The Beauty of Competition
ByAfter waking up this morning, I followed my normal routine during the NBA playoffs: I gave kisses to Erin and the kids and then checked out NBA.com.
After arriving at my appointed Internet destination, I saw that the Lakers were still playing the Jazz. There was about 8 minutes left to go in the fourth quarter, I believe. So I turned on my Slingplayer (which is how I watch live TV over here in Turkey) in order to check out the game. For I really enjoy watching the NBA playoffs live. Recorded I am just not into.
So there I am, all excited to watch a solid fourth quarter battle between one of the best teams in the league and another fighting to keep its season alive. And what happens, but my Internet slows to a crawl, even to the point where my 5 and 3 year old take note and declare: “Our Internet is not working Dad?” Yea, I know, thanks for rubbing it in.
Instinctively my thoughts drift to the beauty of competition, not, however, in the basketball area, but in the business world. For you see, where I am right now there is more or less one company to whom you can turn to get half-decent Internet. And that company only recently sold half its shares to a private group of individuals. Before that time it was owned entirely by the government. So it more or less has a monopoly. Yes, there are a few small companies trying to get in, but they are not worth turning to as of yet (plus, they have to use all the big company’s equipment).
For what I am paying here, I could be enjoying some sweet FIOS back in the States. But why? It’s because there is ample competition to drive prices down and quality up. Entry into the telecommunications market isn’t very difficult in the States. There is money to be made and anyone who is willing and able can more or less get in, so more people get in and everyone is better for it. We enjoy lover prices and higher quality. But not so here and in much of the world.
I say all of this not to complain (though I am sure there is some of that in me), but to remind us all how great it is to have people competing for our business. Sure, I get a little tired of the advertisements and keeping track of the latest and greatest offers known to man, but in the end, it is a whole lot better than paying 60 a month for Internet that goes in and out and sometimes slows to a crawl. Free competition is a good thing, so let’s give thanks for it.
In all fairness, I must say that after resetting my Modem, the speed did pick up a bit and I was able to enjoy the end of the game. But my point still stands, because the service still isn’t worth writing about (unless you have to say what I have said here).
The simplest and most insightful book I have read on Economics is Thomas Sowell’s Basic Economics. It’s a thick one, but if you take it little by little, it is well worth the read.
11 Comments
April 24th, 2009 at 10:10 am
I will preface my comment with this– my job title includes the word “economist,” and while I have not read the book you cite, nor will I primarily because I am not a fan of over-simplified economics (or really anything oversimplified), I would suggest reading a variety of economics primers, because there are a lot of differing theories and models in applied economics. Anyway, I think I have a pretty good understanding of economics, especially in the US related to government regulation, the environment, and similar topics, though I tend to do more in macroeconomics than micro in my line of work.
Contrary to popular belief, the US does not function in a state of free or perfect competition in hardly any market, and telecommunications is no exception. The cost that results from demand/supply is artificial and imperfect competition is taking place.
Telecommunications is a highly regulated industry in the U.S. Along those lines, until the mid-1980s (after a lawsuit), AT&T was regulated as a monopoly, with the FCC controlling pricing and profits in order to help prevent a situation like what you see in Turkey. Yes, other companies were allowed to operate, however, the services they could offer were limited. Once the mid-80s rolled around, and AT&T was basically ordered to break up, the FCC tried to encourage free market long distance. The Telecommunications act of 1996 shook up the local phone service market to competition, but there is much to think about in terms of broadband service. In most markets, broadband/high speed internet remains a monopoly or duopoly/oligopoly situation. Start-ups, thanks to the Telecom Act of 96, have access to existing lines and equipment and generally (to save in start-up costs) will be sharing with the existing providers as well.
The only major nation-wide expansion of high speed access via upgrades has been done by… AT&T. Their new U-Verse service is competitive in internet, cable/satellite, and VoIP, which many hope will bring down their local cable pricing, but until AT&T finishes the upgrades, it is not available throughout the country. However, many parts of the country are without any high speed option and certainly not an affordable one. There MIGHT be two options available for those in larger cities– cable and DSL (and now U-Verse). While the east and west coasts offer a larger variety of options, undoubtedly due to population density and available equipment sharing, the majority of the country is left in a monopoly or duopoly situation with little competition.
