Why Do Cable TV Providers Have Market Power?

There’s no arguing that the way antitrust has been handled in the United States since the 1970s has resulted in a landscape where a fewer number of large businesses control the economy. Existing incumbents are increasing their market share and becoming more stable, making it increasingly difficult to compete with them. In a number of ways, this has impacted consumers, communities, rivals, and workers.

Proponents of recent decades’ laissez-faire, free market thinking will argue that the markets have essentially worked themselves out, that if an entity grows large enough to be a mega-corporation, it deserves that status, and that a small number of players in a given space is sufficient to keep prices low and everyone happy. However, a growing number of outspoken critics of various political shades are warning that we’ve gone too far. Strong antitrust regulations and other measures to limit concentration, along with government investments in job-creating technologies, might drive redistribution and potentially strengthen the economy for more people overall.

What does it mean for patients if two pharmaceutical companies develop a patent-protected medicine and then raise their pricing at the same time? What does it mean for workers when two cellular firms talk about efficiencies in their merger, and how long does their following vow not to raise costs for consumers last? And, to be honest, wouldn’t it be a lot easier to remove Facebook if there was another, equally appealing social networking platform besides Facebook’s Instagram?

We should be inquiring of the government and corporate America as to how we arrived at this point. Instead, we continue to hand over our cash.

Seriously, be mad about your internet bill

In his book The Great Reversal: How America Gave Up on Free Markets, published in 2019, New York University economist Thomas Philippon took a deep dive into market concentration and monopolies. And the internet is one of his book’s touchpoints. He discovered that the US has slipped behind other developed economies in terms of broadband penetration, and that prices are much higher. In 2017, the average monthly cost of broadband in the United States was $66.17; it was $38.10 in France, $35.71 in Germany, and $29.90 in South Korea. What caused this to happen? Much of it, he believes, is due to a lack of competitionor, more accurately, a lack of competition.

Telecommunications and internet service providers are, to some extent, natural monopolies, which means that high infrastructure costs and other entry barriers give early entrants a significant advantage. Installing a cable system is costly because it necessitates digging up streets, gaining access to buildings, and so on, and once one company has done so, there is little incentive to repeat the process. Furthermore, telecom companies paid what were often extremely low feesperhaps just enough to set up a public access studioin exchange for essentially obtaining a monopoly.

However, the government may intervene by regulating the network or requiring the corporation that developed it to lease out portions of it to competitors. That’s what happened in France, according to Philippon: an incumbent carrier was forced to lease out the “last mile of its networkbasically, the last bit of cable that gets to your house or apartment buildingand thus give competitors a chance to appeal to customers.

Is there monopolistic competition among cable companies?

The cable business is currently a broadband monopoly in most US cities. They have mostly taken clients who were previously served by telecom DSL after winning the competitive struggle. Because they are better competitors and offer greater broadband packages, cable companies have grown into monopolies. There are still certain markets where cable providers are not monopolies; for example, they may be competing with a fiber overbuilder or an aggressive CLEC employing DSL, or they may not have upgraded to the fastest internet products in a given market. However, cable companies now fulfill the definition of a typical monopoly in most US areas.

As a consumer, I find it disturbing that there is no talk of reacting to the huge cable companies’ monopolistic status at the national or even state level. I’m sure that, like with other monopolies in the past, this topic will come up at some point. Monopolies are prone to abusing their monopoly power over time, until the government is obliged to intervene and regulate them.

The nature of monopolies is well understood, and there are well-established reasons for governments to intervene to regulate them:

  • Price gouging is a type of price gouging that occurs when When there are no competitors to hold them in control, monopolies always raise prices over time. We know that Wall Street is currently pressuring the major cable providers to boost broadband pricing aggressively.
  • Poor customer service. Because they have little incentive to improve, monopolies tend to provide bad customer service. Consumers have already rated the major ISPs as their least favored companies.
  • Monopsony Power is a term used to describe a situation in which one person The tendency for monopolies to exploit their purchasing power by forcing low prices on their supply chain is referred to as this economic term. Comcast’s acquisition of the programmers that generate material for their cable product is perhaps the best illustration of this.

We know how to deal with monopolies based on years of experience. Governments have a wide range of options:

Encourage competition. Governments have tried to combat monopolies in the past by encouraging competition. In the case of broadband, this may entail the government subsidizing the construction of urban fiber or backing alternative technologies such as 5G in order to directly compete with cable monopolies.

Regulation of prices. Many natural monopolies are governed by price caps, which require regulator approval for rate hikes. This cure works best with natural monopolies that service everyone in a community, such as power or water networks.

Regulation of Service Quality. Regulators have frequently intervened and pushed monopolies to adhere to customer service norms. The best example is the old Ma Bell, which had much of the interaction between AT&T and customers determined by regulators throughout the years. Many components of that interface were controlled, such as the regulations for disconnecting clients for non-payment or setting acceptable maintenance times.

Divestiture. Divestment, or the dismantling of a monopoly into its constituent parts, is an extreme cure. This happened in our sector when the government compelled AT&T to sell local phone companies and build a nationwide long-distance network. It’s less likely that cable companies will be forced to dispose of programming holdings or other endeavors that allow them to commit monopoly abuses, but the government may force them to do so.

