Disciplinary Divide On “Natural Monopoly”

Mainstream economics commonly adopts an efficiency model, which views the market as a resource allocation mechanism driven by price-mediated competition among anonymous economic actors. Two things separate the sociological paradigm from economics: one ontological and the other methodological. Sociologists use the term “embeddedness” to emphasize the influence of social construction and pre-existing socio-political context on economic activities (Granovetter 1985; Granovetter and Swedberg 1992; Smelser and Swedberg 1994). In contrast, mainstream economists often assume a “naturalized” conception of market, self-sufficient, self-regulating, and beyond politics and history (Unger 1987, Swedberg 1990, 1991). Methodologically, sociologists often approach economies inductively from bottom up, pay special attention to diversity and historicity, and rely on various sources of data. Economists instead prefer parsimonious assumptions, mathematical models, deductive reasoning, and restricted ranges of quantitative data (Hirsch, Michaels, and Friedman 1990).

With regard to the monopoly in the cable TV market, two positions (not necessarily mutually exclusive) can be found in economics. I would call them “constraining natural monopoly” and “releasing natural competition.” Both share the naturalized understanding of market and believe that increasing scale return is crucial to the cable TV industry. The first group is prone to accept the idea that market competition in the industry would lead to a natural monopoly. The problem is how to prevent rent-seeking behaviors of monopolistic firms. The answers cover a wide spectrum of legal-administrative measures, including the imposition of antitrust regulation and certain ex ante competition of franchise bidding (plus ex post contract renewal) so that the abuse of market power could be constrained and competition restored (Demsetz 1968; Posner 1986; Williamson 1985).

The second stance toward a cable monopoly became popular in the 1990s, with many of its proponents having belonged to the first group in the 1980s. They question the empirical soundness of the “natural monopoly” and emphasize the de facto creation of legal monopoly and the various sources of government failure that have been observed. The new prescription is to go for deeper laissez-faire deregulation in the hope that new technological breakthroughs will bring in new competitors and revitalize contestable competition (Liou 1993; Johnson 1994; Crandall and Furchtgott-Roth 1996). The 1996 Telecommunication Act in the United States represents the triumph of this trend in thought.

Among economists, there are various stances toward the thing ambiguously called the “market” — from those who admit the necessity of extra-market governance as ad hoc supplements, those who try to fix the market by balancing information asymmetries of many sorts, to those who insist that the possible detriments of a free market would be negligible compared with systems involving intervention. They nevertheless share the same efficiency model of an asocial market. With regard to the cable TV industry, given the complex reality conceived, a “naturalized” market is assumed either in the name of “natural monopoly” (but the abuse of market power and uncontested profits must be constrained by careful regulation) or “natural competition” (but its potential would not be released if the “artificial regulations” were not removed).

Sociologists do not deny that: (1) our modern economy is gravitated toward market processes; (2) competition lies at the heart of most market phenomena; (3) market competition among firms is a decentralized, multilateral process; and (4) firms are prone to maximize profits and can be so conceived (Block 1990; Burt 1992). However, they emphasize the social embeddedness of economic activities (Granovetter 1985; Swedberg 1991) and demonstrate in research that economic transactions are socially constructed (Zelizer 1983, 1988), parts of ongoing network processes (Granovetter 1985), and historically contingent on the institutional environment (Hamilton and Biggart 1988).

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