Capitalists against competition

Capitalists hate competition. That’s the message of plans by several big clubs – as well as Sp*rs – to form a “super” league in which they’ll be protected from the danger of relegation or from competition from emerging teams.

The smarter capitalists have of course long known that profits come from avoiding competition. Warren Buffett advises shareholders to look for companies with “economic moats” – things that protect them from competition. And Peter Thiel says start-ups should aim to become monopolies. “Competition is for losers” he says.

But here’s the thing. Striving for monopoly is by no means always a bad thing. The pursuit of brand power – one of Buffett’s moats – causes firms to try to make high-quality products consumers can trust. The urge for more market share causes them to undercut rivals and so keep prices low. Or the desire to win the natural monopoly that comes from having a dominant platform business leads firms such as Facebook or Twitter to give away services.

In ways such as these, capitalists’ attempts to overcome competition can work for everyone’s benefit.

But, but, but. This is only part of the story. Proposals for a breakaway league remind us that there are more malevolent ways of seeking to over-ride competition. Adam Smith famously saw one of these:

People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. 

We can add to this the pursuit of restrictive patents and copyrights; driving down of wages and working conditions; or lobbying governments for special favours.

Which poses the question: what can be done to ensure that capitalists strive for monopoly in benign rather than malign ways.

Changing ownership is not always the answer. Yes, there’s a case (pdf) for football clubs to be run by fans. But accountancy firms have long been worker-owned, and few people pretend that business is a model of a well-functioning market. This isn’t to say there’s no case for worker ownership – there definitely is. It’s just that coops’ many merits do not include being a magic bullet for producing the right kind of competition.

Nor, I suspect, are laws and regulations. Technocrats often forget that the law is endogenous. It is not imposed from outside by benign philosopher-kings, but is instead prone to being captured by capitalists. As Pablo Torija Jimenez has shown, the state serves the interests of the rich.

A third possibility – proposed for example by Jesse Norman in his book, Adam Smith: What He Thought and Why it Matters – is for capitalists to have the right kind of social norms, a sense of fair play. But of course, if they ever had such norms, they no longer do so.

Which leaves one other option – countervailing power. Strong trades unions in the post-war period, for example, not only prevented wages (of white men at least) being egregiously cut but also limited bosses’ rent-seeking.

If we are lucky, such countervailing power will kill the European super league. If enough players and managers resist it, along with fans, then club owners might cave in.

I’m reminded here of something Luigi Zingales has said. He points to what happened in 1994 when shareholders tried to stop Maurice Saatchi giving himself a lot of share options. He flounced off, taking with him clients and colleagues. The lesson of this, said Zingales, is that formal ownership is not the same as control. In the same way, Fenway Sports Group might formally own Liverpool FC but if Jurgen Klopp and some players were to oppose a super league, could they really force the club into it?

There’s no point making a firm prediction here: we’ll find out soon enough.

Instead, the point is that capitalists’ hatred of competition sometimes works for the public good and sometimes not. Which it is – and whether non-capitalistic forms of ownership can do better – depends upon context and environment which differ from industry to industry, place to place and time to time. It does seem, though, that recent years have seen these contexts change for the worst.   

Comments

[Alex B]

Here's a way to incentivise monopolists to be benign: the government passes a tax, that works as described below. I call it the arsehole tax.

It is a tax on the value of any consumer transaction, like VAT. However unlike VAT, it is initially 0%. But subsequently, within a certain time limit, the payer can declare that the payment was to an arsehole, and the payment should be subject to the tax (at whatever rate - say 5%).

The government mandates that system is implemented by electronic payment providers (banks, paypal etc). They will whinge about this, but the complexity of the finance system is part of their moat, so it will only be a pro-forma whinge. So effectively to do the arsehole declaration you go to your credit card website, find the payment and click the button. There might need to be a nominal fee to prevent people doing it frivolously.

A virtue of doing it via payment providers is that it is hard for companies to figure out who clicked the button and intimidate people - they only see the total amount.

The point of this idea is that one of the things that makes bad companies possible is not just monopoly, but the asymetry of transactions: the payee knows with certainty what they are getting, the payer does not. This offsets that effect.

Companies will put up prices to offset the risk, but the beauty of the system is that *even if they do*, the tax still incentivises good behavior.

