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OpenMarket: Business and Government

  • Why Thieves Hate Free Markets

    August 4, 2015 9:47 AM

    Don Boudreaux over at Café Hayek has just given a 2015 boost to a smart 2012 video from Learn Liberty on social cooperation in a free society. It’s worth spending another 3 minutes with, even if you’re one of the 1,394,608 people who have already seen it.

    In this video, Prof. Aeon Skoble of Bridgewater State University highlights one of my favorite themes: a market economy involves not only economic competition, but also an impressive degree of voluntary cooperation, even between entities one would assume to be direct rivals.

    For more great videos, check out the Learn Liberty channel on YouTube, and discover why Prof. Skoble can be heard admitting “to be perfectly honest, I’m not as sexy as Hugh Jackman.” 

  • The FTC Targets Apple Music: Part II

    August 3, 2015 2:14 PM

    This is the second in a series of essays on the FTC’s investigation of Apple Music. Part I discussed the reason for the FTC’s investigation as well as the facts behind the allegations levied at Apple. This part will look at the situation from an economic perspective and examine the extent to which competition in the market for smartphones would mitigate any threat to competition in the music streaming market arising due to Apple’s supposedly anti-competitive actions.

    Before we consider the competitive effects of Apple’s actions, it’s important that we investigate the extent to which the severity of Apple’s actions is even relevant. Consider the following thought experiment:

    Assume that Apple were to unilaterally ban all music streaming companies from offering iOS apps, thereby granting itself a monopoly in the market for iOS music streaming. Would this pose a significant threat to competition?

    The instinctual answer is, ”Yes! Obviously the act of outlawing competition is a significant threat to competition.” In reality, however, the question is more complicated. Although Apple has monopoly power in its iOS ecosystem, its need to compete with Android devices in the overall smartphone market limits the extent to which it can exploit this power.

    Consider the “Apple Tax,” which, as mentioned in part I, is the 30 percent “tax” Apple imposes on all purchases made through its App Store or through any iOS apps. At the moment, this tax is significant but not unreasonable. But imagine what would happen if Apple were to begin raising it, to 50 percent, 70 percent, 90 percent. As it grew higher and higher, app creators would spend less and less time making apps for iOS, and any paid apps made would become progressively more expensive. Consequently, consumers would increasingly switch to competing smartphone brands (presumably those running Google’s Android operating system).

    The extent to which a change in the price of one good can lead to a change in the demand for another is referred to as the cross elasticity of demand and is critical to understanding our earlier hypothetical. Here, we are interested in the extent to which an increase in the total cost of ownership of an iPhone—realized as an increase in the price of music streaming apps on iOS—would drive consumers to switch to competing smartphone brands. A greater cross elasticity of demand would indicate higher consumer willingness to switch and, thus, would suggest that Apple’s actions in our hypothetical are less likely to pose a significant threat to competition.

  • The FTC Targets Apple Music: Part I

    July 29, 2015 9:07 AM

    When launching a new product, the goal is to create excitement, as any company will tell you. But Apple’s newly launched music streaming service, Apple Music, may be generating more excitement than desired. According to a report in The Washington Post, the Federal Trade Commission has launched an investigation into Apple’s treatment of competing music streaming apps sold in its mobile App Store.

    The controversy stems from Apple’s requirement that any company selling digital goods through iOS, its mobile platform, use Apple’s In-App Purchase interface (IAP), which restricts sellers’ offerings in several important ways. Apple Music, however, is exempt from these restrictions. Therefore, while Apple Music and rival music streaming services are on equal footing when competing for users of desktop computers, laptops, and Android smartphones, these services play by different rules within Apple’s iOS ecosystem.

    Although a number of Apple’s rules have come under scrutiny in recent weeks, the most controversial is the “Apple Tax,” a 30% cut that Apple takes from all purchases made through its App Store—or through any iOS apps offered in its App Store. In other words, whenever an Apple Music competitor sells a subscription through its iOS app, it owes 30% of its revenue to Apple. Consequently, any competitor to Apple Music wishing to sell subscriptions through its iOS app must choose between charging the same $10/month fee as Apple Music and putting itself at a financial disadvantage or charging a greater fee and putting itself at a competitive disadvantage. In practice, high costs have led most to choose the latter option; rival services Spotify, Rdio, Rhapsody, and Tidal have all raised the price of subscriptions sold through their iOS apps by 30 percent, from $10/month to $13/month.

    Users of these services can still pay the normal, $10/month price if they purchase their subscription on the service’s web site instead of through its iOS app. But Apple’s prohibition against apps “that link to external mechanisms for purchases or subscriptions to be used in the App” has made it difficult for rival services to inform their users that these alternative methods of purchase exist.

    Spotify, the market leader in music streaming, recently struck back, sending its iPhone customers an email PSA explaining that they can save money if they set up their payments through Spotify.com instead of through iTunes. Whether this move will counter the “Apple Tax” by informing users of other payment options remains unclear.

