Coyote Blog

I am a little late on this, but Ilya Somin has a nice post on Joel Waldfogel's book on capitalism and serving niche markets. 

University of Pennsylvania business Professor Joel Waldfogel argues that markets give us too few choices because
they often fail to provide products that satisfy minority preferences.
This is the opposite of Barry Schwartz's argument that markets are bad
because they give people too many choices, which I criticized here.
In one sense, Waldfogel's point is irrefutable: due to high startup
costs or fixed costs and just to the general scarcity of resources in
the world, there are some minority preferences that the market won't
satisfy. The market is undoubtedly inferior to a hypothetical world in
which all preferences, no matter how unusual, could be satisfied at
zero cost. Not even the most hard-core of libertarian thinkers denies
this. That, however, says little about the question of whether
government could satisfy such minority preferences better, or whether
it is even a good thing to provide products whose costs are greater
than their benefits.

He makes a number of good points, including the one that first comes to my mind -- that in most cases, it is the government that tends to limit choice.

the relative lack of diversity of programming on radio stations - one
of Waldfogel's principle examples of the inability of the market to
satisfy minority interests - is actually a failure of government
regulation. As Jesse Walker documents in this book,
the FCC has for decades colluded with big broadcasters in suppressing
alternative and "microradio" broadcasters, thereby greatly reducing the
number of stations and making it very difficult to run a station that
caters primarily to the interests of a small minority. Even a
completely free broadcasting market would not satisfy all potential
listeners. But it would have a great deal more diversity than is
currently permitted by the FCC.

I called for the end of broadcast licensing here.  By the way, the author also ignores Sirius and XM, which have some incredibly niche offerings, and which happen to be in the least regulated part of broadcasting.  Why Sirius would have more niche choices than Clear Channel is explained here.

I could add many other examples onto this.  The FCC's regulation of the cell phone market creates the stupid environment we have today, arguing about locked iPhones.  In a previous post, I demonstrated how new government "a la carte pricing' regulation will lead to more homogenization and less focus on niche viewing audiences in the cable TV industry:

I can add a million examples.  Hair braiders are stepped on by the government in collusion with licensed beauticians.  Taxi companies get the government to quash low-cost or innovative shuttle transportation.  Discount casket companies are banned by government in collusion with undertakers.  Take dentistry.  Why do I need to go to an expensive dentist when 99% of my dental needs could be served by a hygienist alone?  Because the government colludes with dentists to make it so.  And don't even get me started on medicine.  My guess is a huge percentage of the conditions people come into emergency rooms with are treatable by someone without a 4 year medical degree and 6 years of internship.  Does one really need a full medical education to stitch up a kids cut knee?  Well, yes, you do today, because doctors collude with the government to make it so.  Why can't people specialize, with less than 10 years of education, on just, say, setting bones and closing cuts?  Why can't someone specialize in simple wills or divorces without a full law degree?

Every business where the government has licensing is an industry where the government is limiting consumer choice.  It is limiting the number of competitors, and it is specifying a narrow subset of ways in which a company can compete, eliminating service or product innovation.  In Colorado, my employees needs a license to take our customers fishing on a lake.  In Phoenix, you need a license to paint street numbers on a curb.  In Scottsdale you need a license to work out of your own home, a license to valet park cars, and a license to give massages.  And, of course, there are our tremendously dated liquor licensing laws.

Per Milton Friedman:

The justification offered is always the same: to protect the consumer. However, the reason
is demonstrated by observing who lobbies at the state legislature for
the imposition or strengthening of licensure. The lobbyists are
invariably representatives of the occupation in question rather than of
the customers. True enough, plumbers presumably know better than anyone
else what their customers need to be protected against. However, it is
hard to regard altruistic concern for their customers as the primary
motive behind their determined efforts to get legal power to decide who
may be a plumber.