The Telecom Act of 96 has a lot of problems in application, however, which you might enjoy looking in to if telecom economics is of interest. For example, the number of radio stations has increased, but the number of owners has decreased. Many consider the Act to be a legal framework for consolidation, bringing the country back to a Monopoly or oligopoly situation in many of the telecom industries.
I certainly have oversimplified this issue– just as I dislike in books, but I am not writing a book. Thankfully. LOL!
Also– for a fun look (IMO) at various every day topics from the view of a variety of economists, the Freakanomics blog (NY Times) is a hoot. http://freakonomics.blogs.nytimes.com/
April 24th, 2009 at 1:22 pm
I am tracking with you on most of that Maria, in particular the Telecommunications stuff, b/c that was my major in college. And though I didn’t pay attention as well as I ought, I had to sit through many a lecture and write plenty a paper on the Telecommunications act and on the history of it all. Your comment brought me back to stuffy classrooms listening to all sorts of info on At&t! Not sure if I can thank you for that or not:)
As for the economics, I will be all ears to you on that one, b/c I haven’t read widely on that one and b/c I remember having an Indian guy named ‘Anup Adwadhavan’ (can’t verify the spelling on that one, but that is what his name sounded like to me). Our classroom at PSU went like 4-5 hundred or so and it was just brutal. They used to take attendence at the beginning of the class and everyone used to just walk right out afterwards (I confess, I did it a few times). And Anup used to be up there saying, “I know this is boring, but please don’t leave.” Erin laughs every time I tell that story, b/c I give him a good accent. But I digress…
I would say that the only not so accurate statement I made was that it was easy to get into the telecommunications market. That is not true. But I trust you would agree that I could definitely say that relatively speaking (when compared with Turkey at least), that is is very easy to enter the market and compete. For as you mention, the companies in the states have regulations in place that help them enter the market. It is my understanding that that is far from the case here.
Sure, there are all sorts of polities involved in both places, but there is no coincidence that the States is more or less the best place in the world to be for consumers. So though we are far from free competition (the book I mentioned would agree upon that and explain why), relatively speaking, the various markets are free enough to make things pretty good for us. Could it be better? No doubt. (And there are pockets in the world where it is for certain things). But it still isn’t bad, particularly historically considered.
Though I haven’t read widely on the economic front, I still can’t help but recommend Sowell enough. He would certainly be recommended more in conservative circles, but there is no doubt that he is a very bright and seasoned individual and from my vantage point, he writes not simply with sound knowledge, but wisdom and discernment. So unless you aren’t into Stanford guys, he might be worth the read.
Thanks for the Freakonomics blog as well. I am going to check that out. Erin read the book. I need to follow her on that one.
April 24th, 2009 at 1:23 pm
Anup was my teacher by the way. Just wasn’t clear on that one!
April 24th, 2009 at 4:32 pm
I’m sorry for that flashback! I was fortunate to attend a small private University (U of Tulsa) where my largest class was 60 people (which has since been reduced to 40). Sneaking out was impossible! You learned AT&T, while I was stuck with Smith, Mill, Nash and Menger. That being said, I tend to stick with environmental economics (water resources, population) and socio-economics.
There is nothing wrong with Sowell’s writing in general, but all economists (as is most fields) have their own slant or specialization. IMO, this is why it tends to be described as the “dismal science,” though that is not how economics became known by this. Reading around (not to be confused with getting around) provides a more holistic view of various economic theories. I generally read more specialized articles and books these days, because… well, basic economics…been there, done that. Supply, Demand, externalities, taxes… fun stuff!!!
If you are looking for some additional material, I’d suggest Milton Friedman’s Capitalism and Freedom (a true classic) and Diane Coyle, The Soulful Science, What Economists Really do and Why It Matters (relatively new and I have not read it myself, but many friends have and enjoyed it). Keep in mind, I am a true nerd.
What I wrote above is my memory of the telecommunications acts and the history of the telecom industry (I did look up the date), and while the US market is different than the Turkish market, we are (from my understanding) far more regulated than they are, but yes, I do agree it would be easier to enter the market in the US than Turkey. (When we were in Turkey, we had dial-up, so it appears that strides are being made.) However, when it comes to telecom, from an economics perspective, it is moving back to a monopoly (well, oligopoly) rather than towards more competition.
Does this make the US horrible? No, but we are not really a capitalist society either, and honestly, I do believe we are better for it, because in true capitalism, externalities and other social costs are unaccounted for. We live in a system of trade-offs, seen and unseen, where poreto efficiency is a dream.
