When Government Intervention Lowers Prices

There was a very interesting article on Engadget the other day about how Europeans have lower-priced, faster internet. Broadband can be had for less than £5/month if one just needs a basic plan. How did they get it? Turns out at one point in the UK at least there was a situation like we have in Canada or the US today, a couple incumbent providers (cable and telephone companies) controlling the bulk of the market. The government stepped in and forced open the market so that many more competitors could enter the market without having to build the “last mile” connections that constitute the biggest barrier startups. Now one might expect that British Telecom (the aforementioned incumbent phone company in the UK who does have last mile connections) might be upset by this, but they claim in the video that accompanies the article that their profits are better than ever – even after dragging their feet on opening the market.

What strikes me is that most free-market advocates acknowledge that the whole thing falls apart when monopolies (or duopolies) organize and stamp out competition. There’s nothing magical about private enterprise, it’s just that competition rewards good competitors, absent competition, private enterprise is perfectly capable of becoming bloated and inefficient. Nonetheless, when a situation emerges where it is clear that a particular market isn’t all that competitive, it seems that many free market advocates are very slow to support any move to force competition on the monopolies. I don’t know if this is a result of an inbuilt suspicion about government doing anything or what, but it’s hard to argue the facts when Europe has faster, cheaper internet because government intervened to force the hand of the telcos.