Monopolies...Part 2

First read the previous post(Monopolies...) from top to bottom and then continue with this...

Baghu said:
No question that a free and open competition is the best stage for R&D. But as I said before, Monopoly is just one stage in the development of a market. A perfect competition and the commoditization of that particular product is the most mature and stable stage of the market. I totally agree that R&D is at its best at this stage. But that doesn't mean it doesn't happen when it is a monopoly. Infact it is by R&D that the monopolisitic firms prepare themselves for the years of cutthroat competition that the market is heading towards.With respect to IE's example, it was one of the startegies to keep the consumer attention on MS. Nothing more .. nothing less. No R&D was required IE, that wasn't and was never going to be MS's primary market. IE was just a marketing tool for Microsoft, not something it sells. Also R&D in IE would never ensure higher revenue / YOY numbers either:-) MS did not cease R&D in Office and Windows, the soul and spine of Microsoft.Also R&D is not the goal of a business, it is its soul. Infact R&D is one thing that is common between all stages of evolution in the market. It is at its best/ most eveident in the last steady state.On Gokri's link to the curve ( And why it is nothing more than utter bull shit):1. It assumes a lot of things that do not exist with any monopolistic company. Like the demand price curve is sloping downward. But practically it is not such a simple relation-ship, esp in monopolisitic settings. Because, monolpoly is often early stages of a market for that product. and is characterised by the rapid growth of the market SIZE itself ( irrespective of the price set). But the curve assumes a fixed market size and consumers consuming in different quantities depending on the set price. By market size I assume the total revenue opportunity in market. If this is growing, price*output will not be a constant.2. Marginal Cost curve is the one thats most glaringly false. It says, it increases exponentially w.r.t increase, because, of all things., OPPORTUNITY COSTS ( of not producing lesser output so as to increase profits) :)) I guess the opportunity cost of producing less, when you can produce more and aquire/convert more customers is far higher =))These are just two things that I took as examples.
Thanks
Prasanna S



PSV said:

I love this fight :-). Gokri, Rams whats your reply for Baghu's comments?



Murugu said:
Hi Rams,
Adding more fuel to the debate:

1.) Actually I gave the example of Intel only to signify the factthat R&D is a must. So, I do not mean to say that only technologycompanies need R&D. R&D is not in technology alone. It can beanything, which brings abt a new change. I do not see the differencein Intensities of innovation, and actually there shd not any intensitychanges in innovation. U shd be a paranoid always and expect theworst.

2.) For ur comment:> BTW, I am not sure of what the precise definiton of monoply is...I wud> go by the notion that market share >95% is monopoly. So, by my> notions, intel doesn't hav a monopoly.If u feel that Intel is not a monopoly and if u have a soft corner forAMD, what do u say abt the AMD's latest suit against Intel, sayingthat it is a monoploy? Any comments.

3.) For ur comment:> Intel is investing heavily in R&D as it doesn't want waht happened to> 64 bit computing where AMD had the lion's share.What number do u mean by lion's share here? 64 bit computing softwareis itself not readiy available in the market. Ppl @ intel feel thatAMD 64 bit computing in market is not a useful one becoz there is nostandard operating system (meaning which the corporates willuse)available at present for use. 64-bit processors are not doing anyjustice without their counteropart 64-bit OS's. So, it is just goingto be a burden on the customer. Only with Longhorn (or probablyWindows Vista) 64 bit computing support is available for corporates,and only then it will be good to judge the market share. Not now. Andinfact Intel is waiting for the Longhorn OS release for it can go into64-bit processor production and take it to Market in mass no.s. Only64-bit Linux support is present now, which many corporates do not evenbother to look at.It is not that Intel does not have the technology, but it is waitingfor the right time to market it and make it useful to the customers.

