How Many Competitors Is Enough?

by on December 18, 2008 · 14 comments

Adam’s recent post on Free Press’s hysteria over media consolidation reminds me of the left’s general tendency to move the goalposts when it comes to market concentration in communications markets. Over the last quarter century, we’ve gone from a world in which there were honest-to-goodness monopolies in the telephone and cable markets to a “duopoly” where the former monopolies invaded one another’s turf, to a world of much greater competition as mobile companies entered the telephone market and satellite companies entered the video market. Yet as I noted last year, Free Press chairman Tim Wu characterizes the wireless market—with its four national carriers and several regional ones—as a “textbook oligopoly.” Indeed, one often gets the impression that the arguments of pro-regulation scholars are the same as those they would have made 20 years ago with “monopoly” replaced by “oligopoly.”

Now, I’m sympathetic to the argument that a “duopoly” is insufficient competition, and that regulators should at least take a close look at the behavior of firms that comprise one half of a duopoly. I think libertarians’ tendency to laud the broadband marketplace as a free-market nirvana is a bit misguided. However, I find the language of “oligopoly” much harder to swallow. While more competition is better, there are plenty of industries with 4-6 players that few people regard as problematic. The wireless business is extremely capital-intensive, so it’s not that surprising that there are relatively few restaurant chains.

But the tendency to shift from “monopoly” to “duopoly” to “oligopoly” while deploying essentially the same arguments does make one wonder if there’s any amount of competition that the good people at Free Press regard as sufficient. And it seems that Adam has found the answer. Having 55 major players in a market is the very definition of cutthroat competition. The notion that 55 firms can constitute a “bottleneck” that significantly curtail the flow of information to consumers is just silly. And of course the 55 figure is totally arbitrary. The media are a long tail business, and they could have included a lot more firms if they hadn’t set their cutoff at $100 million in revenues. For example, their chart misses Hubbard Broadcasting, which owns around a dozen broadcasting stations concentrated in the upper midwest. So if you’re a Twin Cities resident who doesn’t like what Clear Channel, News Corp and the rest are producing, you can tune in to KSTP’s TV station and talk radio station for a perspective that’s not controlled by the “Big 55.”

Ultimately, I think the moral of the story is that for some advocates of media regulation, it really has nothing to do with competition. Whether there are 1, 2, 4, 8, or 55 competitors, they continue to believe that there’s too little government regulation of communication. When the number is small, it makes a convenient talking point, but they go right on making the same arguments when the number of competitors gets ridiculously large.

  • http://www.aheram.com Jayel Aheram

    I never really understood the left's seemingly contradictory attitude regarding competition and monopolies. On one hand, competition is desirable and consolidation of the markets in the hands of a few companies is a cause for government intervention.

    Or maybe the only legitimate monopoly is a statist one?

  • dm

    It took me a while to figure out what you meant by “the left's seemingly contradictory attitude regarding competition and monopolies”.

    It's simple, really — the only legitimate monopoly is a natural one. Wired phone service was a good example for close to a century, as were things like power distribution, natural gas lines, water and sewerage in urban areas.

    Technology can work, given time, to make natural monopolies no longer natural, of course, which is only to be encouraged — much as ARPA (strongly) encouraged the creation of open standards in computer communications, creating an environment (the Internet) where many companies could create products and services.

  • http://www.aheram.com Jayel Aheram

    Wired phone service was a good example for close to a century.

    You meat AT&T? They were hardly natural.

  • dm

    No, I don't mean AT&T. But they weren't a monopoly — I'm sure a Tim Lee of the era would be happy to point out that there were hundreds of local phone companies. It was just that there was only one phone company in any given market, because stringing a second set of wires increased costs without increasing utility.

  • http://www.tc.umn.edu/~leex1008 Tim Lee

    AT&T pretty clearly enjoyed a monopoly, enforced by the government. For several decades the FCC specifically prohibited anyone from offering competing long distance service, for example.

  • dm

    Thanks, I'd overlooked long-distance service. I'll happily concede the possibility that long-distance service wasn't a natural monopoly. More likely, it was a natural monopoly, but was shorter lived before being made obsolete by technology. As far as I know, ATT lost its monopoly shortly after someone else had a business need that led to having excess long-distance transmission capacity to sell (which was when the Southern Pacific Railroad laid optical fiber for their own internal signalling, and realized they had excess capacity they could sell to people).

  • dm

    Thanks, I'd overlooked long-distance service. I'll happily concede the possibility that long-distance service wasn't a natural monopoly. More likely, it was a natural monopoly, but was shorter lived before being made obsolete by technology. As far as I know, ATT lost its monopoly shortly after someone else had a business need that led to having excess long-distance transmission capacity to sell (which was when the Southern Pacific Railroad laid optical fiber for their own internal signalling, and realized they had excess capacity they could sell to people).

  • dm

    Thanks, I'd overlooked long-distance service. I'll happily concede the possibility that long-distance service wasn't a natural monopoly. More likely, it was a natural monopoly, but was shorter lived before being made obsolete by technology. As far as I know, ATT lost its monopoly shortly after someone else had a business need that led to having excess long-distance transmission capacity to sell (which was when the Southern Pacific Railroad laid optical fiber for their own internal signalling, and realized they had excess capacity they could sell to people).

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