competition

The DOJ’s Antitrust Seers

by Ryan Young on August 31, 2011

in Economy, Features, Regulation, Tech & Telecom

Post image for The DOJ’s Antitrust Seers

Today, the Department of Justice sued to stop the proposed AT&T-T-Mobile merger. They claim to know in advance how the merger will affect the mobile market for years to come. It’s an example of F.A. Hayek’s fatal conceit. Of course, most people haven’t read Hayek. So over in the Daily Caller, I use a better known thinker to make the same point:

The philosopher Yogi Berra once said that “It’s tough to make predictions, especially about the future.” Let’s apply his lesson to the proposed $39 billion AT&T-T-Mobile merger…

Competitors are also surprisingly confident in their ability to predict the future. A Sprint spokeswoman said that “Sprint applauds the DOJ for conducting a careful and thorough review and for reaching a just decision … Today’s action will preserve American jobs, strengthen the American economy, and encourage innovation.”

This translates roughly to “We think the merger would make the market more competitive. We were scared that we’d have to work harder to innovate and cut costs to keep our customers happy. Whew.”

Most mergers fail. Nobody knows if a merged AT&T and T-Mobile would offer a better, cheaper product line. The only way to find out is trial and, often, error. The Justice Department’s astounding claim that it knows the merger’s effects in advance is either proof of its superior enlightenment, or else the height of hubris. I’m guessing the latter.

Read the whole thing here.

Police Shut Down Renegade Lemonade Stand

by Ryan Young on July 18, 2011 · 2 comments

in Regulation

Appleton, Wisconsin, police taught some children a lesson about regulation’s true purpose by shutting down their lemonade and cookie stands. The children live about a block from an annual Old Car Show, and have been selling lemonade and cookies near the event for six years.

Vendors inside the car show didn’t appreciate the competition. So they talked the city government into passing a new ordinance that put the girls out of business.

After a round of bad publicity, city officials are thinking of re-writing the ordinance.

Regulation of the Day 180: Braiding Hair

by Ryan Young on June 8, 2011 · 1 comment

in Regulation, Regulation of the Day

Businesses often use regulations as a cudgel to bludgeon their competitor. Occupational licensing is one of the most-abused types of regulation. John Stossel’s latest column shows how by telling the story of Jestina Clayton, an immigrant from Africa who braids hair for a living.

Her customers are satisfied. But now her competitors want her to take 2,000 hours of classes and spend thousands of dollars to get a cosmetology license. This even though braiding is the only service Jestina offers. And because the her competitors are the very people who grant or deny licenses, it will be easy for them to keep entrepreneurs like Jestina out of business even after she completes the licensing requirements.

Jestina’s story repeats itself every day in any number of occupations. Stossel writes:

Once upon a time, one in 20 workers needed government permission to work in their occupation. Today, it’s one in three. We lose some freedom every day.

“Occupational licensing laws fall hardest on minorities, on poor, on elderly workers who want to start a new career or change careers,” Avelar said. “(Licensing laws) just help entrenched businesses keep out competition.”

This is not what America was supposed to be.

He’s right.

Are Text Messages an Antitrust Issue?

by Ryan Young on March 17, 2011

in Economy, Regulation, Tech & Telecom

Text messages cost 20 cents to send, even though they use a fraction of a penny of bandwidth. What gives? Antitrust authorities want to know.

Over at The American Spectator, I explain that it is likely a case of unbundling:

Maybe phone companies are unbundling texting from their other services. That way the only people who pay for text messages are the people who use them. If phone companies don’t have to provide texting service for people who don’t want it, they can keep costs down and charge lower prices.

This is much more fair to customers:

Why not just give all customers unlimited texting and charge a higher monthly bill? That would punish people who don’t text, such as this writer. By eschewing the flat rate and tolerating a few texts per month from family and friends who haven’t been properly trained, non-texters can save $50 or more per year.

Monopolists (and oligopolists) don’t behave that way. Companies competing against each other on price do. Trustbusters are forgetting something else, too. If a monopoly exists at all, it is very temporary.

