Tag: Monopoly

I Know that Correlation is not Causation

Historical patent data

Patents vs economic growth

But it does appear that there is a negative correlation between the number of patents and economic growth:

Recently I discussed a paper by David Autor, David Dorn, Gordon Hanson, Gary P. Pisano and Pian Shu. The paper noted that as competition from China increased, innovation by US firms, measured by patent output, decreased. I believe the result, but started to wonder… are patents a good measure of innovation? Do patents drive economic growth?

I don’t know how to measure innovation, but I can look at the relationship between patents and economic growth. We being by looking at patents per capita. I found patent data going back to 1840, and population to 1850. The graph below shows patents per capita beginning in 1850. (All data sources provided at the end of this post.)


If it kind of looks to you like patents are not driving economic growth, well, it kind of looks like that to me too. In fact, if anything, the lines seem to be more negatively than positively correlated. In years where there are more patents, the subsequent growth rate in real GDP for capita over a ten year period seems to go down. Conversely, fewer patents in one year seem to be associated with more growth over the next ten years.

This is not a surprise.

Patents are increasingly an instrument for extracting monopoly rents with no meaning productive activity, as such they are increasingly parasitic.

This is the Magic of the Marketplace that New FCC Chair Ajit Pai So Loves

the map is pretty staggering. pink is poor areas, green is areas where AT&T provides decent internet. almost no overlap. pic.twitter.com/ay9Jw7KR0J

— libby watson (@libbycwatson) March 10, 2017

The Wonders of the Market

There is a (soon to be canceled by the Trump administration, no doubt) federal program that requires that low cost internet be provided to poor people where broadband is available.

AT&T’s way of dealing with this was to scrupulously ensure that there was no broadband available to the poor so that they could over charge them:

It’s no secret that ISPs can make more money from network upgrades in wealthy neighborhoods than low-income ones, and a new analysis of Cleveland, Ohio, by broadband advocacy groups appears to show that AT&T is following that strategy. The National Digital Inclusion Alliance (NDIA) and a Cleveland-based group called Connect Your Community alleged in their report today that “AT&T has systematically discriminated against lower-income Cleveland neighborhoods in its deployment of home Internet and video technologies over the past decade.”

Last year, the NDIA brought attention to AT&T’s refusal to provide $5-per-month Internet service to poor people in areas where the company hasn’t upgraded its network. When the Federal Communications Commission approved AT&T’s purchase of DirecTV in 2015, the FCC required AT&T to provide discount broadband to poor people as condition of the merger. But the condition apparently allowed AT&T to charge full price in areas where maximum download speeds were less than 3Mbps. After the NDIA spoke out, AT&T announced it would stop exploiting the loophole and instead provide discount Internet to poor people in all parts of its network.

Today’s followup report from the NDIA and Connect Your Community analyzes FCC data on AT&T Internet deployments in Cleveland, where many residents were initially declared ineligible for the discount broadband service.

“Specifically, AT&T has chosen not to extend its ‘fiber-to-the-node’ VDSL infrastructure—which is now the standard for most Cuyahoga County suburbs and other urban AT&T markets throughout the US—to the majority of Cleveland Census blocks, including the overwhelming majority of blocks with individual poverty rates above 35 percent,” the report said.


AT&T DSL speeds are often extremely slow when service is delivered entirely over copper telephone wires from central offices that can be nearly three miles from individual homes. Data speeds degrade with distance over copper, so AT&T boosts speeds in many areas by bringing fiber deeper into each neighborhood with its fiber-to-the-node (FTTN) technology. AT&T’s fastest speeds of all involve bringing fiber all the way to each home.

“AT&T apparently chose not to install fiber-to-the-node infrastructure anywhere in the areas served by its four Cleveland central offices with the greatest concentration of high-poverty neighborhoods,” the advocacy groups wrote. “The absence of FTTN in these lower-income neighborhoods, and the overall disparity in FTTN deployment between Cleveland and the suburbs, can be traced largely to AT&T’s failure to deploy FTTN anywhere in the service areas of four ‘central offices’… with large lower-income customer bases: those at 6513 Guthrie, 5400 Prospect, 2130 East 107th, and 12223 St. Clair.”

By contrast, “Most of Cuyahoga County’s suburban communities are fully covered” by faster AT&T network technologies, including fiber-to-the-home, the report said.


The NDIA shared its findings with Federal Communications Commission member Mignon Clyburn, a Democrat, but it isn’t expecting any action from the FCC’s Republican leadership.

“The current chair of the FCC [Ajit Pai] is not likely to be interested,” Siefer told Ars. “We have shared this research with Commissioner Clyburn’s office. We do not see a path in the current climate (federally and in Ohio) to force AT&T to make the upgrades. We do see this research as proof that further deregulation is not going to reduce the digital divide. Our solutions will likely include local, state, and federal policies that encourage equitable build-out. We also need competition to bring down residential broadband costs. If AT&T is not going to serve low-income areas then we need policies and initiatives that actively recruit other broadband providers.”

Pai’s theory is that if you allow poorly regulated monopolists to gouge and charge monopoly rents, then they will invest in better service.

