Monopolies: Time To Debunk The Myths
It is time to start worrying about monopolies again. A decade and a half into a great wave of deregulation that has unleashed competition in trucking, banking, natural gas, railroads, airlines, and telecom, an unsettling pattern of market concentration is creeping back. AT&T, expected to compete with regional phone monopolies under the Telecommunications Reform Act of 1996, instead plans to merge with a Baby Bell. Rupert Murdoch, expected to compete against cable monopolies with new satellite broadcasting technology, instead joins them. Now, Congress is poised to allow banks, insurance companies, and securities firms to merge, and permit them to combine with other businesses. Most mergers in recent years have made economic sense. But a growing concentration in certain industries and markets is worrisome and bears watching.
Shredding the fancy rationalizations for monopoly would be a good first step. Take "Technology allows new players to enter the market." Maybe. Murdoch tried to offer a new satellite service to compete with cable. But cable lobbyists pressured regulators and legislators not to make changes that would have allowed it. In the end, Murdoch traded his satellite assets for a minority piece of cable-controlled PrimeStar. Did new technology triumph over monopoly power? No, thanks to cable's political clout.
How about "It's a natural monopoly"? This argues that the high cost of entering a market explains dominance by one company. That's partly true, but the Bells have used courts and sympathetic state regulators to protect their turf from potential rivals willing to try. What's "natural" about that?
Then there's "It's a global market," meaning bigness and domestic concentration aren't bad. AT&T uses this rationalization in its negotiations with SBC Communications. It must have mass to compete with the likes of Deutsche Telekom and Nippon Telegraph & Telephone. Perhaps, but the merger could also signify a retreat by AT&T from overseas competition in favor of easy domestic regional phone monopoly profits.
Deregulation delivers benefits. Prices, by and large, are lower today in trucking, airfares, and long-distance calling than a decade ago. But there are troubling signs of market sclerosis: Old and new monopolies are using political clout to curtail competition while concentration in some markets is growing severe. We believe it better to unleash the forces of creative destruction than to destroy the forces of creativity.