From: njs@scifi.uucp (Nicholas J. Simicich)
Subject: Re: Cable TV Consumer Protection Act of 1992
Organization: Nick Simicich, Peekskill, NY
Date: Tue, 15 Sep 1992 05:24:34 GMT

In article <FSF.92Sep14134718@hpic006.mentorg.com> fsf@hpic006.mentorg.com (Rick Farnbach) writes:

>Cable is an example of a natural monopoly.  Natural monopolies are the
>nemesis of the free market system and that is why they are regulated by
>government.  That government is inefficient at such regulation is beside
>the point.
>
>A "natural" monopoly is one in which the cost of providing services goes
>down the more subscribers you have.  An example is electric utilities.
>If you have two people at the end of a distribution cable, then both of
>them share the cost of maintaining the line rather than each one paying
>for a separate cable.  An example of a monopoly which is not natural is
>widgets.  If two people wish to buy widgets, two separate widgets must
>be made, hence no sharing in cost can be had between the two.

However, each consumer uses different electricity, so 'two electricity
have to be made'.  Where you save is in the physical plant, economies
of scale, y'know.  Exactly the same argument can be applied to
widgets: One factory should be cheaper to operate than two.  The
difference is that the cost of widgets is controlled only by market
forces, and widgets can be priced higher when there is a single
supplier.  If this is carried out too far, eventually it should be
possible for someone else to afford a factory to build the widgets
since the excess profits that they will make (for a while) will
finance it.

>The textbook example of natural monopolies is a phone company.  Consider
>two phone providers, A and B, which provide phone service in a town.
>Both have the same number of subscribers distributed evenly throughout
>the town.  When Robinson Crusoe, a regular attendee in economic
>scenarios, moves into town he must choose a company.  Say he chooses
>company A.  Company A now has more subscribers than company B, and so
>can charge less for its services.  Because company A is charging less,
>people using company B switch services to company A.  Company B now has
>far fewer people sharing the cost of maintaining its lines so now it
>must raise its rates.  Company A, on the other hand, continues to lower
>its rates.  Company B quickly loses all of its subscribers making
>Company A a monopoly.  At this point, company A would begin to *act*
>like a monopoly.  (Also at this point there would be a lot of junk cable
>strung about the city.  But I digress...)

Obviously, this example is broken.  Exactly this situation exists with
cellular phone even down to an A carrier and a B carrier in most
areas.  Neither seems to be going out of business in the New York
metro area, and if I had to guess, I'd guess that they just calmly
and illegally agree on rates (or track pretty closely - and pretty high).

At least in some areas, a second cable company might have trouble
getting copper on to the phone poles.  I suspect that the first
franchise may have an exclusive deal with the power and phone
companies...sure you can have a second cable system...just plant all
of your own poles.

>2) is easier, and more efficient (costs less).  2), however, requires
>fairly intricate controls in order to be effective.  In other words,
>even to Adam Smith, bills like the Cable TV Consumer Protection act are
>appropriate.  The free market system still works under such bills,
>incidentally.  If the market becomes regulated to the point that it is
>impossible to operate without a loss, the cable TV providers will all
>pack up and go home.

And then other providers will buy the bankrupt systems, which have
then shed most of their debt, and which can be run more cheaply.

-- 
Nick Simicich - uunet!bywater!scifi!njs - njs@watson.ibm.com
SSI #AOWI 3958, HSA 318, NAUI #14065
Join the movement ---  turn 'to bush' into a verb.
Xref: sparky rec.video.cable-tv:1358 alt.cable-tv.re-regulate:197