My wife and I have lived in our present home for nearly 20 years. When we moved here it was because I had a new job north of London rather than south and though it was only another 20 miles or so away it was nearly two hours by road in the rush hour. I wasn’t thinking of the railways but rather the road links. That job didn’t work out and my next job was based in Central London and so we need never have moved. But we like it here and there was quite a good, reasonably reliable railway service on the so-called Thameslink. This links two different rail services through tunnels in London so that it connects Bedford with Brighton. I became a daily commuter for the next few years and learnt why we had played musical chairs as children as I became adept at getting a seat.
I no longer commute every day but still go into London quite frequently for both business and social purposes. On May 25th
Govia Thameslink Railway (GTR), which now operates the service, made massive changes to the timetable, partly caused by engineering works that Network Rail needs to carry out. However, these changes resulted in a large reduction in the number of trains stopping at my station and also a large reduction in the number of carriages on each service. Further still the changes were carried out so badly that drivers had to be retrained on new routes so a huge number of services were cancelled at short notice for lack of drivers. Our town has been on national news as it seems to have had the worst disruption. Our local MP, Bim Afolami held two public meetings in the constituency on the subject this week and it is understood that the Minister is holding GTR to account and forcing it to compensate regular commuters with a month’s free travel, and possibly taking the franchise away. The MD of GTR has fallen on his sword and while this might play well to the gallery I can’t actually see how it helps as a frazzled management team now finds itself leaderless.
In most situations like this the frustrated consumer would simply stop buying services from this supplier but in this case there is no practical alternative. If we want to go into Central London the only choice is the train. And the train is operated by a monopoly. There may be buses but not from where I live. One could drive but it takes three times as long and is exhausting. You have to pay the congestion charge and find somewhere to park at exorbitant rates. You won’t be able to have a drink at the nice social events I attend in the City and anyway, it’s not green. I haven’t driven into London for years.
No. The problem is that the railways were a public monopoly in the days of British Rail and now they are a series of private monopolies. I am not sure if a private monopoly is better or worse than a public monopoly. It depends on your point of view. But it’s still a monopoly. 60% of the British public apparently want to see the Railways re-nationalised but they’re wrong. Network Rail which has partially caused the problem has already been taken back into public ownership.
In Sweden, where they were privatised some years ago, according to research by the University of Gothenberg the costs of operating trains fell by 10% in the ten years after deregulation due to the fact that they were liberalised in a competitive way. In the Czech Republic the price of a ticket from Prague to Ostrava fell by 61% since the state rail firm lost its monopoly in 2011. In Austria and Italy where the state railways are opened up to private competition there are fare wars. On some lines in Britain there is competition now. According to research by Aecom, in 2007-12 passenger numbers on Britain’s East Coast main line, which runs from London to Edinburgh, grew by 15% more and fares by 6% less at stations with competition compared with those without. [i]
According to Adam Smith, markets and trade are, in principle, good things – provided there is competition and a regulatory framework that prevents ruthless selfishness, greed and rapacity from leading to socially harmful outcomes. But competition and market regulations are always in danger of being undermined and circumnavigated, giving way to monopolies that are very comfortable and highly profitable to monopolists and may spell great trouble for many people.
I spent my early career in the food trade and when I was trained as a Sales Representative I called on a great variety of small and medium sized supermarkets under a wide range of owners. In about 1977 I conducted a detailed survey for my employer of the retail distribution in order to help plan our sales force development for the future. I no longer have my workings but recall that the largest share held by any single supermarket chain was then about 4%. The Co-operative movement still had about a 20% share but that was made up of over 100 different societies.
In 2017, some 40 years later, the four largest chains, Tesco, Sainsbury’s, Asda and Morrisons, held nearly 70% of the grocery market. The next four Aldi, Co-op, Lidl and Waitrose account for over 20%. So the top eight hold 92.9% market share, a horrifying degree of concentration of power. Absurdly Tesco with its giant 27.8% share was allowed by the competition authorities to acquire Booker, the largest Cash & Carry operator, whose principal business is the supply of what remains of the independent grocers. Thus Tesco can now wield direct influence over these independent retailers and thus reduce their independence.