  • Bastiat Society Rallies Business Leaders Together

    July 27, 2015 11:06 AM

    My venerable colleague Fred Smith and I just returned from the Hoosier State, where we were honored to be guests of the Indianapolis chapter of the Bastiat Society. Our event featured a few dozen local business leaders: executives, attorneys, and entrepreneurs, as well as a few elected officials. We all gathered to discuss the role that businesspeople can play in defending the free market and reviving an appreciation for the virtues of capitalism.

    It may be surprising to some, but not every business owner is a Hayek-quoting ideologue who has a photo of Ayn Rand on his desk. The majority are focused overwhelmingly on their customers, employees, and the day-to-day work of running their company. We have found that most business people spend very little time on politics in general, much less the intellectual arguments over the morality of capitalism and the ideas of classical liberalism.

    At the same time, we have also found that it’s difficult for think tank types and academics to defend the enterprise of capitalism without at least a few actual capitalists speaking up as well. Fred, in his essay “Countering the Assault on Capitalism,” explains this dynamic and its history quite well. The late economist Joseph Schumpeter theorized this conflict as far back as the 1940s – most business leaders would stick to what they know best, and leave the public debate over morality and economics to others. With discussions of the proper role of government dominated by groups with little sympathy to private enterprise, the rise of big government was easy to predict.

    Fortunately, we now have a robust cadre of scholars as well as a growing network of free market professionals, including the members of the Bastiat Society around the globe, as well as members of groups like the Adam Smith Society and Benjamin Rush Institute. With events like our dinner this week, we’ll be working to bring those two groups together to stand up to the ever-increasing expansion of the regulatory state.

  • The Persistent Truth of Income Mobility

    July 17, 2015 3:52 PM

    There’s a lot being written these days about income (and wealth) inequality, and how a free market economy allegedly exacerbates the divide between the rich and the poor. Statistical measures of inequality look at income groups in the aggregate, though—they don’t tell us which people are in those low and high income groups, or how the composition of those groups change over time. As the George Mason University’s Tyler Cowen wrote in The New York Times earlier this year:

    Income inequality and economic immobility are often lumped together, but they shouldn’t be. Consider the two concepts positively: Income equality is about bridging the gap between the rich and the poor, while economic mobility is about elevating the poor as rapidly as possible. Finding ways to increase economic mobility should be our greater concern.

    And as it turns out, there is a great deal of mobility between income groups in the United States. Today in MarketWatch, Prof. Steve Horwitz of St. Lawrence University reminds us that, because of the dynamic nature of a capitalist economy, anyone can end up at the top of the income scale:

    What economists call income mobility continues in this country over the course of any individual’s lifetime and across generations. Being poor at any specific point in time, or being the child of poor parents, does not mean people are unable to move up the income ladder. In the same way, there is no guarantee that those at the top will stay there.

    The usual rhetoric about income inequality focuses on how the share of total income held by the top 20% has grown while that held by the bottom 20% has fallen over the last few decades. That’s true, but it ignores the question of whether the same people are in the top and bottom from year to year.

  • What Cartoons Can Teach Us about Capitalism

    July 17, 2015 9:00 AM

    The Freeman has an excellent article by FEE advisory board member Robert Anthony Peters on economic lessons in popular culture—in this case focusing on the wealthiest of Disney’s characters, Scrooge McDuck. It may seem odd to look for pro-capitalist storylines from a character named after literature’s most famous miser, but Peters explains how the character’s originator, Carl Banks, made Scrooge McDuck an exemplar of the virtues of hard work, honesty, and strategic thinking.

    In a series of stories that highlighted economic concepts like subjective value, mutual gains from trade, and entrepreneurship, Banks sent Scrooge and his grand-nephews on a series of adventures in which they manage to escape peril and achieve success through quick thinking and smart financial decisions. He debunked utopianism a la Jonathan Swift when the gang visits “Tralla La,” a mystical land where greed is allegedly unknown, and showed the potential of free exchange in “Maharajah Donald,” a story in which Huey, Dewey, and Louie start off with an old pencil stub and end up, after a series of shrewd trades, with enough money to buy a steamboat ticket all the way to India.  

    And Banks certainly didn’t stumble upon these pro-market parables by chance. When he was writing for Uncle Scrooge comics, he knew he was confronting the collectivist trends of the mid-20th Century, once saying “I’m sure the lesson I preached in this story of easy riches will get me in a cell in a Siberian gulag someday.” Fortunately Banks escaped the gulag, and generations of viewers have been enriched because of it. Scrooge McDuck’s persona as a frugal but talented and honorable person even persisted into the 1980s cartoon series DuckTales, in which Uncle Scrooge delights in a fortune made through wise investments and honest deals.

    If you’ve got young children, you might want to brace yourself for 2017, when Disney will be launching DuckTales re-boot to be broadcast on Disney XD. Let’s hope the spirit of Carl Banks will continue to guide the writers and producers in the 21st Century version.

  • Do Conservatives Really Care about the Poor?