Regulation of the Rate of Return. Rate of return regulation is another effective method of regulation. For large power corporations that must defend their expenditures and charges to regulators, this is still done today. Excess profits are refunded to clients and earnings for the core business are closely monitored.

Abuse of the Monopoly Game Has Serious Consequences. Finally, the government has the authority to enforce fines for monopoly violations. The FCC has always had this jurisdiction and has imposed fines on industry bad offenders. Cable companies can also be fined by the Federal Trade Commission if their business practices hurt customers.

We now live in a market where huge ISPs and many other large firms have achieved a competitive advantage through lobbying of politicians and regulators. Historically, however, the treatment of monopolies has always been cyclical, with monopolistic abuses eventually becoming unbearable and the public demanding regulation. I believe the government will be obliged to act if cable providers follow Wall Street’s recommendations and boost base broadband rates to $90 per month.

It’s also feasible that some other technology, like as 5G, will put competitive pressure on cable companies in the future. However, it’s just as probable that most cellphone providers will be other huge firms, resulting in duopoly competition akin to what we’ve seen for years in the Northeast between Verizon FiOS and the cable companies, where both offer identical pricing and don’t actually fight.

Why isn’t there any Internet provider competition?

In the United States, there are just a few internet providers because all of the smaller providers amalgamated to form (or were bought out by) large countrywide firms that are now impossible to compete with. Both of these laws had expressly stated purposes of promoting competition in telecom markets and supporting the growth and expansion of the networks themselves when they were amended to deal with new technologies like cable TV and later the internet. 6 and 7 Instead of encouraging ISP competition, the new legislation permitted a frenzy of mergers and acquisitions, reducing the telecom market to a handful of companies.

There’s little incentive for nationwide ISPs to spend millions of dollars expanding their network to move to a new area where there will be more competition because they cover such large areas and have few competitors. It’s also difficult for new businesses to break into the broadband market because their competitors own all of the infrastructure, forcing them to start from the ground up. Google Fiber is one of the few new Internet service providers with the capabilities to compete with established telecom corporations, and even Google has run across roadblocks. 15

Is the cable industry a monopoly or an oligopoly?

When a customer phones a monopoly company, such as an electric utility, they usually receive prompt and courteous service. Monopolies understand that if too many customers complain, the company will suffer. In the worst-case scenario, they will be unable to raise prices as their costs rise. Consumers will make their voices heard at the voting box and hold the government accountable if a monopolistic corporation routinely provides substandard service. It is possible that those who regulate and run monopolies will lose their employment. It isn’t a flawless system, but it gets the job done most of the time.

Companies with a small number of competitors, known as oligopolies, are not subject to the same level of competition as typical enterprises. The cost of capital, the cost of fuel, and the cost of labor are all important to an airline. They understand that if the schedule is correct and the pricing is right, clients will return to them nearly no matter how horribly they treat them. Cable businesses are comparable to each other. Both want to maximize profit, which is a good goal, but sensitivity to how consumers are handled is nowhere in the equation. Consumers keep returning because, well, it’s an oligopoly with limited options.

Price umbrellas are provided by airlines and cable companies to each other. When they set flight and service costs, they are indicating to their competition how low they are willing to go, allowing everyone to benefit. That is legal according to the law. Even though there are multiple of them, they act as if they are one. They are able to dodge pricing restrictions and increased scrutiny as a result of this.

Why isn’t Comcast regarded as a monopoly?

Many “monopolies,” but not all, suffer from the same apathy. Amazon, for example, has a monopoly on goods delivery to customers’ homesanother crucial aim under Covid-19while maintaining a high level of service. In rural Maryland, the company has had no issue meeting our requirements. It routinely provides same-day and overnight delivery. And if we need to return something, it’s an easy process with no questions asked.

The various experiences are related to the formation of monopolies. There are two major groups. Those in the first group are more likely to advance slowly, whereas companies in the second group are more likely to move quickly. The role of the government in erecting obstacles to entrance is crucial.

Comcast does not achieve monopoly status by outhustling the competitors. Instead, they enter into agreements with local governments that prevent other service providers from entering the area. The motivation for such economic protectionism may be traced back to AT&T, which dominated telecommunications in the United States for the most of the twentieth century.

With competition, consumer prices fall and quality rises, according to economic law. Executives at AT&T, on the other hand, were successful in lobbying for the opposite. They persuaded authorities that the best way to serve the public was to prevent duplication of effort in the face of new entrants making inroads in multiple locations. Why dig new trenches or put new lines when there are already perfectly good ones?

Executives in the health-care, mass-transit, and utility industries make similar assertions to secure preferential treatment from the government. All of these businesses’ leaders point to hefty launch costs as justification for creating “natural monopolies” to reach the requisite economies of scale.

That is the premise of the argument, which is based on the assumption that supply and demand are constant throughout time and are unaffected by innovation. However, instance after case demonstrates that when master planners utilize their political clout to remove market pressures associated with competition, they achieve the exact reverse of their declared goals of increasing accessibility and affordability. Adam Thierer of George Mason University’s research sheds insight on how this transpired with AT&T.

