On Monopolies

Lydia DePillis wonders if competition will really improve car sharing in the District. I'm not too certain it will, as I wrote over the summer. In any case, plenty of people are happy that there's competition coming, because they love the idea of competition. Monopolies, on the other hand, have a pretty bad reputation.

(from masck on Flickr)

Not every market is perfectly competitive. Sometimes monopolies can and do provide goods and services more efficiently than several competing companies. This is usually the case in industries with high start-up and capital costs, which is very much the case with car sharing. The monopoly chapter of any intro to microeconomics textbook lays this out pretty clearly.

When people say they don't like monopolies, I think what they're really saying is that they don't like taking on the risk that the monopolist is going to fail to provide good customer service or reasonable prices.

Comcast is a great example of this. In much of the DC area, if you want cable TV or cable broadband, Comcast is your only option. They also happen to have dreadful customer service, so when your blood is boiling after spending hours on the phone trying to get your service to work, the thought of switching to somebody else is highly appealing.

Ticketmaster is another example. They're virtually the only game in town when it comes to concert tickets, and the "fees" they charge have upset plenty of folks. There is a legitimate fear that once a company becomes a monopolist that they'll jack up prices and screw customers who no longer have anywhere else to turn.

Zipcar, for what it's worth, has gone above and beyond for me on more than one occasion. I've found their service to be excellent, and even when new competitors enter the market, I'll keep my Zipcar membership. The truth is that they do have competition, it's just from different modes of transportation, not from other car sharing companies. When I need to go somewhere, it's not necessarily a question of which car sharing service to use, but what mode of transportation to use.

2 comments:

    On October 07, 2011 b said...

    You and Lydia have the same argument here: `I _like_ Zipcar, so I'm fine with them as the only choice.'

    What happens in the marketplace isn't something we can really control, and may the best customer service win. But this is about the policy question of whether Zipcar should get special treatment from the DC government so that it can retain the monopoly it currently holds (because Zipcar bought out its only serious DC competitor a few years ago). And in that context, I think you're going to need to give a stronger argument than just saying you like the service now.

     

    Markets like this trend toward monopoly. I'm not taking a stance over whether any one company should get special treatment, but let's imagine that a few years down the road that the new competitors again merge and acquire each other until we're left, again, with a single provider. If that's what happens in the marketplace, is that OK to most people? Or is it the government's responsibility to guarantee multiple competitors in this industry?