Each Father’s Day, I love to reminisce about the joys of fatherhood and the days when my teenage kids were younger. This year, I caught myself looking back upon the time several summers ago when my business-savvy daughter, Nina, set up a wildly successful corner lemonade stand. 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 opened for business, she had earned a little over ten dollars selling lemonade — for the bargain price of fifty cents a glass — to neighbors walking and driving by her stand.
By the time the second hour rolled around, business was booming. In fact, it was going so well that Nina suddenly found herself competing with a second lemonade stand another kid had set up on the opposite corner, much to her chagrin.
Kids and the Fundamentals of Capitalism
I can still remember the amusing sight of the competing stands like it was yesterday. Not only did Nina have to work harder when the second lemonade stand opened up across the street, but she was also forced to lower her price too. And although she continued making money, the new competition kept her earnings much lower than what she had experienced in that first glorious hour of business.
Later that evening during dinner, Nina complained to us about how the competition had kept her from earning more money — proving that even younger children are wise enough to understand the market power of a monopoly.
Of course, every grown-up businessman dreams of having a virtual monopoly in the marketplace too, but there are only a very few companies that actually have the good fortune to be in such a position.
Lemonade Stands Aren’t the Only Monopolies Out There
Awhile back, I read an article that discussed three companies with virtual monopolies. That is, although they don’t control 100% of the market, they dominate their market niche to such a degree that they actually have little or no competition. The highlighted companies were: ESPN, Google, and Monsanto.
While I disagree with the article’s first example — most folks can watch various sports on plenty of other television channels without having ESPN — I thought the other two were spot-on.
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. In 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% of all ticketing for live events in the United States. After its merger with Live Nation, the new Ticketmaster became 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. Between 1995 and 2013, cable television prices increased at a compounded growth rate of 6.1% annually — that’s more than double the official rate of inflation over the same period. I think a lot of that 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 — and no soup for you!
It’s late so I’m going to stop here; but I’m sure you can think of a few others that I probably missed.
While us consumers rightfully tend to hate monopolies, most business owners wish they could be so lucky. I know Nina still laments the demise of hers.
Photo Credit: eren (sea+prairie)