Earlier this summer my daughter, Nina, set up a little corner lemonade stand that was wildly successful. Well, that is, as successful as you might expect a 10-year-old girl’s lemonade stand to be.
In the first hour after she and her friend opened for business, they had earned a little over ten dollars selling lemonade – for the bargain price of fifty cents a glass – to neighbors walking and driving by their stand.
Business was going so well that, by the time the second hour rolled around, Nina and her friend suddenly found themselves competing with a second lemonade stand other kids had set up on the opposite corner, much to her chagrin.
Kids and the Fundamentals of Capitalism
The sight of the competing stands was rather amusing. Not only did Nina and her friend have to work harder when the second lemonade stand opened up across the street, but they were also forced to lower their prices too. And although they continued to make money, the new competition ensured their earnings were much less than what they experienced in that first glorious hour of business.
Later that evening during dinner, Nina complained mightily about how her competition kept them from earning more money.
As my daughter proved, even younger children with a lemonade stand business are wise enough to understand the market power of a monopoly.
Every business dreams of having a virtual monopoly in the marketplace, but there are only a very few companies out there that actually have the good fortune to be in such a position.
Lemonade Stands Aren’t the Only Monopolies Out There
A while back, Mark from Buy Like Buffett featured three companies that have virtual monopolies. That is, although they don’t control 100 percent of the market, they dominate their market niche to such a degree that they actually have little or no competition.
The three he highlighted were: ESPN, Google, and Monsanto.
While I disagree with the first example – most folks can watch various sports on plenty of other television channels without having ESPN – I thought the latter two were spot-on examples.
Still I can think of a few other virtual monopolies out there that really frustrate me because of the lack of competition.
1. Satellite radio. In the United States, it used to be that if you wanted to subscribe to satellite radio you had two companies to choose from: Sirius and XM. On July 29, 2008, those companies merged. Now, if you want satellite radio you’re going to subscribe to Sirius XM, dammit, or you aren’t going to subscribe at all. Siriusly.
2. Ticketmaster. I hate Ticketmaster. After all, these guys are typically the only game in town, handling upwards of 80 percent of all ticketing for live events in the United States. After its merger with Live Nation earlier this year, the new Ticketmaster has become even more powerful, with managing interests in approximately 350 artists, and exclusive booking deals with more than 125 venues around the country.
3. My local cable company. The New York Times reports that cable television rates increased 77 percent between 1996 and 2008, roughly double the rate of inflation. I think a lot of this has to do with cities like mine that award exclusive cable franchises within their boundaries. Don’t like your cable company or their customer service? Boo hoo; no soup for you!
It’s late so I’m going to stop here. Still, I’m sure you can think of a few other virtual monopolies out there that I probably missed.
While us consumers rightfully tend to hate monopolies, most business owners wish they could be so lucky to have one. I know Nina is still lamenting the demise of hers.