DSL Outage: Even a Tinge of Competition is a Better Alternative

There is another principal way to spot whether an industry has been competitive or has been plagued by politics.

Market competition essentially emphasize on the satisfaction of consumers PERIOD. 

As the great Austrian economist Ludwig von Mises explained:

The real bosses, in the capitalist system of market economy, are the consumers. They, by their buying and by their abstention from buying, decide who should own the capital and run the plants. They determine what should be produced and in what quantity and quality. Their attitudes result either in profit or in loss for the enterpriser. They make poor men rich and rich men poor. They are no easy bosses. They are full of whims and fancies, changeable and unpredictable. They do not care a whit for past merit. As soon as something is offered to them that they like better or that is cheaper, they desert their old purveyors. With them nothing counts more than their own satisfaction. They bother neither about the vested interests of capitalists nor about the fate of the workers who lose their jobs if as consumers they no longer buy what they used to buy.

The race to win the votes (expressed as money sales) of consumers comes through many channels, such as pricing, product/service quality, distribution, accessibility, after sales services or more…. 

In other words, the market economy is about the pampering of consumers, where competition plays a very important role in arriving at such goals.

In the context of my current predicament where I had limited access to broadband services over the entire week, when an industry leader who reportedly commands 70% share of market, blatantly neglects and disregards the concerns of their affected consumers, which leave the latter groping in the dark as to when such disruptions will end—supposedly due to “network maintenance” or transition pangs from “system migration”, and where the service provider hardly offers a meaningful feedback on the status of restoration process or at least propose alternatives to the ease the burdens of consumers from such troubles, such attitude exudes not only overweening contempt on consumers but also manifest on the malady of deficiency of competitive forces in motion. 

By the way, this has not just been about me. Current troubles supposedly involve about 10-20% of subscribers according to one of their service agents. The industry leader perhaps think that household internet access may have been only about access to popular media networking sites, so they can just go about ignoring consumer’s concerns.

Here is a public figure virulently castigating the industry leader over at social media due to exceedingly “slow internet access”

True there may be existing competitors, but if the supposed competitors deal with consumers in the same manner but whose difference lies in the degree of (lesser) apathy, which means consumers have been seen as a secondary priority then such is a manifestation of a heavily politicized industry. As a side note, feedback from some friends suggests that the alternative major competitor seem to share the same outlook as with industry leader.

Nonetheless still even a tinge of competition is important. One week of internet inaccessibility has prompted me to end a 10 year relationship and to experiment with a fledging competitor.

So competition provides the window of choice between having access or having totally NO access to the internet.

P.S. Due to DSL outage there will be no stock market commentary this week

Video: Competition, Beer & Diversity

This cool video relates market competition in the beer industry with biodiversity (hat tip Cafe Hayek)

Cheers!

Quote of the Day: The Knowledge Problem

As with Hayek’s work, central to Pennington’s book is a deep understanding of the knowledge problem.  This of course involves understanding that the relative values of alternative outputs that can be produced with the same set of inputs can be determined only in competitive, private-property-based markets.  But this understanding involves more; it also involves the realization that such knowledge is never and can never be “given” (as is assumed in economics textbooks).  That is, this knowledge is not simply revealed by decentralized, competitive decision-making; it is also produced by that process. 

No consumer comes to market with a detailed, full, and fixed scale of values that he seeks to satisfy.  That scale takes shape only as consumers confront actual alternative opportunities in the market.  Likewise, no producer comes to market with detailed, full, and fixed plans on exactly what to produce, how to produce it, and how much of it to produce.  Those plans take operational shape, and are modified, in light of actual experience in the market—a market whose details are always changing in unanticipated ways for both consumers and producers.

The knowledge problem, though, has yet another dimension beyond the economic.  It springs from the fact that different people have different scales of ethical and political values…Egalitarians of various stripes, “market-failure” theorists of various pedigrees, and environmentalists of various shades of green all typically base their social-engineering schemes not only on a presumed agreement on ends that is unlikely to exist, but also on the simplistic assumption that knowledge of the rankings of various ends is easily gathered and made known to government officials.

(bold emphasis added)

This splendid explanation of the knowledge problem is from Professor Donald Boudreaux’s book review of Mark Pennington’s Robust Political Economy at  the freemanonline.org

Laissez Faire Capitalism: Private Jet Gets Bigger, Faster and Cheaper

Ah, the beauty of laissez faire capitalism as revealed by the Private Jet industry.

First, the financial bubble bust which affected the private jet industry, forced the sector to undergo painful adjustments through the market clearing process. 

From CNBC: (bold highlights mine)

The private jet industry is gaining altitude again after its death spiral during the recession. But jet makers, brokers and fractional companies say it will be years before the industry reaches its pre-crisis peak – if it does at all.

Used jets are still selling for half of their 2008 prices, while inventory remains high and jet use remains well below peak levels, as companies and the super-wealthy pare back their flights. As the industry rapidly reinvents itself to adapt to the shifting demand, the price of flying private is falling to record lows.

“It’s been a brutal downturn for this industry, followed by dashed expectations for recovery,” said Richard Aboulafia, analyst at the Teal Group, the aviation-research firm based in Fairfax, Va. “But the features are in place for a recovery and I think we’re already starting to see some slow and steady progress.”

This year, there have been a total of 172 new jets sold in North America – a drop of more than 70 percent from the 658 new jets sold during the same period in 2008, according to JETNET, the Utica, N.Y.-based jet research firm. The volume of used planes sold is about on pace with 2008 and 2009, yet prices for used planes are still down by a third or more from their 2008 peaks.

Price signals has then led to the re-coordination or the reallocation of resources towards areas preferred by the consumers.

