The Derrangement of Modern Competition

Competition is the basic building block of a healthy system of free enterprise. With it, we get better consumer choice, a wide variety of products and services and the chance for each of us to start our own enterprises. Without it, we get corrupt and moribund monopolies that do not respond to customer needs, inflate prices and stifle innovation. There are, however, a large number of individuals who have a skewed vision of what exactly healthy competition entails.

Healthy competition means getting a fair shake at doing business. It means that consumers will be the ultimate decider as to your failure or success based on your service, pricing and product. Incumbents in a market may react by changing their service, pricing or product accordingly. It keeps everyone on their toes and we, the consumers, are the winners.

Some companies don't like competition. Instead of trying to be the best in any of these service areas, they seek to maintain their hold on the market by skewing the playing field in their favor. Remember how Microsoft has tried to ensure its market dominance? By using cross-subsidizing to give away their product (a tactic employed by Standard Oil, if you recall), they effectively crushed competitor Netscape in the browser wars. They've also struck exclusive contracts and onerous pricing terms with the largest PC makers to prevent you from having a choice. Some might call that fair competition, but I certainly don't. It ultimately robs me from being able to effectively chose the best solution for my needs.

We also see some off-kilter competition examples close to home. Provo wanted to build a terminal at its airport, but didn't want to pony up all of the money to do so. In comes a charter flight company that says "hey, we'll pay for it if you let us use the land." A deal was struck and everyone was happy. At least, everyone was happy up until the point where Provo said they would allow competing companies to run refueling operations at the airport. All of the sudden, the terminal operator goes into hysterics that they won't have the exclusive right to all business at the airport, an airport paid for by tax dollars and owned by the city.

I'd like to say that attitude of exclusivity was unique, but we also see it in the telecommunications market. When UTOPIA was formed to allow cities to operate a wholesale fiber optic network, Qwest immediately sought to litigate and legislate its way out of having to deal with competing private service providers. In their mind, they had the exclusive right to provide land-line phone service and cities had no business building an upgraded network to meet their needs when Qwest declined to do so. (This is despite them having gotten $1.4B to build a network like UTOPIA, but I digress.) A lack of competition had made Qwest feel entitled to its fiefdom. Sadly, many legislators are lockstep with Qwest in their attempt to shut down any and all competition.

The problem is that this choice class of person doesn't truly understand competitive environments. They think that being business-friendly entails simply protecting the interests of existing businesses. What they fail to realize is that there is a balancing act between existing businesses, new businesses and the consumer. A failure to meet the needs of all three results in penalizing the success of large companies, insulating incumbency from the effects of competition, over-regulation for the good of the consumer" or a combination of the three.

I fear what we have achieved here in Utah is a legislature pushed so far to the authoritarian right that the interests of very large companies are the only ones consistently represented in new legislation. Qwest and Comcast are largely handed blank checks when it comes to telecommunications legislation. IHC has enough power in health care to derail investigations into their market dominance. Banks and credit unions duke it out for turf with little regard as to what's good for their account holders. In all of it, there is a mistaken belief that what's best for the biggest companies is best for everyone else too.  I'm hoping that we'll wake up from the delusion of what we currently call competition before we end up in a corporatist state.

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3 Responses to The Derrangement of Modern Competition

  1. K Street lobbying has been such a rage for the past few years in Washington that who wouldn’t expect that it would find its way to Utah?

    Something (UTOPIA?) must be working, because my Qwest internet service (cost and tech support) has been much better in recent months.

  2. Jeremy says:

    I still think UTOPIA would be more palatable from a free market perspective (and possibly successful in the long run) if they became the cherry pickers Steve Urquhart and his cable company client are so afraid of. They should build up demand for their product the old fashioned way. When everyone sees how great the UTOPIA “internet tubes” are when they’re installed into the expensive neighborhoods lots of people be more willing to pay for the same thing for their homes. It just seems so much more in line with what the free market is about than UTOPIA’s current model which relies on government forcing taxpayers to provide financial backing for the venture.

    I’ll admit I’m pretty ignorant about how things work in the communications industry and I’m likely coming off hopelessly naive in criticizing UTOPIA’s business plan. I don’t need to know a lot about how the industry works though to point out that when you argue that government should act as a competitor against private industry it is somewhat hypocritical to complain that the status quo is a derangement of the free enterprise system.

    Of course…all that said…I’m a resident of Layton, a UTOPIA city. I’m counting the days ’til early 2009 when I get to plug my home into UTOPIA. DSL sucks.

  3. Jesse says:

    Jeremy: Cherry-picking might make the financials work better in the short run, but it would run contrary to their mission to provide ubiquitous service. One thing I would point out, however, is that the financing model is quite sound: taxpayer-backed bonds pay for construction and the first several years of operating expenses and tax money is only used if subscriber revenues do not provide enough money to satisfy the bond obligation.

    Since we already provide a lot of government-mandated benefits to Qwest (USF, E-Rate, accelerated depreciation schedules, etc.), I find the hypocrisy to be Qwest’s. After all, their competitors don’t get to take advantage of those benefits; they’ve been specifically structured so that only a company of Qwest’s size can get them. It’s also a mis-characterization to say that UTOPIA is a competitor to Qwest. XMission is a competitor. So is MSTAR. And Nuvont. UTOPIA has been built because Qwest didn’t do it despite being paid $1.4B in government-mandated funds. It’s actually rather gracious to say “hey, despite having ripped us off, we’ll build the network for you AND invite you to come use it.”

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