    July 15, 2015 1:15 PM

    American Enterprise Institute president Arthur Brooks has a new book out this week, The Conservative Heart: How to Build a Fairer, Happier, and More Prosperous America. In the past, Brooks has expressed concern that a large portion of the American public doesn’t believe that conservatives (and libertarians) have much of a heart—that they don’t care much about the problems of the poor and disadvantaged. He has made countering this impression a major part of AEI’s mission, sponsoring events like AEI’s “Vision Talks,” in particular this one from last June, titled “A Conservative Vision for Social Justice,” which featured Brooks himself as well as former New York City social services guru Robert Doar and Bloomberg View columnist Megan McArdle.

    In the book, Brooks observes that the spread of the institutions of free market capitalism has been consistent with dramatic reductions in poverty around the world—the percentage of people living in “starvation-level” poverty, for example, had declined 80 percent since 1970. And he names the five institutions that he thinks have been most important: globalization, free trade, property rights, the rule of law, and entrepreneurship. With this history of increasing prosperity, one would think that a capitalist economic system would be pretty popular among advocates for the poor. But, of course, Brooks reminds us of the paradoxical reality that we see today.

    …it is precisely the loudest champions of free enterprise—the heroes of poverty relief in the developing world—who the public trusts least to fight for struggling people here at home. Conservatives have the most effective solutions for human flourishing in our intellectual DNA. Our ideas have lifted up people all over the world. But the American people do not trust us to put those principles into practice to help those who need help right here.

  • Join the "I, Whiskey" Team

    July 13, 2015 4:41 PM

    The Competitive Enterprise Institute's newest film project, I, Whiskey: The Spirit of the Market, is currently in production, and you can help make it a success. We’re supporting the project with a crowd-funding campaign at Indiegogo, the largest global fundraising site, just launched today.

    I, Whiskey is our next installment in the I, Pencil Film Series. It will be a story about the power of human ingenuity, the market, and how these forces work together to give us the many wonderful innovations and products that enrich our lives every day.

  • Highlights of FreedomFest 2015

    July 13, 2015 11:30 AM

    The happy warriors of CEI have returned from our sojourn to Las Vegas and the excitement of FreedomFest 2015: Discover the New American Dream. The conference featured everyone from Steve Forbes and John Stossel to CEOs John Mackey and Peter Thiel to Dinesh D’Souza and Glenn Beck. The sessions were a mix of libertarian activism, conservative analysis, and new opportunities to invest in precious metals.

    The best sessions, of course, featured CEI president Lawson Bader. On Friday morning the room was packed for “Gavel Out! Legal Opportunities to Push Back Regulatory Overreach,” in which Lawson gave an overview of the threat of the growing regulatory state and its costs and then described the many legislative and legal strategies available for rolling back the advance of federal agencies.

    The next day Lawson joined the presidents of the Cato Institute, the Reason Foundation, and the Intercollegiate Studies Institute for “Think Tanks Make a Difference!” moderated by author Elizabeth Ames. Panelists shared their views of the role of think tanks in the liberty movement, and discussed the impact each organization has achieved over the years. David Nott of Reason, for example, shared the work of president emeritus Robert Poole and his success in persuading state and local governments to privatize the provision of public services.

  • Advocating Free Trade, Not Foreign Aid for the World's Poverty

    July 1, 2015 3:25 PM

    A Review of the Poverty Cure Documentary Series

    Poverty Cure is a six part documentary series directed and hosted by Michael Matheson Miller, produced by Acton Media, and was released on December 5, 2014. The film is a project of Poverty Cure, a Christian-based organization that puts together a network of institutions in an effort to defeat poverty through the means of capitalism and entrepreneurship.

    This documentary series is primarily targeted at Christians who are presumably active in their faith-based communities. It proposes that Judeo-Christian values can serve as a beneficial moral code for entrepreneurs and businessmen. The series argues that this moral code will guide and serve as the means for businessmen to run companies effectively to serve the impoverished by providing them work and a place to start businesses of their own.

    The Christian values are reiterated throughout the entire series, and at times the rhetoric distracts from the series’ main argument. However, once the viewer is aware of the organization’s values and their target audience, the Judeo-Christian language seems more reasonable.

    That aside, the series argues its case successfully, convincing at least this viewer that the developing world does not need charity, foreign aid, or philanthropy. Further, it demonstrates that developing countries and poverty-stricken populations require a free market society, open trade, and accessible investment opportunities.

    From the start, the series does well to discredit celebrity campaigns that “combat poverty,” massive foreign aid campaigns, and substantial corporate donations, which is also known as “dumping.” We see that these actions cripple local economies of developing nations. The series uses the example of a Rwandan farmer who provides his local market and community with eggs. When an aid campaign group decided that they were going to continually donate eggs to the village, they effectively drove the farmer out of business. The community then became dependent on egg donations. Consequently, when the aid campaign stopped donating eggs, the community was unable to react to the change and was forced to import eggs from another region. While the intentions may be good, they can actually cause local businesses to lose their customers, subsequently crippling the local economy by stagnating or even reversing business growth.

    The series admits, correctly so, that people start these campaigns because they have good hearts and good intentions; they want to end suffering in the world and help those who are impoverished, so they think the easiest thing to do is donate goods and services to these people. However, Poverty Cure makes it evident that these strategies do not work, and can actually do more harm to the community.

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