Musings On Markets and Monopolies

There are some economic choices where not having "freedom to choose" works out reasonably well.

Untroubling monopolies

For example, I have no choice over:

* who I buy water and sewer services from;

* who collects my trash and recycling;

* who responds to fires;

* who builds and maintains the roads, bridge, and tunnels that I drive on and through (apart from one toll road in the Denver metro area); and

* who I buy natural gas and electricity from.

The first three are provided by local government. The fourth is provided by a combination of local and state governments with some state funding. The fifth is provided by a state regulated utility company.

Sometimes there are quality of service issues and customer service issues with each of these four services. But I don't believe that competition between firms to provide them would be significantly better, and I don't perceive the prices charged for any of them to be excessive.

Toll roads, where they exist, are generally regulated monopolies used to finance road construction and maintenance. They are generally underused relative to freeways and are modestly expensive but not all that hugely profitable. There are also public sector toll lanes on free roads which seem to work better (and are free for high occupancy vehicles and buses and motorcycles).

Leaky monopolies and near monopolies

Postal service

Postal service is a federal government monopoly, in theory, but in practice, there is considerable competition in parcel delivery, there is some competition in junk flier delivery, and email and other online communication tools have provided a lot of competition in delivering the messages and payments which were historically sent by mail. 

For reasons that are a mix of technology issues and governance issues, the quality what is done by the U.S. Postal Service is falling, and the price of that service keeps going up. The U.S. Postal Service did its job quietly, efficiently, and well when I was younger, but has slipped steadily over the last thirty years, and has plummeted since U.S. Postmaster De Joy was appointed.

Telecommunications

There is a de jure monopoly on cable television, although streaming and satellite TV make this a leaky monopoly, and there are only about two significant providers of high speed Internet service: the cable company, a regulated utility, and a DSL provider affiliated with the legacy local landline phone service company which is also a leaky monopoly due to cell phone service. The cable company is too expensive, has miserable customer service, and really displays none of the reasonable cost, reliability, and stability of government owned and regulated private utilities that have worked well. Competition in the cell phone and long distance telephone service industries, in contrast, has worked reasonably well.

Intercity passenger transportation.

Amtrak has a de jure monopoly on intercity passenger rail in the U.S., although private high speed rail ventures, all from the same parent company if I understand it correctly, have been authorized with operations in Florida, Texas, Nevada, and California, although only Florida's medium speed passenger rail is up and running. There is also some separate scenic or limited service rail service.

This is a leaky monopoly, because it has competition from private intercity bus services, at least one publicly owned intercity bus service in Colorado (Bustang), and commercial air traffic.

Basically everywhere outside the Northeast Corridor, Amtrak is a dismal failure. It is slower than passenger rail was in its heyday in the 1950s. It is unreliable and plagued with long delays. It has infrequent service. It runs huge operating losses per passenger mail. Bus service between cities is comparably fast, varies greatly from more comfortable to less comfortable, is cheaper, and operates without subsidized operating costs. Commercial airlines are much faster, are often less expensive than Amtrak's operating costs, and are sometimes cheaper.

Intracity Transit

In theory, the Regional Transportation District (RTD) is a regional local government that has a monopoly on intracity bus and passenger rail service in the Denver metro area. In practice, this monopoly is also not all that strict. There are private cabs, Uber and Lyft, hotel shuttle services, a school bus system, apartment and church shuttle services, and more that compete with it in particular niches.

De facto monopolies

On the other hand, there are some services that are not formally monopolies, but are monopolies in substance. 

Commercial airports

Denver International Airport, which is owned by the city and county, is the only commercial airport in the metro area, even though there are several general aviation airports in the area that could offer commercial airport service. And, it works reasonably well.

Pro-sports

We have pro-football, soccer, baseball, basketball, hockey, and lacrosse teams that are not formal monopolies, but are part of dominant national pro-sports leagues that allow only one team in our metropolitan area and region. The teams are privately owned although their stadiums are publicly financed. On the other hand, these pro sports teams do compete with myriad high school and college sports teams for spectator interest.

Software

Microsoft Word, Microsoft Excel, and Adobe Acrobat are all de facto monopolies with dominant market share because compatibility between users in different firms and households is so crucial to their usefulness. In the case of Microsoft Word, this is unfortunate, because the product quality is poor. Microsoft Excel and Adobe Acrobat are better quality products, so this is less troubling in those cases.

Unnecessary competition

There are some areas where we have competition we don't really need. 

Oil Companies

There are several very profitable and heavily polluting large oil companies that extract, refine, and distribute petroleum for use as gasoline, diesel fuel, airplane fuel, boat fuel, heating oil, plastics, and fertilizers. But while there is arguably value in having competition between local gas station/convenience stores that dispense gasoline and diesel fuel, these are standardized products. It isn't at all obvious that we are better off having competing oil companies rather than nationalizing this industry as a great many countries do. 

