3
$\begingroup$

Usually, more competition means lower prices and higher quality as less effective businesses go out of business. However, it appears that it's not always the case. When there're a lot of health insurance companies, each of them has relatively little bargaining power with service providers (hospitals) and, as a result, prices are significantly higher compared to a hypothetical government-funded single-payer system. Is there any free-market solution? What libertarian scholars (they exist, don't they?) would suggest?

There's another example, social networks. Facebook was selling user private data without them realizing it but never went bankrupt or lost a lot of users. It's evident to me that it's due to its oligopolistic nature. You can't nationalize Facebook or do something similar to what is proposed for health care by American presidential candidates like Bernie Sanders. You also can't promote the creation of many new tiny Facebooks because the social network user wants to have all their friends, family members, colleagues, favorite celebrities, etc. available in one place so people would unwittingly gradually monopolize "the social network market" back by opting for the network with more users than its competitors.

Are there any studies that found any umbrella solutions (preferably, ones that don't involve socialism) for cases when simply promoting competition doesn't work?

$\endgroup$
  • 1
    $\begingroup$ "You also can't promote creation of many new tiny Facebooks" But you can. It's called decenterilized federative network. (youtube.com/watch?v=S57uhCQBEk0) In short, it's not just "users of tiny facebooks can interact with each other as if they were users of one Facebook", but also "users of tiny facebooks can follow users of tiny youtubes, as if Youtube and Facebook were merged" $\endgroup$ – user161005 Mar 1 at 2:44
  • 1
    $\begingroup$ @user161005 Interesting, but I'm not sure how you can persuade people to move to some Fediverse in droves $\endgroup$ – Sergey Zolotarev Mar 1 at 3:53
  • $\begingroup$ Just leave this work to Facebook/Youtube and other monopolistic social networks. More they abuse their power - more people have incentives to look for alternatives. Although I wouldn't expect sudden switching from Facebook/Youtube, it will be a process that will take time. $\endgroup$ – user161005 Mar 1 at 4:10
  • $\begingroup$ The stuff/issue you mention in the middle para is called a "natural monopoly", I think. $\endgroup$ – SX welcomes ageist gossip Mar 1 at 7:46
  • 2
    $\begingroup$ "You can't nationalize Facebook" Why? $\endgroup$ – user161005 Mar 1 at 8:25
3
$\begingroup$

There is one universal "solution" to monopolism without government intervention.

Just allow the monopoly to do its worst. It will give very strong incentives to find ways to satisfy needs of potential clients of the monopoly in ways that would diminish market force of the monopoly. Basically it's bet that human creativity will eventually tame (or even kill) the monopoly. The most radical example of such creativity is a creation of an invention that makes the whole monopoly obsolete. Another example of creativity: It's also possible that different people buy services/goods of the monopoly for different reasons, so there would be strong incentives to develop imperfect substitutes for different categories of potential clients of the monopoly. Of course there are many more other ways to outsmart the monopoly, I just gave some abstract examples of it.

Real life example: US shale oil boom as response to monopoly of OPEC

| improve this answer | |
$\endgroup$
  • $\begingroup$ You're too general $\endgroup$ – Sergey Zolotarev Mar 1 at 3:31
  • 1
    $\begingroup$ @SergeyZolotarev What did you expect? General questions lead to general answers. $\endgroup$ – user161005 Mar 1 at 3:35
  • 1
    $\begingroup$ This answer is correct, unless we're also concerned with the "Keynesian matter", i.e. "in the long run we're all dead". The same method could (theoretically) used to solve e.g. climate change... let it do its worst, people would then be really motivated to act. $\endgroup$ – SX welcomes ageist gossip Mar 1 at 7:44
  • $\begingroup$ So the "universal solution" is "wait for someone to do something". Gee whiz. That's not really a solution. A solution is not "wait for something to happen", a solution is the "something". $\endgroup$ – user253751 Mar 1 at 16:40
  • $\begingroup$ @user253751: It's often the case that government action leads to worse results than doing nothing and letting market forces craft the best long term solution. Often. the. case. $\endgroup$ – FreeMarketUnicorn Mar 1 at 23:46
1
$\begingroup$

Leaving aside the cases of platform markets and other externalities and natural monopolies, what people who have no training in economics usually miss is question of the size of the market. It may very well be that there is enough demand for only one company to be profitable with the available technology. If a second company attempted to enter the market, it would not be able to recover its setup costs. As a somewhat naive but obvious example consider a hair saloon in a small town. There are only so many hairs to cut and style. If the local government decided to subsidize the entry of a second hair saloon this would only lead to a duplication of sunk costs. And when the two saloons start competing in prices the effect would amount to an indirect subsidy per hair cut. It would be much cheaper to pay out a direct subsidy instead - you would save the government the setup costs for the new saloon.

I am not convinced by the health insurance example yo give either. Once the insurance company has enough clients to exhaust the economies of scale in its production function - administration, mathematical modelling and legal teams for example, there are no further allocative efficiency gains to be had: The adjacent hospitals compete against each other in a local oligopoly for patients - if there is only one hospital you are back in the case of the above paragraph. Of course the above considerations need not apply to any real-world health insurance system as they are heavily regulated.

The Facebook is a platform with a large consumption etxernality - the more people are on the network the more is it valuable to others. I don't know the literature on platforms, but the general public sentiment is that without government regulation FB is immovable. Considering the aggressive reaction of FB to Google's attempt to set up a competing social network and their purchases of Whatsapp and Instagram FB's management however appears not to be entirely convinced that this proposition holds.

The point that @user161005 makes is related to productive efficiency- pushing the cost curve down. There is a further relevant concept - the dynamic efficiency, which in IO means coming up with the right products. Both of these require innovation and for this reason publicly owned monopolies should at least in theory be doing worse than privately-owned ones as public employees don't benefit that much from innovating.

| improve this answer | |
$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.