And for a test of your economic theory/foundations…or a good laugh.
http://www.nytimes.com/interactive/2009/04/19/education/edlife/20090419EdlifeQuiz.html?scp=1&sq=economics%202009%20ap&st=cse
April 25th, 2009 at 12:32 am
Ok, took the quiz. Having never read an economics book or taken an economics class, I had no idea what some of the words meant. So I got 11 out of 18. So why would it give a good laugh? Guess I don’t know enough about economics:)
April 25th, 2009 at 3:01 am
I only got 11 as well! So I am right with you love. I had a few brain lapses though, so I think 13-14 would have been legitimate. But then again, I had a few others that I wasn’t completely sure of, so it must of all evened out.
Just goes to show I should have listened to Anup much closer.
Thanks for those books Maria. I will check them out and see if I can hang.
If the US is more regulated than Turkey, would it be accurate to say that they are simply regulated better? Is that how you would explain the better service we enjoy? Just curious…
April 25th, 2009 at 4:32 pm
Don’t feel bad Erin, I forgot some of the terms too– especially related to monetary policy– but somehow managed a 15. I’m a bit embarrassed. LOL!
I thought it was funny, because many college students don’t know those terms, so the AP students are ahead of the game. Oh, and some were absurdly easy while others were definitely much harder.
Re: regulated better– I am not sure I would say better, because the two countries are in different places in terms of development, but I would say our regulations are probably more efficient and more sophisticated than those in Turkey. Having said that, I am not an expert on Turkish policy and have focused more on their changes in human rights policy as they try to join the EU. Also, I am certain things have changed since 2003-04 when I was there.
A lot of factors impact the services we enjoy in the US– from our pioneering technological advances and social culture of wanting to be the best/first to our advanced state of development and every thing in between. We enjoy a prosperous nation combined with human capital (education primarily) that when combined with a desire to have ‘things’ (i.e. demand) requires the market (supply) to increase. As this happens, the price is driven down. In some cases the product also increases in quality in order to differentiate between product substitutes. Countries like Turkey are at a disadvantage, because their economic status is less certain (and less developed) as the technology is introduced, so their market is not equipped to advance in the ways that our is. There is less disposable income available to increase demand and lower supply. Overall, their economy is not as ripe for advancement.
April 27th, 2009 at 9:40 am
Maria,
Another question: In what places are certain markets most free? Just curious…
April 27th, 2009 at 10:41 am
I’m not sure what you mean by “certain markets.” Pure capitalism (Laissez-faire capitalism) has never existed anywhere. Most economies are mixed economies.
As far as economic freedom as a whole, I do not have to speculate. The Heritage Foundation publishes an index that assesses economic freedom. They follow the Adam Smith school of thought that free markets produce the best outcomes. I do not fully agree with their thought as far as the efficiency of the market (mostly due to externalities), but the index is interesting to look at.
http://en.wikipedia.org/wiki/Index_of_Economic_Freedom_historical_rankings
Here is a critique of the index from the Austrian School (a line of economic thought) that is good. http://www.mises.org/story/1724
April 27th, 2009 at 3:32 pm
Not sure if my term was correct or not, but I was thinking certain industries (maybe that is the word- note: this is evidence of my need for daily definitions!). Maybe certain industries that aren’t as regulated? I’m not sure. Like the Dairy industry (which I know he regulated), but just using that as an example.
I need to check out that link.
Just so you know who you are dealing with here, Erin informed me that I was pronouncing, ‘Laissez-faire’ wrong. I do believe I knew how to pronounce it but it was a bit too close to ‘Lazy’ for her taste.
Thanks again.
April 27th, 2009 at 3:59 pm
Oh– I got it. I thought you meant it more along the lines of certain markets– as in the market of a country, not industries within a market. Your question is huge– one that is covered in thousands of books, because there is no simple answer. Some industries in some countries are more free to operate than the same industry in another country. Within countries there are varying degrees of market imperfections and limitations. Add in varying degrees of development, marginal utility and purchasing power, and the issue only becomes more complex. I’ll think more and come back with some suggestions/thoughts on who is more free and where. For the sake of simplicity, I will limit my examples to the US. I think.
Thanks for the laugh on Laissez-Faire. I always fear I will spell it incorrectly, so we’ll call that even. LOL!