[BETA] Fortnightly

Ah, the wonders of competition! Out with waste, in with efficiency. The prospects are exciting. So why look back wistfully?

If there is anything more abhorrent than wife-beating and drug abuse, surely it must be monopoly. Monopoly is un-American: To the economist it represents the very state of original sin. To the courts it ranks with conspiracy. Monopoly promises economic waste, throttled production, obscene profits, and naked power (em all rolled into one. Consider what used to be called the "public utilities." In that sphere, regulated monopoly flourished for many years. Yet, with all its faults, we still feel a lingering nostalgia for the days of unabashed monopoly.

Unnatural, but Prized

The monopoly in question was once thought to be "natural" (em at some remove from the unspeakable category of "unnatural" monopolies. Of course, these regulated monopolies of yore were stodgy enterprises, mostly headed by lawyers and accountants and engineers, and a bit untutored about marketing. Until recently, the name of the local light company was pretty descriptive ("The Light Company"). Only in recent years has the electric company called itself "EnergiWhiz," or the phone company called itself "Surftech" or "TechnoTalk."

The consensus now proclaims that regulated, monopolies lacked the stimulus for innovation that seems to prod more entrepreneurial ventures. Where does this leave the Bell Laboratories, a research wonder of the world, yet the offspring of a huge monopoly?

Admittedly, the Bell Labs, unsparked by competition, could do no better than to invent the transistor and to acquire a Nobel Prize or two for its trouble. But how does one explain this prowess in an institution innocent of competition and nurtured by monopoly?

Actually, one can make the case that research and innovation stem not so much from competition as from high profits coupled with an inquisitive management. Many highly competitive industries are notable for the poverty of their research. For example, meat packing may produce a profit of one percent on sales. The competition is intense, with scant funds available for research. That leaves

a disturbing question: Will the new,

leaner communications competitors out-innovate their bloated, but apparently creative, predecessors?

The Cost of Choice

No idea is dearer to the hearts of economists than "choice," unless it might be "marginal cost." The traditional monopolies have been held up to scorn for the lack of options in their services. Would not a more entrepreneurial-minded competitor offer a more diverse package of services, and at a variety of prices? Electric power, for example, is said to be too expensive because it is too reliable. Arguably, an unregulated power company might offer a discount for "pretty unreliable" service. Now that's a real option.

How do we know that consumers do yearn for options in utility service? Ask any economist, who, of course, knows the consumer's mind better than the consumer. A viewer should be delighted with 500 cable television channels, just as she takes pleasure in choosing among innumerable long-distance telephone deals, all plugged incessantly on television. And wouldn't she love to try a totally unknown long-distance company while she's holed up at