Monopolies

Picture of Monopoly board game

I think the game of Monopoly teaches you a lot about business, and life. As a small child, I loved this game. I would play with my sister, who is two years older than me. Being older, and wiser, she could usually beat me at most games.

However Monopoly was different. I’d turn on the charm and offer to buy one of her properties. I’d point out that I was offering double the price on the board and therefore my offer was exceptionally generous! Once she’d been persuaded to sell, things would change rapidly. My sister hadn’t realised that I’d completed the set – and that I’d soon become a big property magnate.

Ironically it was the rent my sister paid me, that later paid for the hotels that my sister would unwittingly landed on. Her pleas for rent reductions were scorned at, and I enjoyed hopping around the board, landing rent free on her mortgaged properties – knowing that it was just a matter of time before the inevitable end.

So when I eventually learnt about monopolies in school, I thought the teacher would say they were evil and bad for everyone (apart from the owners of the monopolies). I learnt about duopolies and oligopolies. The teacher used radio as an example of how monopolies could be good.

In the early days of radio in the UK, the BBC effectively had a monopoly. The first station was the Home Service (now called Radio 4) offering a mixture of news, drama and discussion. The next station was called the Light Programme (now called Radio 2). In contrast to the Home Service, the light Programme offered popular music and entertainment. The Third Programme (now called Radio 3) offered classical music. The monopoly broadcaster had effectively more or less covered all tastes with just three channels.

Our teacher then asked what would happen if it was different commercial companies running each of the stations? If 10% of the population preferred classical music, and assuming the stations all had equal abilities etc., then we would need ten different stations before it made commercial sense for one of them to broadcast something that only appealed to 10% of the potential listeners.

I realise that the teachers model was simplistic. For instance Classic FM listeners may be more likely to drive Bentley’s and attract high value advertisers. However it helped to make the point that sometimes monopolies can be good.

I don’t like is coercive monopolies, where companies can raise prices without risk of competition arising to draw away their customers. I don’t understand why I pay far more for my water, when I use less than relatives – who use more water than me and live in a more rural area (presumably with more costs)? Presumably their water supply company is more efficient (or makes less money) than mine?

Every year now I waste hours deciding who I should get my electricity, gas, water, phone and internet services from. The competition is supposed to bring efficiency. I don’t understand how companies can provide large profits to their shareholders and at the same time be more efficient than the previous state services. In any event there’s only one set of pipes and cables to my house – so it’s not genuine competition.

The people who suffer of course are the vulnerable. The elderly, who may not be able to use the Internet, are probably still getting their gas from British Gas – and paying through the nose. The poorest are on meters – and that’s the dearest way to get fuel. In the old days I paid three months in arrears. Now, despite the fact they know far more about my fuel usage, my account often ends up with them having my money before I’ve even used it!

Some would argue competition in the energy markets allows me to make more selective choices. My view is that if, for instance, green renewable energy is a good thing, shouldn’t everyone be having it. I’m very much in favour of renewable energy – but don’t see why someone else should go elsewhere to save money. I’ll get their extra pollution.

Transport is interesting. At one stage there were four different bus companies operating between Crewe and Nantwich. In theory this should be good. However return tickets are only marginally dearer than single tickets – and they would never accept another company’s tickets. So I’d be at Crewe, seeing a bus going to my destination and I’d have a choice. Pay twice, or have an unnecessary wait. When the competition was intense, there was loads of buses competing at peak times, but not at other times.

Nantwich railway station is currently run by Transport for Wales. Effectively it’s a take it or leave it choice. If I get a ticket to Manchester, an any operator ticket (which is prominent on their ticket machine) is dearer than the Transport for Wales only ticket!

The supermarkets have done a good job portraying themselves as people who drive down prices. Often this is at the expense of their suppliers. If their mission was to provide cheap food for all, why do they charge more for the same items in convenience stores? Again the vulnerable end up paying more.

Mobile phone services are operated by a few massive companies. Where I live is borderline reception for some operators, but where my mother-in-law lives is also borderline reception – but for different operators! So do I get two different phones? Wouldn’t it be wonderful if all the operators amalgamated their provision for phones and Internet to give everyone the best coverage everywhere? Of course, where competition exists, that’s unlikely to happen.

All these different service providers have costs. These include the costs of marketing department and adverts, and the costs for dealing with customers wishing to switch. Who do you think pays for all of this? We, the consumers, do!

My Internet contract is coming up for renewal. Over the years I’ve tried loads of different companies. However it’s always coming down the same wires – and I’m too far away from fibre connections to get a really good service. I resent the time that I will spend finding out who will be cheapest. If I change I have to spend ages altering the settings on all the different devises we have which use WiFi. I don’t think this is a good use of my time.

So is competition good? In theory yes. Or at least Perfect Competition can be when we have Perfect Information. Sadly that’s often not the case….

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