4.) For ur comment:> IT IS COMPETITION THAT IS REDUCING THE PRICE....NOT R&D DIRECTLY. WHO> MADE THESE NEW TECHNIQUES EVOLV---->R&D--->WHO MADE R&D MORE> SIGNIFICANT--->COMPETITION;FEAR OF LOSING MARKET SHARE.>> EVERY BUSINESSMAN IS PRIMARILY CONCERNED ONLY IN HIS MONEY. NO ONE IS> DOING PUBLIC SERVICE BY REDUCING THE COST OF THE PRODUCTS. BY REDUCING> THE PRICES THEY CAN GET MORE PRODUCTS SOLD AND HENCE GREATER IS THEIR> ROI. HENCE THEY DO ALL THIS.As I have stated in my prev mail, for me it is competition just addsto the fuel. Competition is not the one that makes R&D moresignificant. It is not just exploring the ways to reduce the cost ofpresent techniques but also research in some unventured domain's,where the competition will not have any impact. Venturing into newdomain's is also R&D.It is correct to say that no one is doing a public service. But, atend of the day u also shd get benefitted and the customer also shd getbenefited. I can increase my market share, only if can satsfy thecustomers. So, I think that customer satisfication is the main motivebehind R&D .Customer satisfication ----> profit ++Without customer satisfaction, there is no meaning in profits.

5.)For ur comment:> DEFINITELY R&D PLAYED A SIGNIFICANT ROLE AS U SAY. BUT THE REASON R&D> WAS DONE , IN MY POINT OF VIEW, WAS COMPETITION IN ALL SECTORS(READ AS> HARDWARE, SOFTWARE, PERIPHERALS....) AND> THE CUSTOMERS BENEFITTED THE MAXIMUM FROM THE NEUTRAL PLAYING GROUNDS.In R&D, as when u r exploring in unventured domains, u don't firstthink competition. U produce some demonstrable results and only then,u think how u can make profitable for u and also the customers, andhow to out-perform ur competitiors. So, the competition factor comesat a later stages(perhaps the final stages). Hence, I strongly feelthat competition does not pave the way for ur R&D.

6) For ur comment:NO COMMENTS. I HAVE MY SOFT CORNER FOR AMD. TO SAY 'IT WUD HAV OUTBEATEN' , IT MIGHT BE PARTLY TRUE IF ONLY THE REVENUES OF THE NEXT FEWYEARS R CONCERNED. BUT MANAGERS PLAN AHEAD (IN LONGER TERMS). HADN'TINTEL INVESTED IN R&d AND HAPPILY SAT SATISFIED WITH THE TURNOVERSTILL 2008, IN 2010 AMD WUD HAV REPLACED INTEL. AMD IS THE GROWING FIREWHICH HAS SPARKED RECENTLY, INTEL KNOWS IT HAS TO STOP THIS FROMTURNING INTO A FOREST FIRE AND HENCE THE BILLIONS OF DOLLARS THAT GOINTO RESEARCH.Even Intel agrees that competition is necessary for u to perform in abetter way.To give u one example, in the early 1980s, IBM choose Intel'sso-called x86 chip architecture and the DOS software operating systembuilt by Microsoft. To avoid overdependence on Intel as its solesource of chips, IBM demanded that Intel finds a second supplier.Intel agreed to that fact, and gave away the "286" chip technology toAMD in 1982. Clearly this piece of account, explains how Intel valuesthe need for a competition.Competition helps u to raise ur bar everytime. AMD has been a goodcompetitior for Intel from the 80's. Had intel looked into AMD'scompetition alone, it wud not have gone into domains where AMD isnowhere near! (I do not want to give company specific info and haveremoved some examples) Atleast for Intel, I can confidently state thatcompetition is not the the driving force, which makes it to investbillions of dollars in R&D. Intel has done a lot of things in such ashort span of time, which we wud have never dreamt off, and it iswaiting for the right time to make it available outside(money makingis not intended here).

7. )For ur comment:NO ONE SAID MONOPILIES DONT INVEST IN R&D. IT CAN ONLY BE INFERREDFROM THE ABOVE ARGUMENTS THAT PRESSURE AND INTENSITY ON R&D IS REDUCEDIN A MONOPOLY.May be for software companies like Microsoft, the pressure andintensity on R&D is reduced and u look at competition like Google,Linux, Mac, etc., , to reinvigorate ur R&D. But for Intel thecompetition pressure is only minor part of the whole pie and it is itssoul or backbone.

- Murugu.

Rams said:

Good arguments.

Well, to recollect my sense back to the topic of discussion...the point of discussion is "In monopolies, R&D pressure is less"I still strongly stand by this as most market behavior reflects thesame.

Always,Counter examples can be given to any statement.Similarly, from Murugu's account, it seems Intel is an exception to the topic of discussion.