Update:  Just for fun, I sat here and came up with 10 business ideas that would provide better service for customers, would reduce costs in notoriously high cost industries (e.g. medicine, dentistry, law) and which would make me a pile of money. which are all illegal due to licensing requirements that are set in collusion with current industry incumbents.

Regulators can always declare a merger to be monopolistic -- they just have to define the market narrow enough.  For example, if the FCC and FTC are considering calling satellite radio a separate market from terrestrial radio as an excuse to stop the Sirius-XM merger.  The NAB, the trade group fro terrestrial radio, has been going ape trying to block the merger, knowing that the two together will cause its stations to bleed listeners to satellite even faster than in the past.  Hilariously, though, the NAB is having to twist itself into pretzels as it goes to Defcon 1 trying to stop the merger by ... arguing that satellite radio is a separate market from terrestrial radio and thus the merger is monopolistic.  Begging the question, then, why they are working so hard to block it, particularly after the FCC has allowed huge consolidation and merger activity among NAB members.

Now, history is repeating itself yet again, as the FTC threatens to block the Whole Foods - Wild Oats merger because... it claims organic food grocery stores are a separate market from other grocery stores.  Uh, right.  Extra points, as in satellite radio, for claiming consumers will be irreparably harmed by a merger in a "market" that did not even exist 2 decades ago.

This is part 158 or so of a series of posts on how anti-trust law is often portrayed as being pro-consumer, but whose effect in practice is usually just to politically powerful competitors rather than consumers.

I have written a couple of posts on the National Association of Broadcasters hypocritical opposition to the Sirius-XM satellite merger. Radley Balko takes on this same topic:

So when XM and Sirius announced a highly-publicized merger this
year, everything changed for the NAB. Clearly, the two startups it so
feared for so long were floundering. And with no other licensed
satellite providers around, the NAB's position on the merger became
clear: What's bad for satellite is good for the NAB. So the NAB would
oppose an XM-Sirius alliance.

Problem is, the only colorable
argument against the merger is that it would create a monopoly for
satellite radio. XM and Sirius cleverly (and probably accurately)
headed that objection off by noting that satellite radio competes with
a variety of technologies for the listener's ear. This put the NAB in
an awkward position. The lobby would have to argue that despite its
15-year effort to derail satellite radio, satellite radio was not a
competitor. Of course, the harder the NAB fights and the more money the
NAB spends to promote this message, the clearer it becomes that the NAB
fears the competition posed by an XM-Sirius alliance. In effect, the
more the NAB fights the merger, the more it undermines its own argument
against it.

But the NAB has a lot of clout, since it controls most of the media.  Here, for example, is the Boston Globe whoring for the NAB without mentioning that their parent company is a member of the NAB.

I am a big fan of the Mises blog, but in this post on a Boston Globe editorial they miss something pretty substantial.  S.M. Oliva takes as a starting point this absurd editorial on the pending XM-Sirius merger:

the proposed merger of the two US satellite radio firms is premature at
best. At this point, it should be rejected. In half a decade, the two
firms have gone from barely broadcasting to throwing up their hands in
defeat. But it is hardly clear that the nation's two satellite radio
firms will wither and die unless they unite, or that a merger would
benefit consumers.

Oliva does a good job at debunking this argument, but why bother?  It is patently absurd.  How is can one possible define a market at just satellite radio?  Where have I heard this same ridiculous argument before?  Aha!  Right in the press release from the National Association of Broadcasters, the organization most threatened by satellite radio and who would benefit most if it would just go away.

When
the FCC authorized satellite radio, it specifically found that
the public
would be served best by two competitive nationwide systems. Now,

with  their stock prices at rock bottom and their business model in
disarray
because of profligate spending practices, they seek a government

bail-out to avoid competing in the marketplace.

Of course, even a combined XM-Sirius would have to compete in the marketplace -- in fact with the members of the NAB, whose asses Satellite has been kicking for a few years.