Amazingly Sainsbury’s and Asda are proposing that they will merge creating a behemoth even larger than Tesco. Then just two companies would control nearly 60% of the market. A monopoly is not defined as a market with just one operator. It is defined when an operator or operators have such overwhelming domination that it acts against the public interest. Tesco’s response to Sainsbury’s move is to create a hook up with the French giant Carrefour in which they pool their buying.
Sainsbury’s have argued that its merger with Asda will reduce prices by 10%. This is an outrageous claim because if it is true it can only be achieved by forcing suppliers to give up most of their entire margin. In many cases like fresh produce from the farms, farmers are already trading at a loss, only surviving through EU subsidies or bank loans secured against their land.
In the past the competition authorities have investigated the food business and never found justification for complaints such as mine. But this is because the suppliers dare not give evidence for fear of being delisted by their customers.
Last week Andrew Tyrie took up his role as the new Chair of the UK’s independent competition authority, the Competition and Markets Authority (CMA). He developed a reputation as a formidable Chair of the Treasury Select Committee and Parliamentary Commission on Banking Standards and it is to be hoped that he performs with the same vigour and relentless scrutiny as there is a serious problem in many markets.
I also hope he can bring an understanding of economics from a practical point of view, not from an academic one. I went before the Monopolies and Mergers Commission, forerunner of the CMA, when Sony and other Consumer Electronic Manufacturers were accused of anti-competitive behaviour. The then Office of Fair Trading had observed that retailers all advertised our products at the same price, i.e. our Recommended Selling Price. This was no doubt true but did not mean that the retailers all sold
our products at the same price. They did not but were prepared to make discounts at the point of sale. The academics on the Commission were unable to understand this simple fact from the real world of the High Street where no one could maintain a price advantage for five minutes.
Monopolies can be created even where competition appears to exist. Take football television rights. I am a football fan, and more specifically I am a Manchester United fan and have been for over 60 years. In that time football TV coverage has grown exponentially. Back in 1958 when I watched Manchester United lose to Bolton Wanderers in the FA Cup Final I watched on our small black & white rented TV but at least it was on free-to-air BBC television[ii]
, the only channel we had in our house. Now there is widespread coverage on satellite TV and as the most popular club in the world the majority of United’s matches are shown live on TV. But not just on one channel. First there was Sky, then for a while Setanta and now BT.
This month the new deals for 2019-2022 were announced. As well as Sky and BT, Amazon will be showing 20 Premier League matches per season. The matches will be available free to Amazon’s Prime’s UK members. My wife has a subscription to Amazon Prime and I have been trying to get her weaned off this because I think Amazon is another monopolist. Now, of course, I’ll be asking her to keep it because I will want to see the United games that are in the package.
Thus the result of a competitive auction is that three monopolists are created because football fans have tribal loyalty to their clubs, none at all to the broadcasters and so will pay much more than they would if there was just one broadcaster.
We are seeing new monopolies spring up everywhere and they are not just anti-competitive, they may be a danger to society. The so-called FAANG group of companies, Facebook, Apple, Amazon, Netflix and Google, now account for a market capitalisation in excess of the whole of the London Stock Exchange FTSE 100.
These behemoths face an ever increasing round of criticism for their monopolistic behaviour and politicians and society at large are concerned about their data abuse, fake news, advertising fraud, anticompetitive practices, cruel employment policies and tax avoidance. Mark Zuckerberg has faced Congressional questions; Google has been fined a record €2.4bn by the EU over search engine results. Brussels claims that it abused market dominance by manipulating its search engine results to favour its own competition shopping service. But politicians asking questions and dishing out fines are not going to change anything. We are back in the era of the ‘Robber Barons” and they must be broken up.