IO

An example of something that is simply too complicated for an ordinary person to be expected to understand is industrial organization, which is a sub-field of economics. IO, as it is called, relaxes some unrealistic assumptions that introductory microeconomics makes and explores the effect on competition among firms. A good example of IO is cell phone service, which tends to be "sticky" (once a consumer signs up with one provider, she is unlikely to switch to a new provider even if it offers somewhat better pricing). What this means is that each customer can be overcharged somewhat relative to a market with no stickiness. Since providers must compete for new customers, they will tend to offer up-front rewards for signing up, which they then recoup over time thanks to their ability to over-charge.

Anyway in a lot of industries you have to do some IO before you can figure out what the right policy is. A lot of policies that on their face seem anti-competitive can be justified on IO grounds (although of course economists will often disagree about how IO applies to a given situation).

This is all by way of saying that I think a city with a bike-share program should strive to achieve one of two things. Either the bike-share program should be run by a regulated monopoly or the competing bike-share providers should be forced to make their systems compatible with each other, so that consumers can pick up a bike from one provider's docking station and turn it in at another's. If you allow a patchwork of systems, you will end up with artificial barriers to biking between some neighborhoods.

The problem is that the second solution is extremely tricky to implement. After all, how do the providers get their bikes back to each other? To the extent they end up with, effectively, a shared pool of commonly owned bicycles, so that they are sharing a lot of their costs and operations on a collective basis, then how do they compete?

And the first solution, a regulated monopoly, is almost universally unpopular. Everyone understands (wrongly) on an intuitive level that monopolies are bad. No one trusts the regulators. The Taxi and Limousine Commission is no comfort in this regard. When I argued that it was unfair to yellow cabs to regulate them while permitting Uber to operate as an unregulated competitor, no one seemed to find this compelling. Fuck the medallion owners! Very well, but medallion ownership was the mechanism by which the TLC's regulations were enforced.

I guess my point is simply that the politics of competition policy are extremely tricky and we are likely to end up with severely suboptimal outcomes (for instance there are multiple incompatible bike-share providers in New York City). I guess I think the solution is limited transparent technocracy, but the thing about technocracy is that it's in the eye of the beholder (one man's technocrat is another man's neoliberal sellout—why else would you do something as corporation-friendly as licensing a monopoly provider of an important service?).

This reminds me that I shall write a defense of capitalism.

[Udate: A commenter argues, "I mean, yeah there are details; but big picture you just look at the ratio of fixed costs to variable costs and when it starts getting really high you want a regulated monopoly."

I think this understates the complexity of regulating these kinds of businesses, but the main observation I'd make is that I think the city should not just tolerate a monopoly, it should probably ban bike-share programs other than Citi Bike, or at least refuse to give them any concessions (along the lines of the parking spaces turned over to Citi Bike for its docking stations). Just because an economic sector is a natural monopoly does not mean that a monopoly will emerge. You often want to prohibit competition in order to bring about the best results. Needless to say you better make sure you're right before going down this path, and I doubt the public will ever understand it.]