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Re: Monopoly and regulation: Microsoft



Hi Kush,

Thanks for your mail. I almost thought that everyone had gone to sleep!
What's the point of disucssing public policy if we do not have
differences? What is electronic democracy for, anyway?

I will try to divide your points into two: one, one which I agree with,
and two, on which I think we need to think some more on.

A) I fully agree with:
=======================

One:

> The issue is of arbitrariness and not how much regulation.   There
> should be no arbitrariness in the system.  The government must have a
> valid case.   Once you have those restraints in place, the system
> works as it has in the  U.S.   

Two:

  But should we just sit
> and watch if a particular player uses its market position to keep
> competition out and making things difficult for competitors.  I think
> there is a consensus in United States that such tactics are bad FOR
> THE PEOPLE AS WELL AS FOR BUSINESS.  

Three:

> I think we better not make that assumption that government has
> arbitrary regulatory powers.   Every regulatory Agency in the United
> States KNOWS that there are limits to their authority. WHICH IS A
> BASIC DEMOCRATIC PRINCIPLE. Compare this to India where even a clerk
> thinks that there are NO LIMITS to his/her authority, let alone high
> ranking officers and politicians.   Once you take that arbitrary
> authority away, bring in accountability, and a strong independent
> judiciary, things will work.  However, it is a fallacy to assume that
> in every situation markets can correct themselves or that government
> acts because of politics. Government has a duty to protect the
> consumer.  At least that is the mission of the FTC in this country. In
> cases after cases FTC has done an excellent job.

Four:

> The other part of your statement that human being cannot be trusted is
> true.  That is why we have the system of division of powers and rule
> by law.  That no man could be trusted was why the American system of
> division of powers came into being.   And that is what I have been
> saying through out: that it is the system which keeps people in
> government(AND FOR THAT MATTER ANY ORGANIZATION) honest.   I fully
> believe that such systems can be put in place in India.

B) What I think we need to think a bit more about, and try to resolve:

> That brings us to quoting the heavy weights: "Stigler the Nobel Prize
> winner who died a few years ago, Becker states,  "The way to prevent
> monopolistic practices, he believed, is to encourage domestic and
> foreign competition rather than through detailed regulation  of
> business by the Justice Department." Becker himself won the Nobel
> prize in 1992 for his work, on one thread of which I am carrying
> forward in my  dissertation (family economics)."       
> 
> I have nothing against Becker, I am sure he is a renowed economist. 
> But the above statement is no more than generalized rhetoric.  Let us
> examine it.  First question:   In what way has the justice department
> prevented domestic and foreign competition?  Give us current or past
> examples please.
> 
> You go on "  The key problem that Stigler discovered  was that
> "instead of a single-minded devotion to improving competition, 
> regulators responded to pressures to attack or defend 'big' business,
> to  protect small companies, and to appeals from political
> constituencies."
> 
> Again a very generalized statement -- rhetoric, that's all.  Give us
> examples please where this has happened.

Let me assure you, Kush, that I was not taking the side of Microsoft and
bringing these "big" Nobel type guys to impress you and to persuade you to
change "in favor" of Microsoft.  I have not studied this case, I am a "lay
person" making a very preliminary judgment based on a variety of factors
already outlined earlier. I was simply happy that some sample of people
agreed with my personal view, but these views are completely irrelevant. 

Reverting to the problem we have at hand (the slight difference, may I
say)?

In the very prominent field of Law and Economics (a new sub-discipline of
both Law and Economics), Stigler holds a pre-eminent position. The
specialization of Stigler, for which he received a Nobel Prize, was, "for
his seminal studies of industrial structures, functioning of markets and
causes and effects of public regulation."  The Nobel Committee stated,
"His studies of the forces which give rise to regulatory legislation have
opened up a completely new area of economic research.... Stigler is also
recognized as the founder of "economics of information" and ''economics of
regulation", and one of the pioneers of research in the intersection of
economics and law."

More on his work is at:

http://www.nobel.se/laureates/economy-1982-press.html 

I do not imagine that either Becker or Stigler would make "rhetorical" 
statements, without specific examples in mind, or specific studies. I
don't have the examples that you have asked me to submit, readily at hand,
but if you like, I can do that. I am confident I can trust the founder of
this discipline to have come out with gems of wisdom. In fact, the judges
that you refer to have no recourse but to consult theoretical and
empirical economists and legal experts on this area, in order to consider
the logic about when a firm can be said to have used monopoly power and to
what extent. 

Therefore, we do not differ, I see, in the overall picture, but a little
bit on the details: more specifically, about a single company (and I don't
care about this company: how did this company enter our debates, anyway?).
But looking away from the company, we agree that this is an area where
suitable (democratic) bodies need to be designed and suitable research
needed to prove/disprove a particular case. 

The lessons to be learnt from this debate have mostly been reflected in
the Manifesto, in the form of the following statement: 

	       Freedom to fix prices (of goods or of labour) should
               not lead to profiteering. Therefore, strong (thought
               participatory and democratic) regulatory bodies need
               to be established to monitor cases of profiteering.
               Regulation of monopolistic behavior should primarily
               be through promotion of domestic and foreign
               competition. Further, as far as wages are concerned,
               the government would not interfere with this
               mechanism, except perhaps to suggest "desirable"
               levels of minimum wage. 

We can debate this statement further, if you like.

I am very impressed by the detailed account of the process that you
described, by the use of which, this country (USA) decides such cases of
monopoly. I have not really studied this process in much detail. Maybe we
should add some "teeth" to our general agreement by proposing the outline
of the regulatory mechanisms we are looking to build in India.

So please propose a para or two on the points raised, and thanks for
waking up the list once again! It seemed that I was the only guy having
fun, making "buttons" and all that stuff!

Sanjeev