Friday, June 17, 2011

Seeing Market Power

One of the things that separates the economist from the political scientist or the sociologist is power. No, I don't mean that we have more power in political discourse than they, however true that probably is. I mean how we talk and think about power.

To an economist, the exercise of market power is a real possibility in today's world of very large firms with largely unprecedented concentration ratios. But our basic assumption is one of free markets. We assume markets are free and fair, and you have to prove to us that market power exists and that it is being used. We have sophisticated tests to identify if market power is being exercised and entire literatures devoted just to various questions about market power.

To a political scientist or a sociologist, this is naive at best and a complete waste of time at worst. In many ways, they represent the scientific study of power in human relationships. Power is everywhere. It is assumed to exist from the get go. You have to somehow prove (and I do not know if they have tests for this) that power does not exist.

This makes conversations between the two camps a bit strained at times.

Most of the time, I am quite contented with the power of market forces as an instrument of regulating firms. Most of the time, you have to prove a power relationship exists.

The one time when I'm willing to crack is at a doctor's office. Since this happened recently, watch as my calm economist demeanor breaks down completely:

First they overbook - schedule more people than they can fit in one day because they know not all of us will show up (on average). Then they charge me money if I don't show up. They charge me even if I am merely late. I don't get to charge them when the doctor makes me wait an hour or more.

So I was ten minutes late yesterday and was told I wouldn't even get to see the doctor, who was already running more than an hour late, but I'd still be billed. I'm ten minutes late, she's an hour late, and you charge me? Ha! I double charge you! I quintiple charge you because you are 6 times later than I am! Ha!

No such luck. And the practice is universal. I think they ought to pay me when I don't show up because they are perpetually behind. I'm doing them a favor.

How about congestion pricing for doctor's offices?

I also think the plumber who told us he would show up between Monday 8am and Tuesday 7pm (literally) and still never showed, ought to owe us money.

This is my rant. I will return to scientist mode in 3 ... 2 ...

The problem is an undersupply of doctors and plumbers. If we had more, competition would drive down the prices consumers had to pay as well as the wait times. Now, go out there, identify the government policies keeping out doctors and plumbers (eg. licensing), and restore the balance of market power!

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