition is 100% control, anything less and the consumer does have a choice. It may not be a good choice, but it is still a choice.

2. Monopoly usually do not last forever as things do change.

3. Very few monopolys exist, and opentable is not one of them. A dominant player yes, a monopoly no. I did say monolopies do exist, but most of them are typically govt sanctioned

 

[charrison]

Also, Charrison, the reason why it's so hard for the restaurants to switch from OpenTable to another service is because the customers who use OpenTable have little reason to switch. OpenTable a) Gives them ease of use in setting up reservations that they previously didn't have before b) has a shit ton of restaurants and c) Customers build up points for free or discounted meals edit: and d) they're already users of opentable of course. OpenTable can raise their prices on the restaurants but that doesn't really affect the customers, unless they raise them so high that all the restaurants start going out of business en masse (monopoly also doesn't mean that you have unlimited ability to raise prices).

And as I stated, if opentable is being unreasonable to its customers as you claim, someone else is going to step and take business away from them.