Unnatural Monopolies

by / 0 Comments / 838 View / September 15, 2014

According to the laws of economics, there are certain natural monopolies which optimize the gains of both the producer and the consumer. For example, it is far more efficient and cheaper for a single company or firm to control utilities due to factors such as the high cost of building and maintaining several lines of infrastructure. However, in most cases, monopolies harm competition and therefore, the market. Unnatural monopolies can decrease the total surplus, propagate higher prices throughout the market, and stunt economic growth. To prevent the economy from being at the mercy of monopolies like the ones of Carnegie and Rockefeller, the federal government enacted the Sherman Antitrust Act in 1890 to restore economic liberty by outlawing the formation of unnatural monopolies and thereby preserving healthy competition in the market. Furthermore, the Clayton and Federal Trade Commission Acts were passed in 1914, expanding on the Sherman Act to include regulation on mergers and restrict monopoly-like behavior from large companies.

The viral recording of the Comcast customer service call that made the news recently about an annoyingly persistent retention agent and a frustrated consumer attempting to cancel his service has brought the issues of the proposed Comcast – Time Warner Cable acquisition and monopolies to the attention of the American public. Proponents insist that the merger will not have a negative effect on competition and will allow Comcast to reduce prices and improve the quality of their services. Also, Comcast boasts about their current net neutrality rules (although they are required to follow them because of a deal with the Federal Communications Commission, and only until 2018). On the other hand, critics argue that whether the merger will have a positive impact on competition is questionable at best. After all, according to the National Broadband Map, broadband providers often do not share coverage areas (when they do, it is often in heavily populated areas such as New York City or Boston) and Comcast and Time Warner Cable serve 35.5 percent and 21 percent of the population with broadband services, respectively. With these facts in mind, opponents also claim that Comcast has no reason to improve the quality of their networks, infrastructure, and customer service, maintain net neutrality, or keep prices low since they will be the sole broadband provider for well over half of the American population.

The lack of competition and the dangers of an unnatural monopoly may keep the merger from being approved by the federal government, as required by antitrust laws. Comcast, their supporters, and their opponents will keep reiterating their points until the decision is made, but consumers should really be asking themselves: why is there such a lack of competition in the broadband market, and how can this problem be solved?

Americans may be quick to blame big corporations for their aggressive policies but the blame also lies on municipal governments for getting in the way of competition. The problem is that due to the Cable Communications Act of 1984, broadband companies must negotiate franchise fees with local governments for the rights to build networks in land owned by the municipality. Additionally, local governments often grant exclusivity to broadband companies, allowing them to maintain a monopoly over a certain area in exchange for high franchise fees. So, both the companies and the governments win, as the former receives exclusive access to large areas and the latter gains revenue. However, the consumer loses, as competition is discouraged and companies pass on the franchise fees to their customers.

As bleak as the situation sounds, the problem can be solved relatively easily. All it would take is for local governments to be willing to deregulate their markets and allow more companies to provide services in their land. Notable examples include Kansas City – MO, Austin – TX, and Provo – UT, all of which have facilitated the above-mentioned tedious (and expensive) bureaucratic process and allowed Google to expand and provide their Google Fiber broadband service in parts of their cities. Future cities that are in talks to become hosts of Google Fiber include Charlotte – NC, Portland – OR, San Jose – CA, and several others around the country.

In light of the Comcast – Time Warner Cable merger, local governments and the American public must reconsider their stances on the potential for unnatural monopolies in the ever-growing and ever-important broadband industry. As society’s ability to function becomes increasingly dependent on the ability to connect to the Internet and as technology plays a greater role in Americans’ daily lives, issues like net neutrality and the quality and cost of broadband services are extremely important. Regardless of whether or not the merger is approved, the underlying problem of the lack of proper competition must be solved. If Americans can convince their local governments to stop looking at broadband companies as merely sources of revenue and instead, view them as opportunities to build healthy, competitive markets, everyone will benefit from increases in innovation, quality, and price drops.

 

References

Cornell University Law School. 47 U.S. Code § 542 – Franchise fees. n.d. <http://www.law.cornell.edu/uscode/text/47/542>.

Cowen, Tyler and Alex Tabarrok. “Modern Principles of Economics.” Cowen, Tyler and Alex Tabarrok. Modern Principles of Economics. New York: Worth Publishers, 2013. 233-250.

Cox, Kate. Here’s What Lack Of Broadband Competition Looks Like In Map Form. 7 March 2014. <http://consumerist.com/2014/03/07/heres-what-lack-of-broadband-competition-looks-like-in-map-form/>.

FCC. Connect to Compete Home Broadband Coverage Map. n.d. <http://www.fcc.gov/maps/connect-compete-home-broadband-coverage-map>.

FTC. The Antitrust Laws. n.d. <http://www.ftc.gov/tips-advice/competition-guidance/guide-antitrust-laws/antitrust-laws>.

Google. The future of Fiber. 2014. <https://fiber.google.com/newcities/>.

National Broadband map. Comcast Corporation. 31 December 2013. <http://www.broadbandmap.gov/about-provider/comcast-corporation/nationwide/#>.

National Broadband Map. Time Warner Cable, Inc. 31 December 2013. <http://www.broadbandmap.gov/about-provider/time-warner-cable-inc./nationwide/>.

Image Credit: Cisco via Wikimedia Commons