It turns out that a young company called Beluga makes a free texting application for smartphones. Few things are as temporary as monopoly (or oligopoly) power. Since Beluga bypasses the texting cartel, you can have unlimited texting without the $5 monthly fee. Think of it as Skype for the text messaging set.

Read the whole article here.

CEI Podcast – November 11, 2010: Taxing New IRS Regulations

by Ryan Young on November 11, 2010

in CEI Projects, Deregulate to Stimulate, Economy, Podcast, Regulation

Have a listen here.

Fellow in Regulatory Studies Ryan Young explains how an IRS proposal for mandatory certification of tax preparers would hurt consumers and taxpayers. It is one more example of how regulation can hurt competition. Large tax preparation firms would benefit at the expense of individuals and smaller firms who can’t afford the added regulatory burden.

Our Driverless Future?

by Marc Scribner on October 12, 2010 · 1 comment

in Mobility, Tech & Telecom

Google has been making headlines after the company revealed over the weekend that its driverless cars have logged nearly 140,000 miles on public roads (see this awesome video clip). These robot cars are able to navigate traffic through a combination of GPS, radar, mounted video cameras, and laser range finders. The basic technology has existed for several decades and has gradually been improving. DoD’s DARPA sponsored a series of annual Grand Challenge competitions a few years ago, awarding a team consisting of Carnegie Mellon University and GM engineers with $2 million in 2007.

I find these events incredibly encouraging. America’s surface transportation technology has seen no significant improvements in 50 years (in the case of rail transit, make that 120). Sure, cars have all sorts of new technologies, from mp3 players to automatic parallel parking features. But the roads? No real breakthroughs since the Interstate system was devised. Cato’s Randal O’Toole, a longtime supporter of this sort of technology, had a Wall Street Journal op-ed in March praising the concept:

Driverless cars and trucks will be safer. They will also be greener, first by significantly reducing congestion, and eventually because vehicles will be lighter in weight due to reduced collision risks.

Perhaps most important, driverless vehicles will bring mobility to everyone, not just those able to pass a driver’s test. While many people will still choose to own a car, increased numbers may rely on car sharing. Outside of ultra-high-density areas such as Manhattan, driverless cars will render urban transit and intercity passenger trains even more obsolete than they are today.

The American automobile fleet turns over every 18 years, so if Mr. Burns’s prediction that driverless cars will hit the market by 2018 comes true, we could have a completely driverless system by 2036. State highway officials could accelerate this timetable by working with auto manufacturers to set standards and a transition path. State and local highway agencies could install wireless communication systems at major intersections and highways—a much less costly undertaking than building new roads, much less high-speed rail.

The technology seems to be making great progress, but there are impediments. As O’Toole notes, “the primary obstacles were legal and bureaucratic, not technological.” After Google’s announcement, a flurry of auto-bloggers questioned the legality — some not even masking their contempt for a driverless auto future, citing a know-nothing California DMV bureaucrat who claimed Google’s robocars “would be just a big step up from cruise control.” This is true, if “big step” is defined as “a revolution in personal automobility.” Indeed, outdated traffic laws are the biggest problems facing this technology. Of course, once automakers are ready to make the leap (or “big step”), there will be a lot of pressure on politicians and bureaucrats to update their then-out-of-date regulations. That’s a bridge we’ll have to cross when we get there.

There will always be technology naysayers. My favorite pessimistic comment comes from the Business Insider’s Henry Blodget, the once-famous Dot Com optimist who lost most of his money when the tech bubble burst in 2000 (while he was telling everyone to buy as many tech stocks as they could to stuff in their 401ks):

Why is Google developing this technology?

Why is Google spending the $10+ million of shareholder money per year the project consumes (15 engineers, plus drivers, plus the cars).

Isn’t there something closer to its core business that Google could spend this money on?

