Wednesday, October 12, 2005

Differential Regulation

The economic questions of payment and cross-subsidy are highly relevant to the service economy, so here is an item cross-posted from the Business Organization Management blog.
In some industries, economic questions of payment and cross-subsidy arouse strong passionate arguments, while in other industries these same questions arouse very little interest.

For example, Martin Geddes contrasts telecom with retail.
Telecom isn’t the only industry with distribution bottlenecks, significant market power, and cross-subsidy between the stages of production. Just look at how baked beans are positioned in supermarket shelves. Manufacturers in the UK pay the supermarkets to buy prime positions. Yet telecom incites such great passion in intelligent people. Baked beans don’t. What’s going on?
Martin explains this difference in political terms. Telecoms (along with media and internet) are implicated in democracy and participation, whereas baked beans aren't.

There is another possible explanation in historical terms. Telecoms used to be huge state monopolies, retail used to be hundreds of thousands of tiny independent stores. This is why the public and the regulators pay closer attention to telecom than to retail. (A long delay between cause and effect is easily explained in systems terms.)

And we don't have to choose between these explanations, since they don't actually contradict one another - so they may both contribute to the observed difference. (Multiple explanation is common in social systems.)

So what aspects of business does a society choose to regulate? This is an extremely interesting and complex question, with economic, ethical, social and political threads.

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