The European System of Monopoly
thecounterbalance.substack.com
thecounterbalance.substack.com
The legalism are pretty awful. You're hung by nation state courts, and pan European law, and jurisdiction in the contract outside Europe, and WTO. It's hardly light touch.
I had the privilege of visiting the OECD once, and sat in on a meeting as an observer. It's sausage factory stuff. Remember "europe" as we see it was borne from the ashes of a war, over markets and growth and was borne to try and unify coal and steel. What followed is a function of time and circumstances. It's quite organic, unplanned in some ways: i think we see that in stuff like the European parliament divergences on privacy, and ipr against the secretariats view.
This is basically untrue. Economies of scale are a major thing when you compare very small entities to medium sized entities.
Suppose you have a five person company and a fixed expense of a hundred thousand dollars, e.g. for regulatory compliance. That expense is $20,000 per employee. Quite inefficient. A 50 person company with the same fixed expense is paying only $2000 per employee. Significant reduction. But by 5000 employees it's only $20 and the benefit of going from 5000 to 50,000 is insignificant.
In many cases the benefit phases out entirely. If you have to build a factory which a small company only utilizes to 20% capacity, a medium company that can use it to 100% capacity is five times more efficient. But a large company can't use it to >100% capacity, they have to build multiple factories and stay at the same level of efficiency as the medium sized company.
Moreover, monopolies get full of inefficiencies because they lack competitive pressure to eliminate waste. Having two dozen companies in an industry is often more efficient than having a thousand, but having two dozen companies is also generally more efficient than having only one.
The reason so many industries end up "between two and ten" is that that's the point when antitrust authorities start to reject additional mergers, not because there is any inherent advantage in having so few competitors. If anything that's few enough to start having trouble because they start colluding or using conscious parallelism to bring about de facto price fixing etc.
The HH index seems to me to model effective competition amongst small numbers. I agree there is collusion but that's what the regulator is for, and Europe has many.
Aldi East and West don't compete, but they do individually compete with other chains like carrefour. In Australia it is an apparent duopoly but there are four or maybe five competing supermarket chains and active price competition. Go into the supply chain behind them, its the same global brands and same trucking companies shipping goods and the same four diesel and petrol supply chains behind the trucks and the same four shipping companies doing logistics in boats. Europe is not going to be that different.
Some things, having a hundred people do it isn't better. Maybe that's the pluralist mixed economy we need, and maybe that's why some age old national heavyweights have to be bought and amalgamated. Maybe the European airlines did need to combine, 30+ national carrier players was too many...
This is two different issues.
Last mile telecommunications (the fiber itself) is a natural monopoly. It's the same as local roads or sewers.
But you don't have a Europe-wide single sewer utility. It's run by the cities. Because above that you're not going to get a useful amount more efficiency from scale but you are going to get a deleterious amount more bureaucracy. And last mile internet is the same. You want municipal fiber, from the city. And then there are a thousand of them, even though they're each local monopolies. Which is good, because monopolies are to be avoided in general, but bigger monopolies are worse.
> In electricity supply, artificial capital investment gaming has overtaken social utility in bidding.
This implies that your bidding system is broken.
This is a general problem with natural monopolies, of which power distribution is one. You want some kind of regulated provider or local government to do the natural monopoly part, but then they need to buy things from the market. It's an opportunity for corruption.
But it's unavoidable -- if you bring the power plants into the monopoly, they still have to buy fuel, you need to buy generators from someone and pay contractors to install them. Unless you're going to go all the way down to having government design and manufacture steam turbines and make power electronics back to the level of mining the sand, at some point you're dealing with private enterprise. Doing it in as narrow a way as possible, i.e. as close to the natural monopoly as you can, actually reduces the scope for corruption because you're only buying one thing from the market (electricity) instead of fanning out into needing a hundred separate things that are each their own opportunity for cronyism and corruption.
> How many train making companies in Europe can compete to sell trains to Europe, as against China or India?
Probably depends mostly on how severely the regulatory compliance cost of making trains raises the up-front capital investment required to enter the market.
> The HH index seems to me to model effective competition amongst small numbers.
HHI is almost totally useless.
If you use it to measure the x86 CPU market it shows very high concentration even though Intel and AMD compete quite aggressively with each other and the market, though clearly distinct, feels significant competitive pressure from ARM because the cost of substitution isn't trivial but it also isn't insurmountable.
Whereas if you use it to measure the market for smartphone operating systems, it gives you a smaller number (same number of competitors, closer to equal share), even though that market is full of implicit collusion and conscious parallelism.
> I agree there is collusion but that's what the regulator is for, and Europe has many.
Detecting and prosecuting secret or implicit collusion is much harder than preventing it through a number of competitors large enough to impair it.
> Aldi East and West don't compete, but they do individually compete with other chains like carrefour. In Australia it is an apparent duopoly but there are four or maybe five competing supermarket chains and active price competition. Go into the supply chain behind them, its the same global brands and same trucking companies shipping goods and the same four diesel and petrol supply chains behind the trucks and the same four shipping companies doing logistics in boats.
Companies have the incentive to merge even past the point that economies of scale reach diminishing returns because the fewer of them are the less coordination is necessary for collusion. Without antitrust they would merge to monopoly, with it they get as close as they can manage. That doesn't imply that the number you see is maximally efficient, it just tells you where they stopped allowing additional mergers.
> Maybe the European airlines did need to combine, 30+ national carrier players was too many...
The airline market is a uniquely harsh market to be in because the capital costs are enormous but the market is inherently competitive because planes can be relocated to anywhere in the world on short notice to meet local demand. It's the recipe for everyone in the market to constantly be on the verge of bankruptcy because the competition drives down margins but you need significant margins to recover the fixed cost of the planes.
The airlines hate this and want to "solve" it by consolidating but the bankruptcies are really things working as intended. The investors who chose the wrong horse lose money but the market is efficient and the customer wins. The bankruptcies aren't really destroying anything, the planes still exist and get sold to someone else, they're just a market correction when the industry sees overinvestment.
Two separate companies are not allowed to coordinate the prices of their products. We derogate this behavior as "price fixing".
If the same company sells two different products, it is of course allowed to coordinate their prices.
We have many rules such as this, where mergers give companies capabilities that we have artificially suppressed in their smaller, less monolithic competitors.
Monopoly utility companies generally have price regulations because otherwise the monopolist would charge the monopoly price. The monopoly price is inefficient because it results in significantly less production (because of the high price deterring consumption) than would take place in a competitive market.
Allowing collusion across an industry is nothing more than bringing about an informal monopoly rather than a formal one.
I don’t know, what would the price of food be if unicorns were real? Who cares; this is not a realistic scenario. Defection is handsomely rewarded in almost any realistic market, outside of a few narrow cases that have extra physical constraints (e.g. power and water delivery).
But also, what you're describing is already what happens in more consolidated markets that can coordinate without formal contracts enforced by the government, because defection isn't profitable if you expect the incumbent competitors to respond in kind.
It doesn’t even have to happen very often; the counterfactual possibility of getting busted is enough to keep price fixes reasonable.