Build a monopoly the justice department will love.

Trust busting and monopoly breaking season is here. During the run-ups, everyone is sipping their own Kool Aide and too busy to notice things are getting dirty. Once the water drains out of the economic tub, it leaves a nasty ring the shareholders are only too quick to point out and politicians love to clean up. That may sound unfair to call politicians soap scum lickers. In the financial ecosystem they do serve their purpose, without bottom feeders things tend to stink even worse over time.

Google has a 70% market share of the online ad franchise; some might say that sounds like a monopoly. Google I am sure was on the sidelines smiling not too long ago when Microsoft got raked over the coals. When Microsoft got spanked for their monopolistic behavior during the last recession, it was not for their massive 90% market share of the client operating system market. That number has not come down since the monopoly settlement in 2001. What got the regulators and competitors upset was, Mr. Softy mandating Explorer as the only browser when you used Windows. Evidence of muscling suppliers and computer manufacturers to only load Explorer did not help their case.

The justice department is not against monopolies despite what their press agent may say. If they were, how can they explain allowing a merger of the only two satellite radio companies to form a new one with a 100% market share? Sirius buying XM was allowed today because they did not use their existing monopoly to create a lock in a new market. The justice department is against using one monopoly to launch another monopoly. That is the line in the sand Microsoft crossed.

Rockefeller has probably received more ink than anyone else for monopolistic moves. He was not just a monopolist, he was a blatant one. He believed that a monopoly was for the betterment of all mankind. He took the stance that a benevolent monopolist beat a self interested free market hands down. Without the competition, capital would not need to be wasted on pesky client acquisition costs like advertising and marketing. In a strange twist it sounds like that reasoning came right out of a Marxist playbook. Sometimes you can go so far to the right you show up on the left.

The government did not see the benevolence in Rockefeller’s argument. It was certainly not their intention but the trustbusters unquestionably made Rockefeller the world’s richest man and preserved his posterity’s piggy bank until the end of the world.

Chopping off the head of Rockefeller just mutated Standard Oil into an oil pumping hydra!

<!–[if !supportLists]–>· <!–[endif]–>Standard Oil of New Jersey became (Exxon).

<!–[if !supportLists]–>· <!–[endif]–>Standard Oil of New York (Mobil).

<!–[if !supportLists]–>· <!–[endif]–>Standard Oil of Indiana (Amoco).

<!–[if !supportLists]–>· <!–[endif]–>Standard Oil of California (Chevron).

<!–[if !supportLists]–>· <!–[endif]–>Atlantic Refining (ARCO).

<!–[if !supportLists]–>· <!–[endif]–>Continental Oil (Conoco).

<!–[if !supportLists]–>· <!–[endif]–>Standard Oil of Ohio bought by (British Petroleum)

It was like the government plucked the biggest dandelion from the oil patch and gave it a big blow! Rockefeller’s equity was sprinkled all over the world. They did him a favor.

Wal-Mart seems to be the latest punching bag for the press. Believe it or not, this is déjà vu. The Great Atlantic & Pacific Tea Co., the grocery-store chain, stood astride the U.S. market in the 1920s and 1930s with a dominance that has likely never been duplicated. At its peak, A&P had five times the number of stores Wal-Mart has now (although much smaller ones), and at one point, it owned 80% of the supermarket business. Some of the anti-predatory pricing laws in use today were inspired by A&P’s attempts to muscle its suppliers.

I assume Rockefeller was a sharper operator than the board of A&P. The chart will show you the staggering decline of stores over the past 100+ years.

Rise and decline in number of stores

Government intervention can be a blessing or a curse.

So what can we learn by all of this? I know you probably are thinking, “Harris, if I woke up and my assistant told me the justice department was on the phone that would be a great problem to have!” I think the main thing to remember is this. One man’s monopoly can be another man’s freebie. What could you offer your customers that means nothing to you but would go right at the heart of your competitor’s margin? Do you have something you could afford to give away that would make it impossible for your competitors to match because they have too much invested in charging for it?