Chocolate and Gold Coins

Thursday, August 04, 2005

In Praise of Competition

In recent posts about water and about transportation, I came out in favor of allowing private monopolies deal with the production and maintenance of these goods. You might think that I am one of those people who thinks that anything in the name of free markets is wonderful including firms buying up each other and forming monopolies.

Not at all. I am a big believer in competition. Competition is what forces corporations to become efficient, not really the profit motive. I merely stated that sometimes monopolies suffer enough indirect competition that it would be better to keep them unregulated so that they have proper incentive to modernize than to regulate them and reduce prices. Indirect competition might keep them honest and (fairly) competitive.

However, if there is no competition whatsoever, an unregulated monopoly might be the worst of all possible worlds. Such firms will be fat, dumb, and lazy, just like the government, and unlike the government, you cannot vote the bums out. A good example of this might be the cricket board of India, (the BCCI) which, despite having a pool of talent of 1 billion people to draw from cannot produce a cricket team as good as the team from Sri Lanka which has a population of 2 percent of India’s.

There’s nothing like competition. There’s no substitute for it. And one of the clever things that governments in the US have discovered is that they can allow former monopolies to directly compete with each other. Now I have choice in my local phone service between the old phone company and the local cable company. That’s cool. And I was only too glad to dump the old fat, dumb, and lazy phone company. Let me tell you why:

Once upon a time, our family was in the dark ages of Internet usage: dial-up modem. The Internet was a very, very slow place. We wanted to step into the modern age of high-speed Internet. So our local phone company was offering a nice deal on DSL. DSL is an initialism like MBA that might mean many different things to different people, but in our case it did not mean Internet service. We never got DSL to work. Worse, as soon as DSL was switched on, our phone service stopped working.

We called customer service to complain. Oh, where is an Indian call center when you need one! For ages we would wade through the options of the computer menu until we could find a way to talk to a real person. And after typing in our phone number into the computer menu and looking up our records, the first question the operator asks is “what is you phone number?” What was the computer doing? What good was “looking up our records,” if you don’t give them to the operator when she gets on the line?

They tried to diagnose the problem over the phone. They reminded us we need filters on every phone. They had us unplug all of the phones and wait a couple of hours and plug them back in, one by one. The phones worked again (for a while) but then when we tried to access the Internet, everything failed. We were without phone service again. This was frustrating.

So we call again. Again we get the computer. Again they look up our records for no purpose. Again we wait for ages to talk to someone. They agree to send a technician. They warn us that if the technician finds it is a problem with our equipment, it will cost us big time. We know it must be a problem with their equipment because the phone worked fine before DSL was installed. Then they schedule a technician:

“Would anyone be available at home between 8:00 A.M. and 6:00 P.M.?”

What kind of a window is that? Can’t they narrow it down a little more than all day long! As if my wife and I have nothing better to do that to waste all day at home waiting for the repair technician.

So the first technician comes, can’t figure out anything, and leaves without saying anything. I call up customer service (computer, look up records for no reason, wait for ages, talk to human) and customer service says that any other person will come tomorrow.

“Would anyone be available at home between 8:00 A.M. and 6:00 P.M.?”

Fat. Dumb. Lazy.

The next technician cannot figure out anything either. At least he tells me that. He says his supervisor will come the next day. Oh great – I’m missing a whole week of work. I work late into the evenings to make up work I could not do in the day. I’m fuming.

The next technician miraculously determines that nothing is wrong. “It’s an inside problem.” We will have to pay big time. And he cannot do the inside work. I’ll have to call another technician.


Fat. Dumb. Lazy.

This is their game: the outside tech says its an inside problem, the inside tech says its an outside problem. The only way to resolve the problem is to buy a maintenance program at jacked up rates that would cover maintenance for months and months. Well, why would we need monthly maintenance after they fix the problem?

So we get another technician to come out. My wife agrees to stay home that day. Technician 4 is clueless and just leaves without telling my wife anything. My wife calls me (luckily we have cell phone service) and tells me to yell at customer service. I call an complain, but I don’t yell, (I’m too polite). My wife yells at me, “You yell at me and (our son); why don’t you yell at customer service?” It’s not her fault that she works for a fat, dumb, and lazy firm, (well not entirely her fault).

