 Hi, I'm James. And I'm Anthony. And this is Words and Numbers. How you doing this weekend? Well, I'm doing all right, James. I think we should give our audience a little bit of insight into how we make the sausage on the back end. We're in the midst of writing an op-ed on Monopoly. And in the middle of... No, no, no. We're not writing an op-ed on Monopoly. Right. No, we're trying to, right? So in the midst of you and I discussing this thing back and forth, we suddenly realized our discussion would make a great Words and Numbers episode. So here we are. You get to watch us hash out this Monopoly op-ed. Yeah, we'll try to figure out what we're going to write if we ever actually find enough agreement to write something. Right. This is always the difficulty writing over two names, right? We have to agree. So what prompted this is the Amazon's purchase of Whole Foods. Right. And so what we're looking at is Amazon buys Whole Foods or offers to buy Whole Foods for $13.7 billion in cash, which sounded like a pretty good deal to the owners over at Whole Foods, right? The stockholders. And everybody on both sides of the coin, the Amazon people on the one hand and the Whole Foods people on the other, think this is a great deal and they can't wait to make it. But wait a minute, the government has to weigh in on this. Yeah, well, people, people, you know, lose their minds and the government's all too happy from the loser minds about, you know, monopolies and, you know, monopoly may be too strong of a word here, but you've got a situation where there are two companies are emerging and the combined company at the end is going to have a large market share. And when that market share gets large enough, the government starts to want to get involved with approving or disapproving mergers, that sort of thing, all in the name of protecting consumers. Right. But I fail to see how consumers are going to be protected here when they've proven through their actions, their revealed preferences, right? That they love purchasing things from Amazon and they love purchasing things from Whole Foods. Now, I happen to understand the Amazon side of this equation, Whole Foods, it kind of escapes me. I don't really get it. But if you want to go there and spend $5 or whatever it is on your cucumber water, hey, that's your business. Well, knock yourself out, right? This is the irony of the whole thing is that, you know, for many years, people have argued about how large Walmart is, you know, it's got this large market share, it drives out small businesses and so forth. And one of the things that Amazon's going to be able to do by acquiring Whole Foods is go toe to toe with Walmart in the sale of groceries. So this actually is not an example of corporate America getting larger in forming monopolies, it's an example of competition. Yeah, I know the competition is about to become a little more fierce, right? Right. Which in the end should benefit consumers quite nicely if economists are ever right about anything. And I suspect they're very right about this. But the simple fact of the matter here is that, you know, Walmart has been kind of working its way into this online grocery market, which again, to me seems rather foolish. I don't understand why people want to buy their groceries online. When I go to the grocery store, I actually want to look at the things I'm buying, right? I go to the produce aisle, what looks good today, what looks fresh, I go to the meat counter, hey, what's looking right? I don't really trust people to make those decisions for me. I know what I'm going to get. But Walmart has decided that the online grocery market is going to be quite lucrative. And Amazon for what it's worth is following right along. Yeah, and you know that this is what's driving this is competition, because Walmart already is fighting back. It's recently released a notice to suppliers who supply it with electronics that it will not carry electronics from suppliers who also sell online. That is, you know, they are not going to say it, but through Amazon. So you can see these two large companies going head to head fighting for market share. And of course, the winner in all of this is the rest of us, because the way the company's gain market share is by providing quality product at low price. And I think this is the thing that people miss about and again, I'll use the term broadly monopoly, right? This isn't really a monopoly. It's just a company with a very large market share. The thing that people miss is that as companies get larger, if they're getting larger because they're providing a quality product that people want at prices, people are willing to pay, that's not a bad thing. It's a good thing. Go ahead and get larger, because the larger you are, the more stuff you're providing to people at prices they think are fair. Yeah, no, and let's be even more basic about it. The larger you get is just more proof that you did your job well. Yes, yeah, exactly right. You've done the job well. The customers have rewarded you. And what do we know about companies who the customers reward? They arouse the suspicion of government regulators and bureaucrats, right? Here come the bean counters to tell us why this will be harmful to us in the end. And the thing they always miss, and I never quite get this, is as long as the market is open to future and further competition, I think we're already done here, right? So if what if if Amazon coupled with whole foods somehow comes to dominate the food delivery industry, which I rather doubt is going to happen, right? There are local supermarkets all over the country and they seem to be doing pretty well on balance. But if Amazon and Whole Foods somehow managed to put all of them out of business, and then here's always the fear that the government regulators want you to be concerned with, they'll sequentially raise their prices when there's no more competition in the market. Well, there would come a point where if competition isn't precluded somehow, that other companies would rush to fill the void sensing an opportunity. And as long as that possibility exists, the market chasens the company. Government regulators don't. So what are we doing here? This is an important thing to keep in mind, because people who even will admit and say, okay, well, the company's providing a good product at low price, and so it grows larger and larger. But here's the thing they worry about after the company has knocked out all the competition, then it can raise its prices. And people are missing the important role of entrepreneurs here. The minute a large company tries to now raise its price because it feels it can since it's knocked out its competition, it sends a signal to entrepreneurs everywhere, figure out how to compete with this guy, right? And sometimes the competition isn't in the same industry, but it's the entrepreneur coming up with some new industry. Good example of this. It's a whole sequence. You start with Western Union, which did Telegraph, right? And it was the monopoly. It was the only company that handled coast to coast Telegraph back in the days, you know, just after the Pony Express. And what happens? This is a monopoly, but along comes an upstart entrepreneur who invents telephone, right? And