I mentioned yesterday that Duopoly in and of itself isn’t a problem. I want to dig deeper into that.

Going back to Lowrey’s original piece

Granted, Verizon and Sprint could enter into a price war with AT&T, much to the benefit of the average smartphone user on the street. Low-cost carriers like Leap and MetroPCS could chip away at the big companies’ business. But it seems unlikely to change the dynamics for the average consumer. Wireless is a resource-intensive business with serious barriers to entry, making it hard for small and local companies to compete at a national level.

Another way you might say this is that providing the services that consumers want is expensive. You sometimes here the complaint that wireless service is too expensive. Though, I think small low cost carriers do serve a to fill in that niche.

However, an equally pressing complaint is that the service sucks. Its not expansive enough, its not fast enough, I still have to have both a cable line and wireless service to get decent internet.

These are the kinds of problems that big companies can solve and they may in fact need to charge higher prices on a larger customer base to do it.

The primary concern with allowing a full monopoly is that is will actually reduce service.

Private companies, even monopolies, can’t force you to buy things. What they can do is offer crappy services or bloated packages that you wouldn’t want to buy if you had a reasonable choice. In some cases they can scale back service provision all together. This allows them to target their price at only a subset of the population, which indeed can bear higher prices.

However, this is precisely why any competition matters. For monopoly to work you have to restrict the customers options. Another competitor, even one other competitor, will then have the opportunity to take advantage of that.

Now, there is concern that with only two companies they could give each other a wink and a nod, agreeing that neither one will be aggressive about expanding service. This form of tacit collusion is what makes highly concentrated industries dangerous.

However, it also what makes complaints from smaller companies an encouraging sign. If the big boys were really scaling back that would make more room for the little guys even if the little guys couldn’t entirely fill the gap.

When you want to screw the customer by abusing monopoly power that’s actually good for your competitors. When you want to build a behemoth that attracts every customer on earth, that’s bad for you competitors. However, its good for consumers because they wouldn’t be attracted to the behemoth unless it was offering better services than the current disintegrated companies.

In short the problem with monopoly is not that they offer too much to too many, but that they offer too little to too few. They can get away with this because there is no competitor to fill in the gaps.

Based on the evidence I’ve seen there doesn’t seem to be a strong likelihood of this happening in the telecom mergers. There could be some secret deal between Verizon and At&T that I don’t know about, or some more complex scheme to shut down innovation. However, I haven’t seen that evidence.

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