Deregulation or Not - A GOPer's Dilema

Deregulation is one of the fundamental tenants of Conservative philosophy, a profound and self-evident belief that the "market" will regulate itself and everything will become as competitive as possible. This belief works well for commodities. The price of corn or oil will, for example (and whether you believe it or not) gravitate toward the most competitive price based on a few factors:

- The commodity is available from multiple sources - the consumer can choose their source
- The distribution system is egalitarian - it carries each suppliers' product at equal cost and with equal efficiency
- There is no bias toward one buyer or another
- The product is not bundled with other offerings, and
- There is no difference between different suppliers' offerings.

Corn, for example, is available from many farmers. Once it is taken to market, the distribution system neither knows nor cares who grew the corn. From a grain car full of corn, there's no bias toward any individual farmer's corn, the product is corn exclusively and one grain of corn is pretty much like the other, genetic manipulation aside. In this case, price is generally a function of supply.

Air transportation is given often as an example of deregulation working. As we see above, you have your choice of airlines (unlike before deregulation), the National Airspace System carries each airliner at relatively equal cost and with relatively equal efficiency. A consumer generally doesn't care if they fly on United or Southwest on short hops and the airline really doesn't care who buys the seat (as long as you're not a card-carrying Al-Qaeda member). Despite all attempts to bundle flights with hotels and rent-a-cars, bundles are not much of a factor in air transportation and there's really no difference between airline seats of the same price. And in markets served by one or very few airlines, it's easy to see the lack of competition makes for higher fares.

Now to two of our favorite purchases, internet service and cable TV. Do these match up with the criteria above? No. In fact, they've become such monopolies that service is generally available only either through the Cable company, Satellite TV (a bit cheaper) and antenna (free). Although similar, these are not the same products and generally internet service is not available over satellite or antenna. Here is the important point: The distribution system is not egalitarian. I can't buy a bank of servers and a big internet pipe and begin distributing internet service or TV programming over Comcast's lines. In the U. S. business world, it's called a barrier to entry. It's called antitrust elsewhere. By owning the lines and by being able to charge what they want to transmit over them, the cable and phone companies pretty much assure there's no competition in internet or cable service.

In general, the phone or cable companies don't care who buys from them but now we get into bundles. No cable company in this country offers cafe programming. I have to pay for ESPN even though I'd rather spend an hour in my dentist's chair than in front of a televised sports event. As pointed out elsewhere, if that weren't the case, no one could afford ESPN. Finally, there are differences between suppliers' offerings, but not significant differences between cable and satellite.

So it's easy to see why deregulation doesn't work here. By deregulating, the Government has opened the doors for a few large operators to squeeze everyone else out of business. In the early days of the Internet, anyone with a server could tap into the phone lines and provide service. The current telecommunications operators were successful in that envirnment but now that the phone and cable companies own both the service and the transmission networks, they have to compete with no one. This is commonly referred to as a monopoly.

This drives price up and service down. And this is why we are not competitive in the world: We do not regulate to provide competition. I do not think Government should ever regulate price. In a competitive world, the market does that well. The Government's responsibility is to regulate barriers to entry to allow competition, forcing down price and driving up service. Regulating barriers to entry - eliminating monopolies - would ultimately benefit business for both domestic and export businesses.

I don't expect a wave of regulation any time soon but the re-regulation of the cable companies is a step in the right direction.