Over on my Tales of the Sausage Factory blog, I have just posted this rather lengthy (and, I regret to say, rather dense and boring unless you are a sucker for competition theory) post about the price of SMS text messaging. In it, I argue that the outrageous price for SMS text messaging (measured last summer at $1000/megabit of capacity used) is not a problem of market failure but market structure. Apply boring old Econ 101 tools of analysis, and we find our old friend oligopoly, which Washington regulators treat as a competitive market but really does behave very differently.
My point is not merely to direct some traffic over to my other blog for those curious to see the substance of the argument (but I don't object), but to make a broader point here. Folks pushing the deregulatory agenda — whether as a matter of ideology or of self-interest — have framed all our media and telecommunications issues as binary questions of competition — do we have enough, yes/no? This structure works very well for deregulating, since it reduces policy to counting the number of potential competitors and arguing about whether there are “enough” competitors.
As I have remarked before, asking if we have “enough” competition is usually about as meaningless as “hot enough for you?” or “how high is up?” We can have plenty of competition, and a market structure that yields rather disastrous results from a societal perspective. To take one example, “when banks compete, you win” turned out to be true if you wanted a subprime loan, had a bad credit history, and went looking for a lender who didn't care because it planed to flip the loan as soon as possible. The competition theory worked perfectly. Over time, competitive pressure and the desire to maximize short-term revenue drove nearly all lending institutions to the lowest common denominator on lending standards as they fought to capture market share. Too bad the long term consequences — also quite predictable, btw, for those practicing actual economics rather than the magical thinking favored by the U of C School and its acolytes — sucked rocks for society generally and even for the subprime borrowers and lenders.
Obama has promised to “restore science to its rightful place.” I can only hope we will do the same for the “dismal science.” We don't have a “competition issue” with cellular text messaging, we have a policy choice. If we want to get the right policies in place, we need to stop asking “do we have enough competition” and start asking “do we have the right policy.”