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Friday, June 3, 2005

Problems with the consumer-left
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My friend Mark Cooper today in the Chicago Tribune demonstrates what is so -- shall we say -- mutually incompatible about the demands of the supposed consumerist left. In a story about the cable industry's attempts to keep the Bell companies (and specifically SBC) within the local franchising regulatory ambit and the Bells' attempts to escape the same, Mark says:

"SBC wants to redline low-value customers and middle-value customers," said Cooper. "They don't want to serve people who are economically unattractive."

Well, duh. Of course, SBC wants to enter markets where its opportunities are best -- meaning by definition where the consumers are "economically attractive." Indeed, to do otherwise, would be a breach of the company's fiduciary duty to its shareholders.

Mark, who normally argues for more competitors everywhere, even if compelled into the markets by regulatory legerdemain, is here arguing that companies be forced to enter markets that are, by definition, less attractive. In other words, he wants to erect an entry barrier to competition by making it more expensive to enter the video markets. Such a mandate would, of course, make it less likely that the competition he so often evangelizes for emerges.

The consumer-left cannot have it both ways. Competition happens organically with private entities making choices to enter and compete in markets where their profit opportunity appears most attractive. To compel them into universal service makes market entry more expensive and less likely that they enter at all. Of course, the egalitarian ideology that animates much of this advocacy would be much more content with a dynamically dead regulated monopoly. The monopoly situation allows taxation by regulation, which in turn makes redistribution a relatively easy proposition.

Markets, by contrast, rarely work in such an egalitarian manner. Innovation starts with early adopters who will pay a premium, and then cascades into mass markets. Nevermind that those early-adopters with a great willingness to pay end up giving incentives for the innovation that benefits all. It is much better, in the consumer-left mindset, to keep low quality universal service for all than allow free competition that rolls out differentially consistent with those willing to pay.

P.S. This is not to say the consumer-left's motives are insincere. Rather, the conceit they engage in is that central planning can bring egalitarian distribution along with innovation. History shows that this is a trade off that cannot be reconciled. To quote, as I am fond of doing, Lawrence White: "Competition is the enemy of cross-subsidy." The franchising fight is but another instance of this drama. I vote for competition.

posted by Ray Gifford @ 1:29 AM | State Policy

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