Reality indicates that all that if you allow poorly regulated monopolists to gouge and charge monopoly rents, they will invest in ensuring that they can maintain those monopoly rents, to the exclusion of customer service and innovation.

AT&T spent its money in Ohio on banning municipal broadband, instead of getting poor people decent internet service.

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Monopolies Are Always Bad

The only question is whether or not the alternative is worse.

First we have the case study of the results AT&T’s 1956 anti-trust consent decree, where it was required to release its patents to the general public:

To answer these questions, we study one of the most important antitrust rulings in US history, namely, the 1956 consent decree against the Bell System. This decree settled a seven-year old antitrust lawsuit that sought to break up the Bell System, the dominant provider of telecommunications services in the US, because it allegedly monopolised “the manufacture, distribution, and sale of telephones, telephone apparatus and equipment” (Antitrust Subcommittee 1958: 1668). Bell was charged with having foreclosed competitors from the market for telecommunications equipment because its operating companies had exclusive supply contracts with its manufacturing subsidiary Western Electric and because it used exclusionary practices such as the refusal to license its patents.

The consent decree contained two main remedies. The Bell System was obligated to license all its patents royalty free, and it was barred from entering any industry other than telecommunications. As a consequence, 7,820 patents, or 1.3% of all unexpired US patents, in a wide range of fields became freely available in 1956. Most of these patents covered technologies from the Bell Laboratories (Bell Labs), the research subsidiary of the Bell System, arguably the most innovative industrial laboratory in the world at the time. The Bell Labs produced path-breaking innovations in telecommunications such as cellular telephone technology or the first transatlantic telephone cable. But as Figure 1 shows, 58% of Bell’s patent portfolio had its main application outside of telecommunications because of Bell’s part in the war effort in WWII and its commitment to basic science. Researchers at Bell Labs are credited for the invention of the transistor, the solar cell, and the laser, among other things.


Our research shows that compulsory licensing increased follow-on innovation that builds on Bell patents. We measure follow-on innovation by the number of patent citations Bell Labs patents received from other companies that patent in the US. We find that in the first five years, follow-on innovation increased by 17%, or a total of around 1,000 citations. Back-of-the-envelope calculations suggest that the additional patents other companies filed as a direct result of the consent decree had a value of up to $5.7 billion in today’s dollars.3

More than two-thirds of the increase in innovation can be attributed to young and small companies and individual inventors unrelated to Bell. This is in line with the hypothesis that patents can act as a barrier to entry for small and young companies who are less able to strike licensing deals than large firms (Lanjouw and Schankerman 2004, Galasso 2012, Galasso and Schankerman 2015). Compulsory licensing removed this barrier in markets outside the telecommunications industry, arguably unintentionally so. This fostered follow-on innovation by young and small companies and contributed to long run technological progress in the US.

Patent exclusivity frequently hinders, rather than helps, progress in the short term.

More generally, consequences of our increasingly monopolistic economy are, explained in detail by Barry C. Lynn:

There are many competing interpretations for why Hillary Clinton lost last fall’s election, but most observers do agree that economics played a big role. Clinton simply didn’t articulate a vision compelling enough to compete with Donald Trump’s rousing, if dubious, message that bad trade deals and illegal immigration explain the downward mobility of so many Americans.

As it happens, Clinton did have the germ of exactly such an idea—if one knew where to look. In an October 2015 op-ed, she wrote that “large corporations are concentrating control over markets” and “using their power to raise prices, limit choices for consumers, lower wages for workers, and hold back competition from startups and small businesses. It’s no wonder Americans feel the deck is stacked for those at the top.” In a speech in Toledo last fall, Clinton assailed “old-fashioned monopolies” and vowed to appoint “tough” enforcers “so the big don’t keep getting bigger and bigger.”

Clinton’s words were in keeping with Bernie Sanders’s attacks on big banks, but went further, tracing how concentration is a problem throughout the economy. It was a message seemingly tailor-made for the wrathful electorate of 2016. Yet after the Ohio speech, Clinton rarely touched again on the issue. Few other Democrats even mentioned the word monopoly.

The pity is that Clinton’s stance wasn’t simple campaign rhetoric. It was based on a substantial and growing body of research that confirms that consolidation is at the root of many of America’s most pressing economic and political problems.

These include the declining fortunes of rural America as farmers struggle against agriculture conglomerates. It includes the fading of heartland cities like Memphis and Minneapolis as corporate giants in coastal cities buy out local banks and businesses. It includes plunging rates of entrepreneurship and innovation as concentrated markets choke off independent businesses and new start-ups. It includes falling real wages, as decades of mergers have reduced the need for employers to compete to attract and retain workers.

Monopoly is a main driver of inequality, as profits concentrate more wealth in the hands of the few. The effects of monopoly enrage voters in their day-to-day lives, as they face the sky-high prices set by drug-company cartels and the abuses of cable providers, health insurers, and airlines. Monopoly provides much of the funds the wealthy use to distort American politics.