Moreover, competition has prompted producers to tailor fit their products to the demand of consumers leading to lower prices, faster, bigger and more efficient planes.

Again from the same CNBC report…

The weak demand and prices has led to a radical restructuring in the private jet business, forcing all segments of the industry to conform to the new realities of flying private.

For jet makers, the future is about emerging markets like China, India, Brazil and the Middle East. Jet manufacturers are ramping up their sales staffs and expanding offices and support teams around the world to capture business from companies and the newly rich in these regions.

The jet makers are also launching products better suited to the new market. The top end of the market – with the biggest, fastest, most expensive planes – has been the most resilient…

In the mid-range and lower end of the market, aircraft builders are aiming for faster, more efficient planes…

For fractional and charter and companies, the new game is providing lower prices, better service and more flexible offerings. The industry has seen a large rotation among jet owners and short-term customers, as those private fliers who used to own planes outright now opt for lower-priced fractional shares or charters.

The surplus of jets in the market has led to a boom in the sales of seats or shares on individual flights. JetSuite, the California-based charter company, is now offering last-minute deals for $499. Travelers this week could charter one of JetSuite's Phenom jets – which seat four people  – from Los Angeles to Las Vegas or from Washington to Boston. The $499 price was valid as long as the customers registered through Facebook.

Many other charter companies are offering larger jet charters for $5,000 or less per flight.

Given this trend to relentlessly satisfy the consumers, one cannot discount that even the middle class, one day, may be able to access private jets.

This invaluable lesson from Joseph A Schumpeter’s classic Capitalism Socialism and Democracy (Google Books preview).

There are no doubt some things available to the modern workman that Louis XIV himself would have been delighted to have—modern dentistry for instance. On the whole, however, a budget on that level had little that really mattered to gain from capitalist achievement. Even speed of traveling may be assumed to have been a minor consideration for so very dignified a gentleman. Electric lighting is no great boon to anyone who has enough money to buy a sufficient number of candles and to pay servants to attend them. It is the cheap cloth, the cheap cotton and rayon fabric, boots, motorcars and so on that are the typical achievements of capitalist production, and not as rule improvements that would mean much to the rich man.  Queen Elizabeth owned silk stockings. The capitalist achievement does not typically consist in providing more silk stockings for queens but in bringing them within reach of factory girls in return for steadily decreasing amounts of effort.

Unfortunately, for governments despite their army of bureaucrats and academic supporters, they all fail to comprehend on such fundamental a lesson.

Laissez faire capitalism or economic freedom is the key solution to the world’s economic woes.

Quote of the Day: Global Competition is the 21st Century Reality

instead of pursuing a 20th century trade policy model that seeks to secure market-access advantages for certain producers, policy should be recalibrated to reflect the 21st century reality that governments around the world are competing for business investment and talent, which both tend to flow to jurisdictions where the rule of law is clear and abided; where there is greater certainty to the business and political climate; where the specter of asset expropriation is negligible; where physical and administrative infrastructure is in good shape; where the local work force is productive; where there are limited physical, political, and regulatory barriers, etc. This global competition in policy is a positive development because — among other reasons — its serves to discipline bad government policy.

That’s from Daniel Ikenson at the Cato Institute.

Competition Fueled Global Stock Exchange Automation

Transition to electronic trading in global stock exchanges only gained traction after the derivatives exchanges gave them a challenge

Professor Michael Gorham of the Illinois Institute of Technology narrates (World Federation of Stock Exchanges) [bold emphasis mine]

As we have seen, the early pioneers of electronic derivatives trading created brand new exchanges starting in the mid 1980s. It took almost another decade before existing floor-based exchanges began fully converting to screens. Aside from the fact that conversions from floors to screens met stiff resistance from member-owners whose livelihoods were threatened, derivatives trading, especially in financial products, was still in its infancy and many countries did not yet have derivatives exchanges. New Zealand, Sweden, Switzerland, Germany, South Africa and China all had no derivatives exchanges. So during the mid 1980s and early 1990s, all these countries created new derivatives exchanges, and they were all electronic right out of the box.

Stock exchanges, on the other hand, were relatively mature institutions, and most countries of any size already had one or more stock exchanges and were not generally building new ones. And given the natural resistance of member-owners, the existing stock exchanges, just like the existing derivatives exchanges, were not likely to quickly convert to screens. Consequently, early electronic activity on the securities side was carried out on an experimental basis, typically only for stocks that were relatively inactive. So in figure 6.2, we see that except for the isolated event of the Cincinnati Stock Exchange becoming electronic in 1980, it was not until 1989 that stock exchanges began to start converting to electronic trading in earnest

Some observations;

Most stock exchanges being monopolies or oligopolies have been slow to adapt to changes.

It took the introduction of derivative markets which threatened to compete with these traditional exchanges to prompt the latter to automate.

Nevertheless automation revolutionized trading. It facilitated increases in transparency, enabled outsourcing of traditional functions such as trading floor operations, product development, marketing, legal, regulatory and often clearing and settlement, which has contributed to the precipitous decline in the cost of trading, promoted direct access to exchange matching engines, introduced new order types, and fuelled a leap in merger and acquisitions activities.

Automation has been a significant part of financial globalization which means that the trend for stock exchanges here (in the Philippines) and abroad will likely incorporate new trading platforms/services.

For instance, the Philippine Stock Exchange has derivatives on the pipeline (via Red Hat) and has seen participation in new Exchange Traded Funds (ETFs) traded offshore, e.g. for ASEAN, the FTSE ASEAN Index Series and iShares MSCI Philippines Investable Market Index Fund (EPHE)

Deep and sophisticated capital markets are prerequisites to progressing market economies.