28 August 2006
The ASI was wrong
Patrick Crozier

I have a lot of time for the ASI.  They did stirling work in liberating large sectors of the British economy from the crushing embrace of the state and if it were possible to found a museum dedicated to their efforts it would be on the grand scale indeed.

But, their railway policy would not be one of its exhibits. Which is why it saddens me when Eamonn Butler argues that everything would have been just fine but for the original implementation and the effective renationalisation of Railtrack.

It wouldn’t.  The ASI policy was based around the vertical fragmentation - the wheel/rail split.  Vertical fragmentation on the railways doesn’t work.

This does, however, illustrate and important divide amongst those who believe in private enterprise between those who believe in free markets and those who believe in competitive markets.  I believe in free markets, so I am quite prepared to accept the existence of monopolies in certain sectors and localities.  Those who believe in competitive markets want to see the coercive power of the state used to enforce competition where otherwise it would not exist.

But isn’t competition essential for free markets to operate?
It certainly is.  But what is often overlooked is the competition between monopolies.  Look at the Internet.  It is chock full of full and near monopolies like Amazon, eBay and Expedia (hey, the other day I even found a site that had cornered the market in laptop hard drives) but few would say it was uncompetitive or that these businesses were abusing their monopoly positions.  Similarly, while railways may tend to (local) monopoly they face huge competition from road, air and (even) the choice to stay at home.

OK, so they don’t abuse their positions but why not?
I wish I knew.  Amazon have pretty much cornered the market in online book sales so why not double the prices?  Beats me.  I think the classic free market argument is that if an enterprise does abuse its position then competitors will quicly enter the market and take away its market share.  Certainly, it has taken a long time for BT to recover from the hatred of it held by many of its customers.  Ditto IBM.  But in the case of BT competition and price control were enforced.  In the case of IBM they were operating in a fast changing marketplace where new opportunities were constantly appearing.  What if the marketplace is neither regulated nor fast-changing and the barriers to entry are high?  Even there it is difficult to find an example of monopoly abuse.


  1. Surely no great mystery about Amazon not abusing its “monopoly” position, if that’s what it is.

    At present, it is, financially speaking, a goose laying golden eggs.  Why on earth would you kill it, even for a few golden eggs over the regular rate?  It makes no sense.

    And the point is that future anticipated income is an economic good in its own right.  If everyone agrees you’ve got a gusher on your hands, that’s worth a huge amount.  Doubling the prices makes about as much sense as burning half the inventory.

    Maybe if you are strapped for cash?  Even in that circumstance, it would make more sense to sell shares than to destroy the business, as doubling the prices would.

    Posted by Brian Micklethwait on  23 October 2006 at 11:47 pm

  2. If Amazon doubled its prices, people would switch to waterstones.co.uk or foyles.com. Market share is not necessarily an indication of monopoly.

    Posted by Alex Singleton on  15 June 2007 at 06:01 pm

Post a Comment

Commenting is not available in this weblog entry.