From: Mike Godwin <mnemonic@eff.org>
Date: Wed, 10 Nov 93 10:28:59 PST
To: pmetzger@lehman.com
Subject: Re: Should we oppose the Data Superhighway/NII?
In-Reply-To: <9311101712.AA21990@snark.lehman.com>
Message-ID: <199311101826.AA19786@eff.org>
MIME-Version: 1.0
Content-Type: text/plain


 
> Wouldn't the solution then be to eliminate the capacity of local
> municipalities to grant cable monopolies?

That might be one solution. It certainly will be part of the ultimate
solution.

> Fiber is compact -- five or
> even twenty cable companies could coexist happily in New York (where I
> live) if the city didn't grant "franchises", which it charges
> exhorbitantly for. With large scale competition between cable
> companies, monopolies would no longer be a problem.
 
Which cable company has to eat the cost of digging the original
groundwork? Or are you saying that every new cable entity will have 
to lay its own infrastructure? The capital costs of that create an
immense barrier to market entry, and ease of market entry is a
pre-requisite for free-market competition.

The only reason the first cable companies even invested in laying cable is
that they were guaranteed a local monopoly. Since government, in effect,
participated in the creation of that part of the infrastructure, there are
serious issues as to whether the first cable provider in a local area
should continue to profit from a government-granted incentive while new
potential providers are left high and dry.

These are the kinds of issues that need to be addressed as we move from
monopoly to free-market competition--how do we correct for the distortions
caused by the initial government intervention in the market?

> Isn't the problem in question the result of government granted,
> rather than natural, monopolies? Isn't it thus wrong to call it a
> "market failure"? Seems more like yet another government failure.

"Market failure" is a term of art. It refers to a condition, which
may in fact be caused by government, in which market mechanisms have been
prevented from ensuring competition.


--Mike