now you've got competition with Telegraph in a completely new industry. And that becomes, you know, a very large firm. And then you have cellular service coming along as a whole new industry to compete with that. And then you have voice, right now, we're talking on Skype. What's Skype charging you for this phone call across country, James? Zero. It's not costing me anything. It's wrapped into that monstrous Comcast bill I pay every month. Boy, you want to talk about monopolies. Let's talk about local monopolies. Right, but Comcast is right, right, right. But what's going on here is entrepreneurs see an opportunity to compete with someone who's charging at a very high price. And what do they do as they compete? They knock this price down. They provide us with better products. So in that sense, even a monopoly that knocks out its competition raises its price in the long run is actually good for society because it's giving entrepreneurs tremendous incentive to make our lives better. Right. And it's really not about the market share. It's about the ability of other firms to come into the market and compete later. So really, yes, yes, yes, you know, the thing that just drives me crazy is when a deal like this is announced, the very you can almost set your watch by it. It's going to it's so clear that it's going to happen, right? A day after the deal is announced, the nanny state springs into action, right? And the default position is, well, we got to take a look at this. Well, why? Because the shareholders at Amazon and the shareholders at Whole Foods, they already took a look at it and they agree that this deal is good for them. Yeah. Now we'll see. Yeah. Now after the deal gets made, then we'll see if it's good for the rest of us. And it's somehow if it's somehow destructive, then and only then should the government get involved. Yeah, it shouldn't be the knee-jerk reaction. It shouldn't be the first thing we do. It should be the last resort. A good example of that this is in this goes back a couple of decades is when AOL America Online bought out Time Warner. The government weighed in because this was a big purchase and so forth. And subsequently, the combination of those two companies did not provide better value to customers. And so what happened? Consequently, fast forward a couple of years and AOL Time Warner break off again into separate pieces. Because the customer, not the government, but the customer said, whatever it is you're doing is not providing me better value than I had before. Therefore, I'm not going to buy from you. Yeah, no. And customers have this habit of punishing companies who that don't do a particularly good job of satisfying their needs, wants and desires, right? They have this beautiful way. And all it requires is that they not spend their money there. Nice and simple, right? Everybody just follows their own self interest. And before you know it, the market sorts these things out pretty quickly. You know, people will point to things like Walmart and say, well, here's the problem with Walmart. It comes in and it offers low prices, better selection. It shuts down all the competition. It shuts down the mom and pop shops. And I think it's worth underlining here. Walmart has never shut down even one mom and pop shop. It's the customers. It's you and I who shut down the mom and pop shops by deciding that Walmart actually is providing us so much better value we would rather shop there. It's the customer that shut down the mom and pop shops. Yeah, no, that's right. And I know it's very fashionable to make fun of Walmart. But I probably go to Walmart once a week or so, which is quite notable given that I only go out of the house twice a week or so. So half of the times I leave the house, I head over to the Walmart. And it's not only the prices. It's the idea that I can get almost anything I want or need under one roof, right, from bicycle tires to groceries to car batteries. Walmart's going to have it. And it's going to have it at a pretty good price. Sometimes I shop around. Sometimes I have a compelling reason to go elsewhere. And that's great. But you're exactly right. We're the ones who put the mom and pop stores out of business. And we did it because we wanted to. Yeah, yeah, we liked Walmart's product better at the end of the day. You know, you could be nostalgic for the mom and pop shops, but where the rubber hits the road, you're not will or most people aren't willing to actually pay the top dollar to keep those, you know, keep that nostalgia alive. They rather have cheaper products. Or even drive from store to store to store all day long to find everything I need for for the next week to come, right? I'm not interested. I want to just go to the one place. We've missed one thing in this discussion. And that's and that's what happens when when the government does step in and start regulating, you know, these firms. And one of the things that happens that people need to be very aware of is that when the government sets itself up as an arbiter as a regulator, deciding whether companies can merge or, you know, what prices they could charge in extreme case or these sorts of things. What happens is that it's a siren call to to the to the large corporations that there's a new way to make money rather than simply satisfying customers and inviting customers to give you their money in exchange for your product. There's now this new way, which is you can turn to the regulators and ask for regulation in the name of, you know, protecting consumers that actually keeps your competition out. And that's the major problem with asking government to regulate businesses like this. Businesses which are bigger than we are, the customers will pick up these regulators and start using them to their own advantage. Right. And it's not just it's not even satisfying regulators, right? It's manipulating them. Yeah. And an interesting thing is, I mean, think about these regulators, right? They're politicians, they're bureaucrats, they're not industry experts. Who would they turn to to write complex regulations that complex laws that regulate industries? Well, they would turn to the experts in the industries. And who are those? The corporations who are already there. Right. Right. And we've just described how industry insiders come to write the regulations that keep industry outsiders from getting into industry, which is curious, because earlier we said the problem with monopoly isn't the market share, it's precluding the competition. Right. And that's exactly what we end up finding when we get down to the end of the road of the regulatory state. Isn't that something? Yeah. I think generally, that's right. You know, the market is not perfect. You know, people are going to make errors, but generally speaking, when you let people make decisions for themselves, and it's their own money that's on the line, you get better outcomes than if you try and tell them what they may and may not do. And that's all we have time for this week on Words and Numbers. Check us out next Wednesday. We'll be up at about noon, as always, Eastern time. Until then, check out the great content at fee.org and at fee online on social media. We'll see you next week. Have a good weekend. See you next week, James.