A Meaningful Life

Systemic Monopolies are a problem I have long thought exists in our less than ideal form of capitalism.

We think of traditional monopolies as being about a business having some unique advantage or forming some sort of cartel to dominate a market. While most economies have mechanisms to prevent this they equally create what I call systemic monopolies through their solutions and also by the academically simplistic view on what sets prices of products and services in a capitalist system.

I believe Systemic Monopolies tend to exist where there are only a few key players and many very small players (the residual having near zero influence). They also exist where it seems they have competition but when you look at barriers consumers face to buying products from their competitors they are actually in a situational or localised monopoly.

So what are some examples and what trait(s) lead to the effect of a monopoly even though in the strict sense of the definition there isn’t one. Let’s call them Systemic Monopolies:

Mega Shopping Centres

Suburban locations can’t usually support multiple large shopping centers for consumers to choose between. You can only have one large Westfield or Centro shopping center as an example. Accordingly you get a localized monopoly situation where the time and financial cost of travel introduces a barrier sufficient to cause only shopping at one major location or center to be viable. As you get lower down the socioeconomic curve this barrier gets even larger on a relative basis.

Local councils enhance this effect, possibly not intentionally, by dis-allowing the development of alternatives due to their ability to deny projects and business ideas on the grounds of ensuring local economic stability. An example might be disallowing approval to build too many child care centres in a suburb.

Banks

Pre-agreed or regulated transfer pricing fees between banks exist to compensate banks when customers use services such as ATM’s that belong to the other bank. When you use another banks ATM, your bank gets charged a fee. They then charge you. The result is the system tends toward a price equilibrium for the product. Quite standard ATM fees in this case. So the effect is you have no choice, just one choice in fact, "the fee system". Each banks prices tend to replicate each other over time or the differences are so small that the cost of changing bank doesn’t allow for any choice or opportunistic consumer behavior around price.

There is also tendency for new bank entrants not to compete on price because equity markets will punish their stock price accordingly. This syndrome is about conformity to peer group pricing levels. Not in a cartel manner, but more in a "I don’t dare to be different" kind of way. Much like how a school girl won’t wear anything to different to her friends at a party. Consistent bank pricing and product behavior relative to their competitors equates to a stable stock price. As a bank you are encouraged by the market not to compete aggressively on price.

None of this is good for consumers

I think the systems of government, regulation and markets cause these Systemic Monopolies to occur. Governments at all levels need to pull themselves out of the monopoly dark ages and look more closely at Systemic Monopoly situations and attempt to prevent them. Councils should reinvigorate the "High Street" shopping strip, farmers markets and other choices to compete with the Westfields, AMP’s and Centro’s of the world.

There just doesn’t seem to be enough choice in some situations.

Photo: NatalieMaynor