Blodget argues that Google is straying too far from its core business and that there are better things for Google to do that would enhance shareholder value. While “mission creep” might characterize Google’s path in recent years, one might argue it’s a feature and not a bug. Google has a lot of talent, and continues to draw the best and the brightest from around the world. Google’s chief asset is this talent pool. Since it became the king of search engines, Google has broadened its business model to include all sorts of non-search-related technologies — and management is willing to invest in long-term product development. And they’ve been quite successful! Rather than denounce a consumer technology that won’t go live for at least a decade, Blodget should try to understand the implications (and profit potential) of driverless vehicles:

  1. Congestion could be drastically reduced while still cutting road expenditures.
  2. Injuries and deaths caused by drivers would fall dramatically.
  3. Environmental concerns would be addressed as fuel wouldn’t be wasted by drivers sitting on congested roads and the cars could be lighter thanks to the decreased collision risk.
  4. And last but not least, this would be the most significant innovation in the automotive sphere since the development of the assembly line! If only Henry Ford had stuck to his “core business” and continued designing race cars…

Hopes for Federal Property Insurance Expansion: Gone with the Wind

by Michelle Minton on July 23, 2010 · 5 comments

in Bailout Watch, Insurance

Insurance industry members are wiping there collective brow after a bill was pulled from the floor of the House of Representatives before a vote. However, every taxpayer in the US should be breathing a sigh of relief. The bill, H.R. 1264 proposed to add wind insurance coverage to the National Flood Insurance Program (NFIP), which provides federal coverage in the wake of a catastrophe. A persistent idea on the hill, the effort to add wind and other perils to the Federal insurance program has, in recent years, been championed by Rep. Gene Taylor, D-Miss., who lost his home during Katrina in 2005.

Whatever their intentions, adding another peril for the federal government to deal with is clearly a bad idea on all fronts–whether from a fiscal, public safety, or free market perspective. The NFIP is already more than $19 billion in debt and counting–a debt that is paid for by every American, regardless of where they live. Estimates claim that the addition of just wind would increase that liability 5-fold. Of course, as we can see by looking at other government run insurance programs, the longer they operate the greater the liability becomes–this is due in part to inefficient underwriting and in part to the moral hazard that subsidizing risky behavior represents.

On July 21, just days before House members planned to vote on the measure, the Obama administration announced its opposition to the addition of wind to the NFIP (as the Bush administration had done in 2008).

The Administration recognizes that the availability of hazard insurance is a key element in the ability of individuals and communities to recover from disasters. However, the Administration opposes House passage of H.R. 1264, which would expand the Federal Government’s role to provide windstorm insurance that is already readily available in the private sector and through State insurance plans without Federal aid….expanding NFIP to cover windstorm insurance would unnecessarily duplicate available insurance products and could “crowd out” such products where they are offered, while offering little to no savings to the American public. At a time when the NFIP is already facing serious challenges, the Administration cannot support such an expansion

There are several fundamental reasons why adding wind insurance to the NFIP is a bad idea.

1. It would undercut competition and increase the national debt:

Private insurance is available. It might not be as inexpensive as people living on the coasts would like, but private insurers are willing to underwrite almost any risk for an adequate premium. When the federal government provides a cheaper version of insurance (under-priced through the miracle of taxes) it prompts consumers to leave their private insurance company for the less expensive option.  This puts increasing pressure on the federal insurance and American taxpayer.

2. Government run insurance programs can’t spread risks as far as private insurance

Private insurance  companies can spread risk by holding policies around the world that are unlikely to occur at the same time. This means that while they are paying claims for a hurricane in Florida, they are still collecting money from premiums on Japanese earthquake insurance policies. The US government is necessarily limited to pooling all of its risk within the USA which makes it much more likely that events will occur at the same time.

3. Cheap insurance doesn’t discourage bad behavior

When priced correctly, insurance provides feedback for the relative riskiness of a person’s decisions. If someone buys a house on the SC coast, they are more likely to have their home destroyed in a storm surge than someone living in the middle of Wisconsin. Therefore, their private insurance company will charge them more money for hurricane insurance. When we remove this feedback (aka remove the expense of insurance from the decision to move to a home on the beach) we encourage more people to engage in risky behavior. If the federal government provides cheap insurance for homes on the beach more people will build their homes there–putting themselves and their homes at risk and increasing the likelihood that everyone else in the country will end up bailing them out.

