The second case is different, and less directly harmful, but still bad for the "free market".
You end up in a situation where you have a few huge companies that have shitty expensive products and huge amounts of money. If anyone ever does better, they use some of the money to acquire the customers. No one ends up with something better or more cost effective; the 800lb gorilla just pays a tax to remain the only choice, and that cost is easily passed right back to the customers.
"Acquiring the customers" seems to be a business strategy with a high failure rate, else we'd be yahooing instead of googling or facebooking. It's hard to predict what competitors are going to blow up, and as soon as they get traction the price goes high - Facebook may have bought WhatsApp, but apparently SnapChat is holding out for more.
I actually think the "free market" works pretty well at this, even if it's not perfect. Nothing is.
And that second case really annoys me, but I'd still rather not take the alternative to a free market, which is that idiots and douchebags decide what's good for me, and leave me with even less choice.
You end up in a situation where you have a few huge companies that have shitty expensive products and huge amounts of money. If anyone ever does better, they use some of the money to acquire the customers. No one ends up with something better or more cost effective; the 800lb gorilla just pays a tax to remain the only choice, and that cost is easily passed right back to the customers.