It comes as no surprise that when Reagan packed the Supreme Court in the 1980s, he chose Robert Bork and Douglas Ginsburg:  They both cut their teeth on the academic side of anti-trust law, which had been captured, largely through things like endowing chairs, by the right wing actors

They transformed the consensus, and the black letter law, on anti-trust from the idea of protecting a free and open market to a narrow view where regulation can only be justified through the showing of direct harm and immediate harm to consumers.

This has unleashed monopolies, and monopolies unleashed have lots of money to spend on politicians, which leads to more support for monopolies. (Our recent trade deals have been about expanding the reach of pharma and content monopolies, for example.)

Rinse, lather, repeat.

Food for Thought

I’ve come across an interesting study from the Council of Economic Advisors.

One of the effects of the increasing concentration in American business is that it creates a labor market monopsony which allows employers to push down wages:(PDF)

An excerpt:

There is also growing concern about an additional cause of inequity—a general reduction in competition among firms, shifting the balance of bargaining power towards employers (Furman and Orszag 2015). Such a shift could explain not only the redistribution of revenues from worker wages to managerial earnings and profits, but also the rising disparity in pay among workers with similar skills. These trends also have broader implications for the economy as a whole: instead of promoting growth, forces that undermine competition tend to reduce efficiency, and can lead to lower output, employment, and social welfare.

A growing literature has documented several indicators of declining competition in the United States, and economists have begun to explore the links between these trends and rising income inequality (Furman and Orzag 2015). While recent discussions have highlighted rising concentration among producers and monopoly pricing in sellers markets (The Economist 2016), reduced competition can also give employers power to dictate wages—so-called “monopsony” power in the labor market. While monopoly in product markets and monopsony in labor markets can be related and share some common causes, the latter has some distinct causes and policy implications.

This issue brief explains how monopsony, or wage-setting power, in the labor market can reduce wages, employment, and overall welfare, and describes various sources of monopsony power.1 It then reviews evidence suggesting that firms may have wage-setting power in a broad range of settings and describes several trends in recent decades consistent with a growing role for monopsony power in wage determination. It concludes with a discussion of several policy actions taken by the Obama Administration to help promote labor-market competition and ensure a level playing field for all workers.

Monopoly is when you have a single supplier. Monopsony is when you have a single buyer.

This is yet another case where the right wing monopoly theory fails: The damage from monopolies and economic concentration is not limited to higher consumer prices.

In fact this interpretation of modern antitrust law has been wrong from the very beginning.

Even a cursory examination of the creation of anti-monopoly laws clearly shows that the legislative intent was largely directed toward barriers to competitors entry into markets.

Of course, history, or truth, or public benefit, or basic integrity never mattered to Robert Bork and Evil Minions.

They developed the theory starting with the goal of increasing the power of the elites, and worked backwards.

The EpiPen Price Gouging is a Family Affair

It turns out that Gayle Manchin, Senator Joe Manchin’s wife and mother of Mylan CEO Heather Bresch, was appointed chair of the National Association of State Boards of Education , where she relentlessly pushed to increase EpiPen sales:

After Gayle Manchin took over the National Association of State Boards of Education in 2012, she spearheaded an unprecedented effort that encouraged states to require schools to purchase medical devices that fight life-threatening allergic reactions.

The association’s move helped pave the way for Mylan Specialty, maker of EpiPens, to develop a near monopoly in school nurses’ offices. Eleven states drafted laws requiring epinephrine auto-injectors. Nearly every other state recommended schools stock them after what the White House called the “EpiPen Law” in 2013 gave funding preference to those that did.

The CEO of Mylan then, and now, was Heather Bresch. Gayle Manchin is Heather Bresch’s mother.

The whole Manchin clan is in on this bit of looting.

On the bright side, both New York (first link) and West Virginia are looking at antitrust and Medicate fraud allegations against the firm:

On the eve of a Congressional hearing on the soaring price and lack of competition for the EpiPen emergency allergy treatment, the attorney general for West Virginia has confirmed his office is investigating EpiPen maker Mylan for allegations of antitrust violations and Medicaid fraud.

WV Attorney General Patrick Morrisey confirmed the investigation today, revealing that he’d issued a subpoena to Mylan back in August, seeking documents and other information related to EpiPen, but that the company failed to meet the Sept. 7 deadline.

In response, Morrisey’s office has petitioned [PDF] a state circuit court to enforce that subpoena.

The state believes that EpiPen has been short-changing the West Virginia Department of Health and Human Services Bureau for Medical Services (BMS) by paying smaller rebates than it should have.

Drug companies pay different levels of rebates to BMS depending on whether a medication is considered an “innovator” or a “non-innovator.” The lower, non-innovator distinction, is usually reserved for generics, but Morrisey says that Mylan was paying that rate for EpiPen, even though it’s a brand-name drug.

This may constitute Medicaid fraud under state law, according to the petition.

The state also believes that Mylan may have violated state antitrust laws by filing an intellectual property suit against Teva Pharmaceuticals in 2012 over an in-development generic version of EpiPen.

Joe Manchin will lose his bid for reelection in 2018.

If the Democratic base does not aggressively primary him, they are idiots.