Firefox Founders: "We want to make money..." 10158

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This model only really works well for manufacturing-like industries, where there are no significant constraints on raw materials supply and-or market demand.

Infrastructure-intensive activities typically have very long investment-payback time constants, and as such, tend to form natural monopolies which are highly stable. Examples include railways, water and gas systems, fixed-line telcos networks and electricity distribution networks. I'm sure that there are many others.

The average lifetime of a public listed company is approximately 25 years, so if it takes longer than that to get payback for a critical investment, then a natural monopoly is a likely outcome.

You mention the phone company as a bad example, but actually, it's easy to see that it's a good example of a natural monopoly. The worlds telcos continue to consolidate, with AT&T collapsing not too long ago. They're now owned by SBC. Left to their own devices, the baby-bells will re-coalesce, because nobody can afford to install a second local-loop to everyone's house, when the arpu is such a tiny fraction of the cost of putting the loop in. The government's attempt to address this in the EU is LLU - local loop unbundling, because they *know* that no amount of natural compebreastion will result in anyone being stupid enough to invest millions in building a second network, identical to the first, in order to *at best* split the overall revenue into two.

Instead, sane compebreastors will attempt to push a regulator into providing regulated access into the existing network, and enabling compebreastion 'higher up the value chain', rather than on the copper.

This situation has finally, after many years, been semi-formally recognised by Oftel in the UK, such that BT's local network will now be run by a quasi-independent unit of BT, with all companies, BT included, being provided with similar access.

Another way of looking at this would be to consider why, after 25 years of compebreastion in the UK, there is *still* only one local loop provider of any significance. The answer is that it's a natural, and highly stable monopoly.

I appreciate that many of these arguments would not be applicable to a manufacturing environment with reasonably unconstrained raw materials, production capability and market demand. In the manufacturing case, however, businesses will continue to grow-consolidate whilst economies of scale can be gained by doing so. If such businesses are in an environment where the barrier to entry is high, then it's much less likely that their drive towards a monopoly will be put off course by compebreastion. If I consider pretty much any sector in the UK over the last 25 years, I think that more or less all of them have consolidated from many businesses (sometimes thousands) to very few. Examples include retailing, vehicle manufacturing, consumer electronics, computing software, steel, heavy-industry, shipbuilding, aerospace, brewing, newspapers, magazines, supermarkets...

I cannot think of a single case where there was just one supplier and now there are many, *except* where there has been government intervention, like telecoms, TV production and broadcasting.

The banking sector is interesting, because many of the building (which were mutuals) converted to real banks in the 1980s-1990s, but since then, there's been a load of consolidation, so we've actually got fewer banks and building societies than we started with.

Monopoly does appear to be a stable limit state for economic sectors.

-- end Mark Kent -- mark at ellandroad dot demon dot co dot uk The horror... the horror!