Hospitals, ambulances, and their competitors

All but one of the hospitals in the metropolitan area are non-governmentally owned, either on a for profit or non-profit basis. Denver Health and the VA hospital system is the only governmentally owned hospitals in the metro area. And, there are many privately owned ambulatory surgery centers, free standing emergency rooms, and urgent care centers that perform services that compete with hospitals.

But, as a practical matter, emergency room patients have virtually no choice over whose emergency room they seek treatment in. Often they aren't even conscious, and in major disasters, ER availability trumps patient choice. Patients are also typically ill-equipped to meaningfully evaluate the available hospital choices which are typically constrained by what their insurance will cover anyway.

Similarly, patients have essentially no choice over which ambulance service providers choose them and don't really benefit from having multiple competing providers of that service.

Two year college and trade school programs

Publicly owned school district trade schools and community colleges are the dominant provider of higher education and professional training short of a bachelors or gradate degree. These schools and community colleges are inexpensive, available close to home, and generally speaking provide a good value to students who earn degrees, and are available to almost any student interested in attending, although the community college drop out rate is extremely high.

There is very little competition in this sector from private non-profits who make up a large share of colleges and universities that offer four year and graduate degrees.

There are for profit educational institutions that compete with the public sector in this market. But they are expensive, are mostly financed with federal government grants and loans, and with just a handful of exceptions in the entire United States are offer educational services that are greatly inferior to those of publicly owned trade schools and community colleges.

Choice without much private sector competition

Everyplace in the United States has public K-12 schools which are the dominant providers are education in those grades. Most places in the United States also have some private K-12 schools for at least some grades owned by either religious affiliated non-profits, or secular non-profits (the market share of "for profit" private K-12 schools is negligible although there is a private tutoring industry that supplements other schools).

In Denver, the public school system offers many school choice options, some between programs at ordinary public schools, and some set up as "charter schools" which are public schools that are governed by private non-profits that are autonomous from the school board that runs ordinary private schools. There are also some places that offer school vouchers that allow parents to use public money to send their children to truly private schools including private religious schools, typically in amounts a little less than the average per child funding level of the public schools.

Studies of school choice systems reveal two things. First, the main benefit of school choice systems is that they force poorly performing schools that parents don't choose, to shut down and allow parents to not send their children to those schools. Second, adjusting for the socioeconomic status of the students attending them, private voucher funded schools and charter schools don't consistently outperform ordinary public schools.

The economic importance of choice

In general, choice matters primarily because monopoly government owned good and service providers allow poorly performing and poor quality parts of their operations to continue at losses without being shut down or reformed.

When a private non-profit or for profit venture can't secure enough customers and patrons to cover its expenses, it promptly goes out of business. And, this happens organically, location by location, transit route by transit route, and not necessarily all at once, although mass downsizing via a Chapter 11 bankruptcy is fairly common. 

Sometimes, this happens dramatically. Essentially the entire subprime mortgage lending industry and the entire investor owned investment bank industry collapsed in the financial crisis. Blockbuster, which used to be the biggest video rental store in the country, went from 9,000 stores in an early 1990s peak, to just one store in the nation thirty years later. Chains like Radio Shack, Sears, Kmart, JC Penny, Big Boy, and Bed, Bath and Beyond are gone or nearly so. Thousands of dollar stores are closing. Dozens of airlines have gone out of business over the years. 

At other times, it happens gradually. There are significantly fewer bank branches in the United States than there were at the peak perhaps a decade ago. Diner style restaurants have shut down one by one. There has been some consolidation and closing of locations in the legal marijuana industry in Colorado. A few marginal private liberal arts colleges have shuttered each year in recent years as demand for them as declined, in part, due to demographics and, in part, because the subjects they specialize in aren't as popular anymore.

This doesn't happen in the government owned sector until the situation is grossly out of hand. The vast majority of Amtrak routes outside the Northeast Corridor provide poor service at a high cost, but keep running. Suburban bus lines that carry few passengers at a high cost keep running. Public schools in school districts without school choice continue to operate even when they are very poorly run and have poor outcomes for their students, and even when they see marked declines in the numbers of students they serve due to demographic shifts in their area. Shutting down a local post office that doesn't have enough business to make sense any more rarely happens.

The number one reason that the Soviet Union was less economically vibrant than the West was that it failed to shut down poorly performing factories and businesses and operations within businesses quickly enough.

In the case of monopoly businesses that everyone needs for the foreseeable future, this isn't a problem. The people of Denver will continue to need water and sewer and trash collection services indefinitely, so shutting these services down entirely isn't something that will ever need to be done. And, these are mature enough fields that their basic business model isn't likely to be upended any time soon.

The government owned monopolies that are more problematic are leaking monopolies in industries where technological change has made their historic business model no longer viable, like the Post Office and AMTRAK.