Economics is Fun, Part 11: Competition

[Chris]

Trying to catch up with his latest releases! This is an interesting topic.

[Conley]

The sun never shines in London...each time I see a new video the background is even more gloomy than the last one.

On topic, great video and it underscores the importance of preserving competition. If the government prevents competition, then a company can set prices at whatever they want. I worry about state sponsored monopolies in this country ((say cable television). With all the corporate money in politics these days I believe it's more of a risk than ever.

[Peter1469]

Good video.

The rational behind monopolies in the utilities area was that it would be economic waste to have two or more companies expend the resources to provide utilities to the same geographic area. That is why government stepped in to negotiate a fair price for the service. Of course if the government does a poor job negotiating or allows the utility provider to get away with substandard service, then we have a problem.

[Chris]

But such monopolies are foreign to the Invisible Hand.

[RollingWave]

Good video.

The rational behind monopolies in the utilities area was that it would be economic waste to have two or more companies expend the resources to provide utilities to the same geographic area. That is why government stepped in to negotiate a fair price for the service. Of course if the government does a poor job negotiating or allows the utility provider to get away with substandard service, then we have a problem.

Which tends to be why a lot of country simply nationalize such services....

There is also the prolem of say... you only have one dam in the area, if that dam is owned by a company how in the world is another one suppose to compete with them to begin with? and I'm fairly sure even the most free-market oriented folks would agree that private companies can't just dam whereever they like.

Alot of other such problems exist, in taiwan for example there's basically only one rail way going around the whole island, which kinda makes it difficult to have more than 1 train service companies. the US have gotten around this somewhat because they are large enough and have many seperated railways.

Though the nationalization also brings the problem the other way around, the government have surpressed he rate on the train service for so long and have ran a lot of rather unprofitable routs that the train company is in fact losing a lot of money, which goes on the taxpayers eventually. though the alternative doesn't seem a whole lot better. for example, Greece is now forced to privatize their trains, and unsurprisingly there's no bidders that want to get into the hellhole that is Greece right now, so the Greeks are looking at no train service at all soon.

[Peter1469]

But such monopolies are foreign to the Invisible Hand.

Of course.

And it is not practical for 2 dozen businesses to load up the landscape with their own telephone poles and wires. Not they they could afford it if they wanted to.

That is why we allow monopolies.

[Peter1469]

Which tends to be why a lot of country simply nationalize such services....

There is also the prolem of say... you only have one dam in the area, if that dam is owned by a company how in the world is another one suppose to compete with them to begin with? and I'm fairly sure even the most free-market oriented folks would agree that private companies can't just dam whereever they like.

Alot of other such problems exist, in taiwan for example there's basically only one rail way going around the whole island, which kinda makes it difficult to have more than 1 train service companies. the US have gotten around this somewhat because they are large enough and have many seperated railways.

Though the nationalization also brings the problem the other way around, the government have surpressed he rate on the train service for so long and have ran a lot of rather unprofitable routs that the train company is in fact losing a lot of money, which goes on the taxpayers eventually. though the alternative doesn't seem a whole lot better. for example, Greece is now forced to privatize their trains, and unsurprisingly there's no bidders that want to get into the hellhole that is Greece right now, so the Greeks are looking at no train service at all soon.

I generally agree with you on this point. The free market cannot solve all issues.

[Chris]

Of course.

And it is not practical for 2 dozen businesses to load up the landscape with their own telephone poles and wires. Not they they could afford it if they wanted to.

That is why we allow monopolies.

The lines are shared. Only one line comes to the house but I could select among any number of telephony services--I chose actually to go digital and get phone service via cable. No need for monopolies at all.

[Chris]

Traditionally natural resources like rivers, air, fisheries, etc are held to be shared as the commons. Tragedy of the commons problems like you two are discussing are sometimes worked out by people, in the free market simply by recognizing the need to cooperate as much as compete, and sometimes not worked out, and government can be a cause of such problems.

[Peter1469]

The lines are shared. Only one line comes to the house but I could select among any number of telephony services--I chose actually to go digital and get phone service via cable. No need for monopolies at all.

Lines are shared today. I don't believe that was the case in the past. I agree that today tech is making the need for monopolies less.