Cable Companies Can Afford Lousy Service

Our cable TV service wasn’t working; with one week’s notice, I was able to get a service person, but my wife or I had to be available at the house the entire day of the scheduled visit, fouling up our schedules and making work difficult for us. (Sadly, we cannot afford a butler!) The cable company is a monopoly, and its price is outrageously high.

Simple economics tells us that the economic cost of monopoly is the underproduction generated by the high monopoly price.

Another cost is the lousy service that monopolists provide — including the time the monopolist makes you spend waiting so that he can keep costs low and earn higher profits. With competing providers, service would be better — and time wouldn’t be wasted — since lousy service would cause people to switch to competitors, forcing all to offer better service.

Monopolists, however — including my cable company — have a lot of latitude, as it will take even worse service than this to get me to switch to satellite TV. Over time, as services like cable form an increasing share of people’s spending, and as the opportunity cost of people’s time keeps rising while their spending power grows, this cost of monopoly — its deadweight loss — will be ever more harmful to the economy.