It is not clear what transactions should be under the scope of the tax. House sales are out (too much risk to the ordinary person). Salary as well. Perhaps businesses with a low number of transactions (since they might identify the consumer, and also because it would be an unreasonable risk.

The scheme is curiously market-like in that it relies on the wisdom of crowds rather than government expertese.

An optional extension is to make large companies publish their arsehole tax rate. The media would love to do a story every year on which company is the biggest arsehole.

[Simon H]

hihi - in what way are the fans workers? I usually align the players as club workers and it seems they share in club success, at least in the clubs relevant here, to a level way beyond the owners’ wishes.

[LJC]

Countervailing power is certainly an interesting option. Let us say, tomorrow, Harry Kane and the rest of the Spurs Premier League squad were to go to Daniel Levy with transfer requests. Levy knows that a new manager could hardly replace an entire Premier League squad in the time before the beginning of next season, and even if he could he would have a team of individuals not used to playing with each other (some people might say 'would you notice the difference'), so Levy might well consider discretion the better part of valour.

[aragon]

I have the solution:

Abolish copyright
Implement a comfortable basic income

Players can be in in for the physical mastery of the game and the acclaim.

Gate receipts would fund the club...

To radical?

An existing suggestion soon. Perhaps you can beat me to it!

[reason]

Alex B - I like it - but can you trust the banks and especially Paypal (which is company founded by the biggest of arseholes imaginable) to abstain from telling their clients who is imposing the tax on them? Or are relying on arseholes treating each other as they treat everybody else?

[Alex B]

@reason - Good point. I guess you'd have to outright make pressuring people not to apply the tax illegal. That way, it would be too risky for large companies to bother doing so (because they'd have to do it wholesale, and it would be obvious) and those are the only ones paypal would have enough incentive to leak to.

[reason]

A better solution would be to register the total purchase with a tax authority (VAT) using a unique key and allow the customer via a website to report the sale as subject to the tax.

[Nicholas Shaxson]

I am generally a big fan of your work, but you seem to have a peculiar blind spot on monopolies and market power. I agree with your point about countervailing power. It's part of the picture. But I disagree with your counsel of despair on governments doing anything about this - what a glib, throwaway line! Snd your 'striving for monopoly is by no means always a bad thing' section is straight from the Robert Bork - Chicago School playbook: prioritising consumer welfare, and the internal efficiency of corporations, above questions of power, market structure, and so on.

Explainer here, taking a very different tack.
https://thecounterbalance.substack.com/p/the-counterbalance-an-anti-monopoly

[aragon]

The threat of a European Super League has receded but I think we should implement the solution anyway. And apply it to copyright other Interlectual Property Rights (IPR) in general.

I mean FRAND/RAND

* Fair
* Reasonable
* and
* Non-discriminatory

https://en.wikipedia.org/wiki/Reasonable_and_non-discriminatory_licensing

These normally apply to patents included in standards.

I have probably got this wrong but I see this as removing exclusive or discriminatory contracts from the distribution rights.

Offered to all broadcasters at the same rate. The rights would have to be non-exclusive and non-discriminatory.

https://www.upcounsel.com/frand-licensing

"For example, in some jurisdictions, contracts are not enforceable unless each term, including the price, is definite. However, price is open to negotiation under a FRAND obligation."

https://www.mondaq.com/uk/patent/1016124/uk-supreme-court-holds-that-uk-courts-may-set-global-frand-terms

Based on the holdings of the lower courts, the UK Supreme Court was asked to decide five questions:

Do the English courts have jurisdiction to determine the terms (including royalty rates) for a global FRAND license?

Would a Chinese court be a more suitable jurisdiction to determine the terms of a global FRAND license in this case?

Does the “Non-Discrimination” arm of the FRAND obligation require an SEP owner to offer a license on the most favorable terms granted to any licensee?

What are SEP owner's initial obligations in negotiating a FRAND license with an implementer?

Is an injunction an appropriate remedy for infringement of an SEP?

I am not a Lawyer.

[Alex B]

@reason Yeah, that would work. It might add a bit of friction to the process since it's a new website to navigate, but it's less that I thought - you don't have to cut and paste a code, you can just make the payment provider submit the same description string that they would display themselves.

