Market Power

Is Google Too Big to Further Succeed?

From the Wall Street Journal:

Federal regulators are poised to hit Google Inc. with subpoenas, launching a broad, formal investigation into whether the Internet giant has abused its dominance in Web-search advertising, people familiar with the matter said.

The civil probe, which has the potential to reshape how companies compete on the Internet, is the most serious legal threat yet to the 12-year-old company, though it wouldn't necessarily lead to any federal allegations of wrongdoing against Google.

While Google has faced several antitrust probes in recent years, the U.S. has limited its investigations largely to reviews of the company's mergers and acquisitions. The new inquiry, by contrast, will examine fundamental issues relating to Google's core search-advertising business, its biggest money maker, said the people familiar with the matter.

Many policy watchers think the Google probe ultimately could be as much of a watershed event for antitrust policy as the Justice Department's landmark lawsuit against Microsoft Corp. in the 1990s.

Is Google being punished for being too successful?  They gained their market share by providing tremendous value to end users like you and me.  If competitors can't keep up with the Googles, they will, and should, go the way of the dodo bird.  If Google does abuse their market share, they will also end up abusing the end users which, in turn, opens the door to competitors to gobble up market share.  Markets are unforgiving to those who abuse their market positions.

Barriers to Entry Up in Many Jobs

The Wall Street Journal has an interesting article about state job licensing requirements.  Proponents of such licensing argue it protects consumers while critics, including many economists, argue that the people being protected are those working in their particular industry - protection from competition.  I found this passage about regulation creep interesting:

While some states have long required licensing for workers who handle food or touch others—caterers and hair stylists, for example—economists say such regulation is spreading to more states for more industries. The most recent study, from 2008, found 23% of U.S. workers were required to obtain state licenses, up from just 5% in 1950, according to data from Mr. Kleiner. In the mid-1980s, about 800 professions were licensed in at least one state. Today, at least 1,100 are, according to the Council on Licensure, Enforcement and Regulation, a trade group for regulatory bodies. Among the professions licensed by one or more states: florists, interior designers, private detectives, hearing-aid fitters, conveyor-belt operators and retailers of frozen desserts.

...Texas, for instance, requires hair-salon "shampoo specialists" to take 150 hours of classes, 100 of them on the "theory and practice" of shampooing, before they can sit for a licensing exam. That consists of a written test and a 45-minute demonstration of skills such as draping the client with a clean cape and evenly distributing conditioner. Glass installers, or glaziers, in Connecticut—the only state that requires such workers to be licensed—take two exams, at $52 apiece, pay $300 in initial fees and $150 annually thereafter.

While nobody wants to have shoddy work performed for them, consumers are smart enough to take care of themselves.  And with today's social media, it's almost costless to obtain information about whether, say, a hair salon is giving customers value relative to the price they charge.  If someone screws up your hair, words gets around quickly.

Keep in mind regulation is not costless.

Mr. Kleiner estimates that across the U.S. economy, occupational licensing adds at least $116 billion a year to the cost of services, which amounts to about 0.1% of total consumer spending. In a look at dentistry, Mr. Kleiner found that the average price of dental services rose 11% when a state made it more difficult to get a dental license.

That's $116 billion that could have been spent on other things, stimulating job creation in private industries.  Here's an interesting comparison:

Alabama has perhaps the strictest licensing requirements in the nation: 750 hours of schooling and a written and practical exam. The state gets, on average, four public complaints a year about poor service, according to the Alabama Board of Cosmetology.

Connecticut, which doesn't require manicurists to get licenses, has averaged just six complaints a year to the state over the past five years. Two-thirds of those complaints are about gift certificates that aren't honored, according to data from the consumer protection division of the state attorney general's office.

It hardly seems worth it.

 

Here's to you, Mr. Nanny State FDA Regulator

♪♫ Reeeeeeeeeeeeal men of geeeeeeniuuuuus ♪♫,  

Here's to you, Mr. Nanny State FDA Regulator.  

♪♫ Mr. Nanny State FDA Regulator! ♪♫  

You have decided that we, the members of the common clave, people of the land - you know, morons - eat too much salt and must be protected from ourselves. 

♪♫ I’ve got hypertension! ♪♫ 

So you are going to make food companies take the salt out of our processed food, our lunchmeats, our soups, our cheese - gradually, so that we won’t notice a difference.

♪♫ No taste left! ♪♫ 

But you should know we’re more attentive and clever than you realize, and we have the ability to season our own food, even if that means putting on more salt.

♪♫ Where’s my salt shaker? ♪♫ 

But because you are so smart and know what’s best for us, you’ll continue to dictate, legislate, and regulate like it’s going out of style, to mold us into your vision of perfection, all on the taxpayers’ backs.  So here’s to you, Mr. Nanny State FDA Regulator.

♪♫ Mr. Nanny State FDA Regulaaaaaaaaaaatoooooooooooor! ♪♫  

Inspired by this and with all due apologies to the Anheuser-Busch corporation and Bud Light.

Pork Rinds: Diffuse and Concentrated Interests

Recently I wrote a post on a case in Forest Lake Minnesota where established retail outlets, not consumers, have set out to ban temporary retail kiosks. 

When it comes to pork rinds, U.S. producers have long had the most skin in the game. They produce more of the crispy pigskin snacks than anyone in the world. Now a new federal rule that will loosen import regulations for pork rinds is roiling the industry. The Department of Agriculture, responding to an Ohio company's request, has opened the door to imports of the pig skins used for pork rinds from Brazil and other nations.

Just as in the kiosk case, guess who is fussing about the relaxed import rules?  If you said "consumer groups" then go back to the back of the room.  If you said incumbent business interests or government officials, then you win a seat at the front of the room.

That has stirred an uproar among rivals and many state agriculture officials, who warn that importing pork rinds from areas of the world afflicted with livestock diseases is a threat to food safety.

Aren't consumers perfectly able to determine for themselves what is best for them?  Of course we are, especially in these days of Google searches, blogs, and all kinds of "answers" pages.  We're smart and don't need to be babysat. 

TBut while the overall benefits of relaxing rules to increase competition to consumers is likely to be large, the marginal benefit felt by any one person is small and not worth fighting for.

Now, no-one wants to eat nasty pork rinds.  But one of the things that competition does is that it drives firms to deliver safer products, to put more effort into quality control, knowing that if they put a bad product on the marketplace, their business would suffer and their rivals would gain business.  But of course this added attention to quality control means higher costs   Plus more competition also means lower prices.  So more competition means thinner profit margins for incumbent interests, and they band together and fight rules that would bring them more competitors.

What about state ag officials?  At least their job is to make products safer, right?  Well, if consumers and, via competition, firms can maintain decent levels of safety without government help, then who needs state agricultural officials to look after us?  Despite the veneer of being a government employee, they are as rational and self-interested as the rest of us.

But since the costs of competition are felt by a relatively small number of people, the marginal effect on any one of them is large relative and makes it worthwhile for them to organize and fight against such rulings.