If you’re a regular traveler, it’s easy to forget what a miracle air travel is. Going so fast to so many places is a wonder but low customer service levels make the magic of it get lost. If you’re a cable TV customer and you need help or service from your cable company, it’s likewise easy to lose the pleasure of all that entertainment coming into your home at the touch of a button.
These fabulous marvels get forgotten because of poor customer service and the frustration that creates. Most of us experience the general business environment to be highly competitive and yet the airlines and cable companies don’t treat their customers well. It’s hard to think of another environment in which it’s normative for a customer to make an appointment that will start within a four-hour time frame, that’s usually a self-destructive strategy for a business. Airlines talk a lot about delays resulting from safety and weather issues and that happens for sure. But they do not face up to the reality that their service is subpar.
It is generally accepted that monopolies are in a position to take advantage of consumers so they are monitored closely. We’ve established a system of regulations so monopoly businesses don’t squeeze consumers who have no power to push back. I’m not offering an opinion about whether those regulations are good or bad. I’m noting that there is a cultural consensus that monopoly businesses have to be monitored to protect consumers’ needs.
When a consumer calls a monopoly business like an electric company, they usually get good service. The monopolies know that if too many consumers complain, the company will suffer in some way. In the worst case, they will be prevented from raising prices when their costs go up. If a monopoly business gives consistently poor service, consumers will make their voice heard at the ballot box and hold the government responsible. People who regulate and run the monopolies can lose their jobs. It’s not a perfect system but it works most of the time.
Oligopolies Are The Problem
Oligopolies, companies with a small number of competitors, are not subject to the kind of competition that most businesses are. An airline cares about the cost of capital, the cost of fuel and the cost of labor. They know that almost no matter how badly they treat customers if the schedule is right and the price is right, customers will come back to them. Cable companies are similar. Both are out to maximize profit, a noble goal, but nowhere in that calculus is sensitivity to how customers are treated. Consumers keep coming back because, well, it’s an oligopoly and there’s little choice.
Airlines and cable companies provide each other with price umbrellas. When they set prices for airfares and services, they are signaling to their competitors how low they will go and that lets everyone make a profit. The way the law works, that’s legal. They act as one even though they are several. It allows them to avoid price regulation and greater scrutiny.
Because the idea of concentrated power has a negative connotation, the government has checks and balances and monopolies are regulated. Oligopolies are not thought of as being in the same class, and they are not looked down upon the way monopolies are. There’s hardly any difference in the way oligopolies are perceived compared to companies that have many competitors.
Oligopolists have a tacit agreement not to incur higher costs to improve their service. They know that the few competitors they have don’t treat their customers any better. Oligopolies often get the benefit of monopoly power but without the monopoly regulation. The connection between bad consumer experiences and oligopolies is not a developed in our culture.
What’s The Solution?
Before you get your hopes up I have to admit: I don’t have the answer.
I see two possible alternatives and both are bad. The first is government regulation and that can have bad outcomes. The second is the encouragement of more competition. But the industries that are oligopolies are so capital-intense it’s hard to imagine anyone being able to start up an effective competitor. Sometimes technology solves the problem and we’re starting to see that in the cable TV business. The cable companies see themselves, correctly in my view, as under siege from new technologies that give consumers more alternatives. That’s a motivator for them to do a better job and over time, they will have to. In the airline business, it’s hard to imagine any kind of technology replacing air travel in the foreseeable future.
I have found that often, identifying a problem is half the solution. So one important thing about oligopolies is that we need to talk about it. When enough consumers recognize that oligopolies are a problem, there will be action. The next time you’re frustrated by your cable company or your airline, don’t call or write them, they aren’t motivated to care about your problem. You’d be better off posting it on social media or contacting your legislator, we need recognition and conversation about the subject. Change can’t come from within at this point, an oligopoly isn’t motivated to think of consumers as key stakeholders. If you go to them, they may give you a credit or some other goodie that will assuage your momentary anger but that won’t make your next experience any better and it doesn’t solve the problem in the long run. Change will come when there is pressure to treat oligopolies differently. We need to start a conversation.