More counter examples as per Murugu's point numbers.>

1.) Actually I gave the example of Intel....actually there shd not any intensity> changes in innovation.....It is perfectly idealistic that intensity of innovation shudn't changeat any point in time. Most monopolists aren't that way (Indianrailways, EB,....)>

2.)> If u feel that Intel is not a monopoly and if u have a soft corner for> AMD, what do u say abt the AMD's latest suit against Intel, saying> that it is a monoploy? Any comments.I was not aware of this. You may be correct. Have to get a morequantitative definition of 'monopolist'.>

3. What number do u mean by lion's share here? 64 bit computing software> is itself not readiy available in the market....U shud be a better person to comment as I don't have that muchindustry knowledge wrt processors. My arguments were purely based onwhatever I heard from people and the version I heard says that "AMDwas superior in 64 bit computing ">

4.) As I have stated in my prev mail, for me it is competition just adds> to the fuel. Competition is not the one that makes R&D more> significant. It is not just exploring the ways to reduce the cost of> present techniques but also research in some unventured domain's,> where the competition will not have any impact. Venturing into new> domain's is also R&D.Obviously, in new ventures, there is no competition that is drivingthe R&D but it is the market which the product might create. But thepoint of discussion is not what drives R&D but "Is the intensity inR&D drive lesser in monopolies". I still hold that intensity is indeedless once a monopoly is established.>

4. It is correct to say that no one is doing a public service. But, at> end of the day u also shd get benefitted and the customer also shd get> benefited. I can increase my market share, only if can satsfy the> customers. So, I think that customer satisfication is the main motive> behind R&D .> > Customer satisfication ----> profit ++> Without customer satisfaction, there is no meaning in profits.>I can only say that u r an idealistic businessman. When 99% of the ppluse my products, my focus will be more on how to retain theclientele...I'll give some kewl features....I wudn't be breaking myheads in R&D so much as i wud have been had my market share only been, say,50% (or 75% for that matter).To give those little kewl feeatures i do invest in R&D but not to anextent i wud hav done in a free market.>

5. In R&D, as when u r exploring in unventured domains, u don't first> think competition. U produce some demonstrable results and only then,> u think how u can make profitable for u and also the customers, and> how to out-perform ur competitiors. So, the competition factor comes> at a later stages(perhaps the final stages). Hence, I strongly feel> that competition does not pave the way for ur R&D.Ur points r valid, but inappropriate in the context. As i said, we rnot talking abt the lifecycle of R&D but abt "Intensity of R&D inmonopolies">>

6)> Had intel looked into AMD's competition alone, it wud not have gone into > domains where AMD is> nowhere near! (I do not want to give company specific info and have> removed some examples) Atleast for Intel, I can confidently state that> competition is not the the driving force, which makes it to invest> billions of dollars in R&D. Intel has done a lot of things in such a> short span of time, which we wud have never dreamt off, and it is> waiting for the right time to make it available outside(money making> is not intended here).As far as unventured domain is concerned R&D cannot hav competition asthe smotivator:accepted.But still the last line "money making is not intended here" only makesme think that Intel is turning into a "non-profit oriented company";-)No company will innovate for the betterment of the world unless itgets its' returns.>>

7. >> May be for software companies like Microsoft, the pressure and> intensity on R&D is reduced and u look at competition like Google, Linux, Mac, etc., , to reinvigorate ur R&D. But for Intel the> competition pressure is only minor part of the whole pie and it is its> soul or backbone.>Insider shud know better. I'll keep mum on this ;-)I don't know if i'll continue this discussion any further for the dayas my day's chores r already screwed up ;-)


So, to summarize (MY POINTS) for the day, R&D is non-competition motivated in case of new ventures. But, as far as monopolies are concerned, R&D will be less intense as when compared to their initial entry periods.


Rams said:

One last mail for the day;-)

For baghu's comments, they are valid. I had stated that R&D does happen, but it is on the intensity I was debating on. Baghu doesn't claim that it is as intense as it was in the inception period andhence I don't find anything in discord.Bagu's IE version is true...IE is no profit market for MS
Regarding the curves, I still haven't gone thru the links that gokri sent.... that seems to be a nice alternative to screw up the rest ofmy office chores ;-)