Companies that rely on government protection lose their motivation to develop swiftly. Customer relationship, a critical component of corporate soul, is the first casualty. Instead of focusing on you and me, these businesses are more concerned with keeping their government partners pleased in a system that encourages lobbying and cronyism.

The AT&T heist was finally busted in 1982. The government gives and the government takes when it comes to “natural monopolies.” Comcast, on the other hand, has yet to face the consequences of its actions, as it continues to enjoy benefits such as exclusive rights-of-way on both public and private land.

Government authorities not only allow this to happen in the first place, but they also purposefully exaggerate the scope of the problem by exaggerating access in rural and neglected areas. As a result, Comcast can relax knowing that customers have no choice but to wait.

Other monopolies carve out niches for themselves without the use of government obstacles, necessitating the development of strong client relationships. When things get rough, what else do they have to fall back on? Often, these companies innovate new ways of doing things that no one else has thought of before, or they leapfrog the competition by improving current techniques.

Both strategies were used by Amazon. Nobody anticipated ecommerce as a major threat to brick-and-mortar retail when the company began selling books online in 1995. Customers desired the physical experience of entering a store, trying a product, and instantly taking it home.

Customers did not want to wait six to eight weeks for their purchases. They were concerned about revealing their credit card information on the internet, even if they had the patience. They were also concerned about the refund rules.

Amazon was able to tackle these issues by reimagining the customer experience. Instead than relying on government handouts, the company relied on innovation to compete with Walmart and other retail behemoths. Jeff Bezos, for example, was a pioneer.

There are several examples of company models being reconfigured throughout history. The Sears Roebuck Catalogue, which began circulating in 1897, is possibly the most renowned Amazon forerunner in consumer shopping. Families in the United States would linger at their kitchen tables for decades, flipping through the pages and dreaming, much like those who browse on their cellphones in 2020.

Only speed, security, and crowdsourcing evaluations were missing. These are the benefits Amazon gained from leveraging cutting-edge technologies. However, just because a company has achieved success does not imply it can sit back and rest. Even if there isn’t now a competition, the threat of entry can keep people awake at night.

Many brands have had monopoly status for long periods of time before being challenged by newcomers. MySpace, Blockbuster, Kodak, and BlackBerry are just a few recent examples. Even Walmart, which had overtaken Sears, had to adapt in order to stay up with Amazon.

Continuous improvement is essential for survival. When companies use regulation as a substitute for innovation, they lose sight of this. Given its second headquarters in Washington, D.C., Amazon may be headed in this perilous direction, as I discussed in a previous piece. If this is true, Amazon may lose its Day One mentality, which is all about worrying over faster, cheaper, or better products and services.

Regulators say that their action benefits consumers, but the public should be skeptical of such assertions. The Cato Institute’s Ryan Bourne debunks the argument that Big Tech need a nanny in his policy study.

Despite its noble intentions, master planning has continually failed to replace competition. Some attribute the failure on unbridled capitalism. Some argue that some companies are simply too big to care, yet size is not the issue. Many large corporations excel in anticipating and responding to consumer requirements, hence increasing access and affordability.

When it comes to monopolies, there are some that are better than others. Some are government-manufactured and supported, while others are held together by creativity and a commitment to provide value to customers.

As the story of the two monopolies demonstrates, the differentiation is crucial for universal and economical consumer access, as Covid-19 creates an unprecedented demand for teleworking and home delivery.

What does it mean to have market power?

Market or monopoly power refers to a company’s (or a group of companies’) ability to raise and maintain prices above those that would prevail in a competitive market.

Is AT&T a monopoly in any way?

Through a network of firms known as the Bell System, AT&T had a monopoly on phone service in the United States and Canada throughout the majority of the twentieth century. Ma Bell was the company’s nickname at the time.

Theodore Newton Vail was named President of AT&T on April 30, 1907. AT&T used the tagline “One Policy, One System, Universal Service” because Vail believed in the superiority of a single phone system. For the following 70 years, this would be the company’s mentality.

AT&T began purchasing up many of the smaller telephone companies, including Western Union telegraph, under Vail’s leadership. Antitrust regulators paid attention to these measures, which was unwelcome. In order to prevent antitrust lawsuits from the government, AT&T and the federal government reached an arrangement known as the Kingsbury Commitment. AT&T and the government negotiated an arrangement in the Kingsbury Commitment that permitted AT&T to continue operating as a monopoly. While AT&T was subjected to periodic regulatory examination, this situation persisted until the company’s dissolution in 1984.

What makes cable TV an oligopoly?

They are oligopolies, not monopolies. Oligopoly occurs when a small number of large enterprises control all or most of an industry’s sales. The auto sector, cable television, and commercial air travel are all examples of oligopoly. Firms that operate in an oligopolistic environment are similar to cats in a bag.

Do you think Verizon is a monopoly or an oligopoly?

The oligopoly industry includes Verizon. They compete with Sprint, AT&T, and T-Mobile for market share. This indicates Verizon is a member of a monopolistic business group that controls 70-80% of the cellular market.