Property markets, monopolies & Microsoft

Real Estate Issues, Fall 2000 by Roulac, Stephen E

The Court's judgement that Microsoft violated antitrust laws has profound consequences that extend beyond the computer industry. This renewed spotlight on the issues of market dominance raises questions for the advocates of consolidation in any and every industry.

Consolidation initiatives target both new and established industries. The market that Microsoft was convicted of monopolizing did not exist until very recently. Indeed, 20 years ago none of the customers who were found to have been denied market choice had even heard of multifunctional software and Internet access, let alone made the determination that they wanted to have such products. The story of rapid product development, introduction, expansion, and deep penetration, combined with Microsoft's ascension to market dominance and the status of the country's most valuable enterprise, is a telling commentary on change and innovation in the post-industrial era.

A monopoly may be illegal if the means by which the monopoly was established, and/or the power of the monopoly position, are deemed to be anti-competitive, because competitors and/or customers are injured as a consequence of the monopolist's wrongful conduct. On the other hand, some monopolies are legal. Among companies that enjoy dominant market share, but which have yet to be attacked by the Justice Department, are Western Union controlling 81 percent of money transfers; DeBeers controlling 72 percent of the diamond market; and Rawlings Sporting Goods controlling 100 percent of the major league baseball equipment market. In the residential real estate brokerage market, the National Association of Realtors effectively enjoys a monopoly position of market dominance. The professional sports leagues for football, baseball, and basketball are all monopolies. While their monopoly positions are a source of challenge to some, those monopolies have not been determined by the Justice Department to be illegal per se.

As noted above, the issue of market dominance monopoly will be of increasing concern to those with property involvements. Certain consolidator strategies applied to the property sector have the objective of dramatically reducing consumer choice. Large property businesses may trigger concerns that their scale represents disproportionate market power. Many business models of the new real estate technology dot.coms aim to achieve market share dominance.

Monopoly may be defined many ways, for marketshare is by no means the only criterion. Other criteria include business processes, technologies, intellectual property, relationships, talents of specific individuals, brands, customer relationships, and more. While monopolies seldom last for an extended period of time, during the period that the monopoly is dominant, extraordinary profits may be extracted and massive economic distortion may be imposed. How does a company consistently outperform competitors over an extended period of time, as reflected by sustaining profits exceeding what others can accomplish? Sustained extraordinary profits are frequently achieved by monopoly positions.

Monopoly involves dominance of a market, which dominance can take many forms. Regulated industries, such as communications, utilities, and transportation, long enjoyed government-sanctioned dominance of geographic markets. The deregulation of such government-protected markets has been accompanied by a redefinition of markets, whereby the tangibles of geography and distance are de-emphasized, just as the intangibles of connectivity and exclusivity are championed.

Market consolidation leading to dominance is not a new phenomenon. Evidence of consolidation leading to oligopoly - dominance of a market by a small number of firms - if not overt monopoly is pervasive in the American business sector. Within the transportation sector, there has been an inexorable move to consolidation and domination by larger companies. In the automobile sector over the twentieth century, there was a persistent consolidation within an industry that initially consisted of scores of competitive independents in the North American market, into a few major global players that dominate the American, European, and Asian car makers. Similarly, both the air travel and railroad industries have been consolidated into a small number of dominant large companies. The announced intention of UAL Corp to take over U.S. Airways Group could trigger the six major airlines consolidating into a business dominated by only three major airlines.

Today, the changing market structures and competitive conditions of the communications and information sectors are especially dynamic. About the time that the personal computer emerged, the telecommunications monopoly of AT&T was splintered. As the Bell system was broken into seven regional independents, two competitive long distance services, Sprint and MCI, emerged. The delivery monopoly of the U.S. Post Office was challenged by Federal Express, UPS, Airborne Express, DHL, and other delivery services, as well as fax communications and the Internet. These enterprise reorganizations exemplify the outcome of market forces and government initiative combining to convert a former monopoly to an oligopoly.