The joys of oligopoly
It wasn't often that Ted Kennedy and Ronald Reagan joined hands in common cause, but deregulation gave them reason to.

Reuters

Businessmen note the new AOL Time Warner sign outside Time Warner headquarters in New York on January 12, 2001.

Article Highlights

  • Complaining about the cable company is an American pastime, but Susan Crawford has a different sort of complaint

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  • High-speed Internet access is as basic to innovation, economic growth & competitiveness as electricity was a century ago

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  • The bipartisan deregulation of the ‘70s and ‘80s that liberated trucking, airlines and telecom was a moment of reckoning

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  • Washington’s fights over telecommunications could use a lot less militancy and a lot more sound economics @NickSchulz

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Complaining about the cable company is a hearty American pastime: the reliability of its service, the channels it has on offer, the inability of its repairmen to show up on time. Susan Crawford, a visiting professor at Harvard and a former assistant to President Barack Obama for technology policy, has a different sort of complaint. In "Captive Audience," she argues that the market for broadband in America is insufficiently competitive. Consumers are harmed, she says, because service is too expensive and insufficiently innovative. Most important, broadband is out of reach for too many Americans. Something has to be done, she believes—and regulation is the way to do it.

High-speed Internet access, Ms. Crawford writes, "is as basic to innovation, economic growth, social communication, and the country's competitiveness as electricity was a century ago, but a limited number of Americans have access to it, many can't afford it." In the market for high-speed access to the Internet, "there are two enormous monopoly submarkets—one for wireless and one for wired transmission. Both are dominated by two or three large companies." Ms. Crawford laments "the lack of supervision over the mammoth companies that sell Americans access to all information, all communications, all entertainment." Taken together, such problems with broadband amount to a "crisis in American communications."

Ms. Crawford is picking up the torch first carried by progressive regulators of the early 20th century, who worried about fairness in the networks for electricity and railroads, among much else. In the progressives' view, for instance, railroads needed a system of federal oversight, and thus reformers pushed through the creation of the Interstate Commerce Commission and sued railroads on antitrust grounds. In the telecom realm today, of course, a powerful regulator already exists: the Federal Communications Commission (itself modeled on the ICC). Yet Ms. Crawford would like to see much more aggressive regulation and stepped-up antitrust activity.

Ms. Crawford is an engaging writer, but her progressive zeal can get the better of her, making her text long on anecdote and breathless assertion but short on data and comprehensive history. Consider her claim that the "monopoly submarkets" of wired and wireless communication are "dominated by two or three large companies." The claim is by definition nonsense. A monopoly market can only be dominated by one company. Ms. Crawford is really talking about oligopoly.

This isn't a distinction without a difference. Ms. Crawford seems unaware of the vast literature on the economics of oligopolistic competition. Pioneered by Alfred Kahn, George Stigler and William Baumol, it has sought to understand the nature of innovation, technological advance, consumer welfare, and competition in industries with just a few providers of goods and services. The whole subject became a topic of study in part because so many of the well-meaning progressive reforms of yesteryear—such as rate regulation and price controls—led to terrible long-run outcomes for the public interest. The "market failure" that resulted in insufficient competition in a given industrial sector may have been lamentable, but through hard-won experience we have learned that the antitrust or regulatory responses often amounted to a "political failure" that was worse—thwarting entrepreneurship and the emergence of new business models and often resulting in higher prices for consumers.

Indeed, the bipartisan deregulation movement of the 1970s and early 1980s that liberated trucking, airlines and telecommunications from choking regulation was a moment of reckoning, an attempt to come to terms, at last, with the legacy of progressive regulation. It wasn't often that Ted Kennedy and Ronald Reagan joined hands in common cause, but they did in this case. The practical shortcomings of regulation were overwhelming.

Ms. Crawford makes some useful points about the potential problems of oligopolies; other things being equal, more competition is better for consumers. But her passionate advocacy gets in the way of careful analysis. When writing about the merger of Comcast CMCSA +0.21% with NBC Universal a few years ago, she writes alarmingly that "the future of the Internet itself in America . . . would be radically affected by the merger decision"; that it would result in a "colossus with sweeping power to decide what Americans watched and read"; that "the merger represented a new, frightening moment in U.S. regulatory history"; that it was "tearing the social fabric in the communications-utility sector" and was leaving Americans with "a grotesquely skewed communications-utility picture." All of which doesn't prevent her from complaining, elsewhere, of the "overstated rhetoric that often characterizes titanic battles over telecommunications policy."

As it turned out, the Comcast merger wasn't unlike the AOL-Time Warner merger before it—a union feared by many at the time it was consummated but certainly not the end of the world; the social fabric survived untorn. In her intensity and her certitude, Ms. Crawford calls to mind several of the reformers brought so vividly to life by the late historian Thomas McCraw in his "Prophets of Regulation" (1984), most notably the progressive lion Louis Brandeis. McCraw noted that Brandeis "embodies some of the best and the worst elements in the American regulatory tradition. On the one hand, he epitomized the dogged militancy which has given that tradition its distinctive sense of righteousness and moral passion. On the other, Brandeis offered regulatory solutions grounded on a set of economic assumptions that were fundamentally wrong." Washington's fights over telecommunications—and just about every other industrial sector—could use a lot less militancy and self-righteousness and a lot more sound economics.

Mr. Schulz is a fellow at the American Enterprise Institute and editor of American.com.

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