[rsm]

"Which leaves one other option – countervailing power."

Basic income empowers individuals to develop self-provisioning technology to decrease dependence on monopolized markets. If Woz had continued giving away circuit designs, would we have replicators by now?

@alexb: what you really want is free speech, not taxes. If you got ripped off post everywhere about it. Companies will try to get you banned, so the state should ensure a free speech complaint site ...

[Dav]

Capitalists hate competition. That’s the message of plans by several big clubs – as well as Sp*rs – to form a “super” league in which they’ll be protected from the danger of relegation or from competition from emerging teams.

Hang on. Surely the issue is that right at the moment there is a monopoly in football: the Premier League (in England) and UEFA (in Europe) are the monopoly suplpiers of football.

This new proposed league would actually have been a new entrant into the market and thus would have been increasing competition.

Football fans could then have voted with their wallets by deciding which of the two leagues they wanted to buy tickets to / pay subscriptions to watch on TV, and the competition for such money would have spurred on both the existing leagues and the new league to improve their offerings.

Surely therefore it could only have been a good thing? Especially if you think that competition is good and monopolies — as we currently have — are bad?

[Dav]

I mean, the plan was basically to set up an alternative to the way football currently runs in Europe, using the American 'major league' model instead of the European 'promotion and relegation' model. This is exactly the way competition is supposed to work: a company with a new model for providing a service starts up in an economy, and sees whether people will switch away from the current providers. It's no different really from when people imported the American-style model of Starbucks-esque coffee shops to the UK, to compete with the UK model of where you could buy crappy coffee in dingy holes.

Neither the American model nor the European model is inherently the 'correct' way to organise sport. They're just different options.

Maybe European fans would prefer the American model of sport for football? Nobody's ever offered it to them, as far as I know. The whole point of competition is that people don't just get what they're given, on the assumption that that's what they want, but they are offered a choice between various products and the ones which the customers prefer survive and the ones which the customers don't prefer, don't survive. And in that way things improve.

(In the event it seems, the fans had the choice and declared that they preferred the European model, which is fine. But it's good that they had the chance to choose, isn't it?)

[LJC]

@Dav

I think you have missed the point. Had these owners set up entirely new clubs and bought staff to play for them and premises for for them to play in as part of a new league, that would be equivalent to setting up a new company based on a franchise model. What they actually did was to buy existing companies, with all their invisible assets including goodwill, and to change their business model. Not surprisingly, goodwill from the fans was in short supply, as would have been obvious to them had they learned anything from the lesson of Wimbledon, whose owners (in American fashion) decided to relocate the club to Milton Keynes. There is now a fan-based club (AFC Wimbledon) back where the original club was located (and now playing in the same division as MK Dons). The recent experiences of Coventry City FC show similar issues.

Fans have consistently shown that what they want is what they already have, with a few improvements, not wholesale change.

[Dav]

'What they actually did was to buy existing companies, with all their invisible assets including goodwill, and to change their business model'

Um… yes? That's what people do all the time in all sort of economic areas? And if the new business model is good then they beat out their rivals and everyone's happy, and if the new business model is not good then they go bust, their rivals who stuck with the old business model prosper, and again everyone's happy.

Or if the two business models are equally good then everyone does well and, again, everyone's happy.

If the fans of a particular club didn't like it, nobody forces them to keep supporting the team. In the example you used, nobody forced the fans to keep supporting the moved team. If Manchester United fans didn't like the new league nothing would have stopped them setting up their own club just like the Wimbledon fans did and supporting it instead.

[LJC]

@Dav

If you knew anything about football, you would know that Manchester United fans dissatisfied with Malcolm Glazer's takeover did exactly that:

https://en.wikipedia.org/wiki/F.C._United_of_Manchester

I suggest you stick to theorising how businesses should work instead of trying to apply it to reality.

[Dav]

'If you knew anything about football, you would know that Manchester United fans dissatisfied with Malcolm Glazer's takeover did exactly that:'

Okay, great. So if the Super League had gone ahead, then there was already a team that Manchester United fans who didn't like the Super League format could support instead. Presumably the same could have been done with the other relevant teams too.

So what's the problem? Those who liked the Super League format could switch, those who didn't could instead just switch their support to other teams that stayed in the old format, or could start their own clubs.