Oh, but here is the good part: the Boston Globe's parent company is a member of the NAB, owning two radio stations and 9 TV stations.  So in fact, the Globe was not editorializing in favor of the consumer, but in fact was shilling for its own trade group, working to weaken a dangerous source of new competition for its own broadcast radio and TV stations.  And nowhere in the editorial does the Globe disclose this massive conflict of interest.  Which makes this closing line a joke:

A Sirius-XM merger would snuff out competition within a potentially
lively market at a time when the technology is still evolving. And by
creating one dominant satellite radio firm, the move would likely keep
new rivals from emerging in the future.

As any economist will tell you, it is ridiculous to define satellite radio as a "market."  At its smallest, the market is reasonably "radio."  The delivery mechanism of radio (satellite vs. terrestrial) is meaningless to the definition of a market (the editorial tries to deal with this logical fallacy by creating a straw man that the market does not include iPods, when of course the main issue is that it does include terrestrial radio stations).   The Globe, along with the NAB whose talking points the Globe is just repeating in this "editorial", are in fact interested in reducing competition for themselves, not enhancing it.

Oh, and by the way, if approving a merger of broadcast or media companies is a "bail-out," then I invite the Boston Globe to calculate how much of a bail-out the Times corporation has been given, as the government has approved the merger of the NY Times, Boston Globe, IHT, 20 other papers, 9 TV stations, 2 radio stations, and 35 commercial web sites.  And by the way, what is the market share of each of their papers in their own local "markets?"

I will leave you with a quote from Milton Friedman vis a vis licensing but entirely appropriate here:

The justification offered is always the same: to protect the consumer. However, the reason
is demonstrated by observing who lobbies at the state legislature for
the imposition or strengthening of licensure. The lobbyists are
invariably representatives of the occupation in question rather than of
the customers. True enough, plumbers presumably know better than anyone
else what their customers need to be protected against. However, it is
hard to regard altruistic concern for their customers as the primary
motive behind their determined efforts to get legal power to decide who
may be a plumber.

I have written numerous times about how most anti-trust actions are initiated for the benefit not of consumers but of industry competitors.  The incredible claim that Microsoft's giving away free applications with its OS somehow hurts consumers is just the most famous such example. 

Now we face the specter of anti-trust review of the XM-Sirius satellite radio deal.  All you need to know is that the National Association of Broadcasters, who represent the terrestrial competitors of satellite radio, are lobbying hard for the deal to be rejected.  Nearly every line of the statement is hilarious, but this one caught me:

When
the FCC authorized satellite radio, it specifically found that
the public
would be served best by two competitive nationwide systems. Now,

with  their stock prices at rock bottom and their business model in
disarray
because of profligate spending practices, they seek a government

bail-out to avoid competing in the marketplace.

First, I am sure that the NAB is deeply, deeply concerned about satellite radio serving the public well -- NOT.  Customers gained by satellite radio are customers lost by the NAB**.  In fact, if they really believed the merger would hurt the consumer experience with satellite radio, their statement would instead be "we are thrilled by this merger because it means that customers will be served poorly in the future by the new company and that means customers will defect back to us."

Second, I love the term "government bailout."  What they mean by government bailout is the prospect that the government might not block this merger.  Which, given the white-hot merger activity between NAB members over the past 5 years, means that most NAB members have received the same "bailout."

(HT: Hit and Run)

** In the TV market, terrestrial broadcasters, particularly their local affiliates, got the government to cover their butts by passing a "Must Carry" law, which basically requires that cable companies have to include all the local broadcasters in their feed.  In practice, this and similar laws have forced satellite providers to give you your network feed only through your local affiliate.  This means that instead of DirecTV being able to just give me the NBC national feed, they have to give me the NBC Phoenix affiliate.  As a result, DirecTV has whole satellites that carry forty, fifty, sixty or more identical feeds.  What a screaming waste, and it only gets worse with HDTV.  Anyway, in radio, there is no similar law, so satellite growth is more of a zero-sum loss for terrestrial competitors.  I think the NAB is just huffy they did not get their own must-carry subsidy law passed.