This is getting to be a source of real tension. I tell my wife, “Forget DSL, we’ll go with cable modem.” We can get Internet with the cable company. “But that is more expensive,” my wife complains. But at that point, both of us realized that it wasn’t worth the aggravation.

What a difference between the cable company and the phone company. You could certainly tell who was fat, dumb, and lazy, and who was lean and hungry. The cable company would come out in the evening, after work. Unlike the phone company, the cable technician was extremely competent. He got us set up in no time. High speed Internet sure is nice.

Then we found out that we could get phone service with the cable company too. Goodbye fat, dumb, and lazy phone company! We jumped on that opportunity. The technician came in the evening. I didn’t miss work. He knew what he was doing and he was able to fix us up in an hour. When he was done he asked: “You didn’t have phone service before did you?” “Yes we did” “I don’t see how, your wiring was all messed up. But I straightened it out.” It pays to have good technicians.

Moral of the story: competition is a very good thing.

Update: Read Sunil Laxman's excellent post on his similar experience with his cell phone company.


  • Michael,

    Very good post. It brought back memories of our struggle with the "fat, dumb, lazy" company. We could never get our DSL to work either. And yes, we heard the same stuff about needing filters and how the wiring was all wrong in our house. Finally, we too chose the cable modem.


    By Blogger Sujatha Bagal, at 9:09 AM  

  • Hi Sujatha
    This post doesn't convey a tenth of the aggravation that the old phone company put us through. We were without Internet for a month and phone service was more off than on.

    Curiously, no one my wife talked to had any problems with DSL. Anyway, we sure like the cable Internet.

    By Blogger Michael Higgins, at 9:21 AM  

  • Michael

    Nice post and I am sure that the actual aggravation must have been much worse. BTW..thanks for Blogrolling me on your site. I deeply appreciate it.

    Your interesting post and thinking about the Mumbai rains has made me think about governments and monopolies. If we accept competetion amongst our service and product providers then why not from our governments ? True we get a chance to vote them out after, what seems like interminable duration of time, but why not allow multiple government to administer and let people decide who they decide to be affiliated to. Just having one ruling party for 4-5 years somehow does not seem right in a capitalistic society. Just like one is allowed to switch phone companies at their discretion, so should it be with governments.
    Only mulling over this, thats all.

    By Blogger Sourin Rao, at 9:34 AM  

  • I agree with the theory on paper that competition is good, it prevents stagnation. However, even in a competition, ultimately some competitors get devoured, and ultimately, it leads to remonopolization. Granted, as long as there is at least one more competitor in the arena, things wont be that bad, but there is always the chance that there wont be. What happens then?

    By Blogger gawker, at 10:32 AM  

  • I can feel your pain Michael......I was just beginning to write up a post on something very similar!!

    But it's high time these larger, incompetent companies got off their backsides.......they are incumbents anyway, and are already at a disadvantage with any kind of (even slightly) disruptive technologies/companies (even if the new entrant is selling the same thing, their stratagies are far more effective).

    And I detest the BCCI. And they can't even be voted out. :-(

    By Blogger Sunil, at 12:30 PM  

  • Hi Sourin, Gawker, Vikram, and Sunil:
    Sourin: What you're talking about sound a little like the Tiebout island economy: each island (or city) has their own government and if I don't like this one I vote with my feet and go to the next one. The problem with that is if you live in Mumbai, your choice is to move to Bangalore or someplace, and maybe that isn't really what you want to do. But I like the idea that government should be more local because if things really get bad, I can leave.

    I don't see how you could have two governments over the same city. You get choice of police, fire, etc. Then your house catches fire and wrong fire dept comes out and says, "Sorry, you need to get the other fire dept." I don't see how that would work, but I haven't given it much thought.

    Gawker: I'm not too concerned about little firms getting gobbled up because often that is an efficient way of diffusing technology, and it can be lucrative for the owners, which encourages start-ups. I don't like it so much when really big firms gobble each other up. The recent Adidas acquision of Reebok is troubling, but maybe it is necessary to compete with Nike. I definitely would not allow Nike to buy any competitors.

    But notice that the new global economy has really increased the number of firms that can compete with each other. In the US when I was a kid, there was only 3 automakers (and 3 TV channel - another story). Today, I have a choice of atleast a dozen makes of cars.

    Vikram: $15/month - great deal! We're paying $40. But we can afford it.

