Back during my college days, I remember my economics professor talking about how there are some things that just work better if they’re left a monopoly. He used the telephone company – there was only one of those in those days – as an example.
He compared telephone service in America in those days of the early 1980s with how it was in Mexico then. America had only had one phone company then (AT&T, not-so-affectionately known as “Ma Bell”) so there were only one company’s set of phone lines to be compatible with, connect with, regulate traffic through and be received by, so things worked much smoother. He said there were so many phone companies down there and the system so clogged up and screwed up, that it took hours to get a call placed across the street.
The more efficient and therefore effective provider of service to the public like this example is referred to as a “natural monopoly.”
And there were, he said, other things were only a few companies were enough to efficiently supply the market with goods and services and still provide effective competition between them. These were called “natural oligopolies” – and he pointed to airline service of the time as a good example of such a situation. American, Braniff, Continental, Delta, Northwest, Pan Am, TWA and United were pretty much it for trans-continental – certainly intercontinental - service via a US-flagged carrier. And, it all pretty much worked OK. You could almost set your watch by the flight schedules, you got not only free drinks but also free food to boot on most flights over an hour and, wonder of wonders, you were actually treated like a valued customer.
Then along came deregulation. In the interest of lowered government regulation and increasing market flexibility, Ma Bell was broken up and the airline routes were open to anyone and everyone who wanted to file to fly on them.
And, it was chaos.
For ten years telemarketers bugged the bejeebers out of anyone with a registered phone number trying to sell them cheaper long distance phone rates and it seemed like anyone with a twin-engine airplane was in the air carrier business.
Along came cell phones but we eventually settled on three or four main telephone companies – AT&T (didn’t’ they get “broke up?”), Verizon, T-mobile and QualComm.
Instead of improving service, the airline customer experience deteriorated. Free food is gone on flights today. Instead of feeling like valued customers, passengers are made to feel like criminals by the Transporation Security Administration at security checkpoints before boarding and like cattle once aboard. And the aviation small fry didn’t expand with deregulation – save for Southwest. Most of them went out of business. A lot of the big guys did too. Braniff went down, followed by Eastern and then Pan Am. TWA went into bankruptcy and got gobbled up by American, who just recently filed for Chapter 11 bankruptcy. Continental “merged” with United and Northwest “merged” with Delta, who is now considering buying much smaller USAir.
And the beat goes on. Thirty-some years later, where we once had a natural monopoly on telephone service, we’re left with a small oligopoly that is more or less functional. Where we once had a natural oligopoly in airline routes we’ve returned to an even smaller oligopoly than we started with.
I can’t help but wonder what my professor would think, were he still alive, to have witnessed things coming more or less full circle in these markets.
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