While the bill could still be brought up, it is a good thing that the Administration and a large number of Representatives have expressed their opposition to this expansion of government. Of course, all of the arguments against federal wind insurance apply to all other forms of insurance as well.

2010 Bureaucrash Student Activism Competition

by Richard Morrison on May 4, 2010

in Video, Zeitgeist

[youtube:http://www.youtube.com/watch?v=tKBRZ-vDmrI 285 234]

The Case Against Subsidized High-Speed Rail

by Marc Scribner on April 1, 2010

in Economy, Mobility, Politics as Usual, Regulation, Stimulus to Nowhere

President Obama’s stimulus package set aside $8 billion in subsidies for high-speed rail projects in the United States (known as the High-Speed Intercity Passenger Rail (HSIPR) Program). Vice President Biden, the administration’s most vocal passenger rail supporter, apparently believes countries should be judged based on the amount of money their governments spend on infrastructure boondoggles.

Amtrak has been a fiscal black hole since its creation, and these moves will likely exacerbate an already costly problem. Meanwhile, the intercity bus market has grown, with vibrant competition keeping fares low and improving the quality of service. Megabus, a subsidiary of the U.K.’s Stagecoach Group, launched in 2006 and now has routes throughout the East Coast and Midwest—they offer tickets priced as low as $1 and provide free unpriced Wi-Fi access. Subsidized high-speed rail poses a threat to this competitive industry, and consumers will be the ultimate losers.

The rail romantics and eco-know-nothings have managed to convince much of the public that magical trains of the future are the remedy to every perceived transit and environmental woe. The next time you come across someone spouting this Rah! Rah! Rail! nonsense, remember that there are many good reasons to oppose government-financed high-speed passenger rail. Here are a few:

• Amtrak has been engaging in predatory pricing for decades, running up massive operating deficits while charging passengers artificially low fares. This has retarded the growth and competitiveness of the private intercity bus industry, robbed consumers of more choices in domestic travel, and bilked taxpayers out of billions of dollars.

• There is no evidence that Obama’s HSIPR Program will produce any management efficiency gains. The traditional (inefficient) model of government-run passenger rail is essentially unchanged.

• Government-run high-speed rail faces several inherent management and implementation problems: retraining employees (maintaining high-speed and traditional heavy rail require different skill-sets), NIMBY concerns, right-of-way disputes with freight carriers, and increased politicization (and thus the risk of government failure) of American travel.

• Buses travel on existing highway corridors and do not require a massive new infrastructure. There are plenty of arguments in favor of adjusting the public financing mechanisms for roads, but that is irrelevant in this context.

• Because trains require rails and can move only forwards and backwards, many rail projects are tied to “comprehensive redevelopment” plans that work against the claimed environmental benefits of trains vs. roads, even if the locomotives in question emitted zero pollution. In addition, these plans necessitate central planning on a grand scale, increase eminent domain abuse, and incentivize assaults on property rights. Buses, in contrast, can depart and arrive virtually anywhere and re-route at will given road conditions.

• Private bus operators have successfully expanded to new markets throughout the Midwest in recent years. The high-speed rail project in the low-population Hiawatha corridor from Milwaukee to Minneapolis, for example, puts private bus operators in direct, unfair competition with government-subsidized high-speed rail.

The Wisdom of George Stigler

by Ryan Young on March 17, 2010

in Deregulate to Stimulate, Economy, Regulation

George Stigler won a Nobel Prize for his work on the economics of regulation. He wrote extensively about regulatory capture, and in fact coined the term. He was one of only a few sane souls who stubbornly insisted that regulations be judged by their actual results, not their intended results. Good intentions, however noble, are not enough. Here’s an example of Stigler at his finest:

Regulation and competition are rhetorical friends and deadly enemies: over the doorway of every regulatory agency save two should be carved: “Competition Not Admitted.” The Federal Trade Commission’s doorway should announce , “Competition Admitted in Rear,” and that of the Antitrust Division, “Monopoly Only by Appointment.”

-George Stigler, “Can Regulatory Agencies Protect the Consumer?”, from The Citizen and the State: Essays on Regulation (1975), p. 183.

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