    As for the BCCI - has any sports organisation broken more hearts? :)

    Sunil: Go ahead and post about it. I always love to read your posts, you write so well. That squirrel terrorism post was a classic.

    As for Fat, Dumb, Lazy companies, there's nothing like a little competition to keep them honest. This is what India really needed and still needs. Think about that old Ambassador car that hasn't changed it style in 50 years. That used to be the only choice. They probably still have a niche market, but now most people have much better choices. Got to lower those tariffs!

    By Blogger Michael Higgins, at 1:32 PM  

  • Michael - why does that resonate a lot? Have you been living my life? Or am I living yours?

    Hopeless Phone Company and that too in USA... the Bell country?

    Cannot yell at customer service? but can yell at wife and kid (mine is a daughter). BTW - I yell a lot on the voice activated help / menu now... I just talk in Hindi so that the voice activated menu gets confused and puts me on to a person .. it is just so much better to talk to someone even if it does not help.

    wife yells at you? OK OK - that is with everybody....

    Love Cable?

    and Minneapolis?

    You sound like my lost brother from Kumbh Mela?

    do you have a crescent shaped mark on the back side of you left shoulder? No? Nor do I? see -- we are realted somehow...

    BTW - As usual good post.

    I know this comment does not gel with the generally intelligent comments that you have on your post... but I am having a off day and anyway my previous comments were equally dumb and you tolerated them.

    By Blogger Amit, at 4:57 PM  

  • Competition is certainly praise worthy - as is your post.

    My experience with DSL in the US was not bad - went with a competitor Earthlink rather than Bell Atlantic - amazing customer support.

    But here is Norway, you have the mother lode of all fat, dumb and lazy monopolies. Unfortunately, the private companies, that have competition do not fare much better. You could propably blame the socialist structure for that. It took me 3 months to get a land line installed (the monopoly was at fault) and another 2 months more to get my DSL (a private company this time with loads of competition).

    "I don't like it so much when really big firms gobble each other up. The recent Adidas acquision of Reebok is troubling, but maybe it is necessary to compete with Nike. I definitely would not allow Nike to buy any competitors."

    But why regulate preferentially? The reason a company holds a huge market share is because they are doing certain things right (Well, atleast in most cases). If, based on these resources, they plan to "gobble up" other companies, wouldn't it be for the better?

    By Blogger Iyer the Great, at 5:37 PM  

  • Hi @mit and Rahul (Iyer...)
    @mit: Thanks, I'm glad you liked the post. I don't yell at my wife and son very often, (my wife was yelling at me in the above dialog but I don't mind, she needs to vent sometimes).

    Rahul: Why regulate preferentially? I agree that it would be very wrong to pick on company X and not Y because you don't like X and you like Y (Y contributed to your campaign). I'm not talking about that.

    There are 3 major areas where gov't intervention might be warranted: externalities, public goods, and monopolies (trusts). It is in the public interest to make sure that formally competive firms don't collude to form a monopoly. If Nike becomes a monopoly by just outselling Reebok and Adidas, then fine. But if Nike buys Reebok and Adidas, then they can earn a pure profit by raising the price of their shoes. With no competetion, Nike shoes could easily sell for over $100 apiece. This is primarily why labor unions are controversial: they replace competition with monopoly.

    By Blogger Michael Higgins, at 4:13 AM  

  • Excellent post, Michael.

    By Blogger amit varma, at 3:35 PM  

  • Hi Amit
    Thank you very much.
    Coming from you, that is a very nice compliment indeed.

    By Blogger Michael Higgins, at 4:39 PM  

  • Michael Just a side note -

    The analogy of Competition is so true even for Blogosphere.. ain't it? If not challenged the popular blogs may become Fat Dumb and Lazy.

    I think the blogosphere lies somewhere between oligopoly and perfect competition. It can never be a complete oligopoly because of the free entry and exit without any barriers and it will never become a perfect competition because the product can NEVER be homogenous.

    By Blogger Amit, at 4:30 PM  

  • Hi @mit
    The blogosphere is hyper-competitive. I am amazed at the quality of blogs that only rank number 10000 in the world. Think about the wonderful Sepia Mutiny and India Uncut, they dont even crack the top 1000.

    Maybe the Times of India and other MSM outlets need a jolt of competition, however.

    By Blogger Michael Higgins, at 6:36 AM  

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