Anti-Capitalist Sentiment (with some morality)

[Jack Sawyer]

What, in your estimation, makes ISP an exception?

For starters, the traditionally small amount of "competitors" due to that market having very high natural and artificial barriers of entry

[wufwugy]

For starters, the traditionally small amount of "competitors" due to that market having very high natural and artificial barriers of entry

While there are natural barriers to entry in ISP, the causative factors for why there isn't sufficient competition such that deters one firm's market power (ability to set price) are artificial barriers (largely restrictions by municipal governments). It's tough to say exactly how much natural barrier to entry there is in ISP, but we do know that competition is arising where the artificial barriers are low enough. Apparently there are a lot of small ISPs that are jumping in and taking business from the big incumbents.

ISP is definitely not one of the markets I'm worried about even with its super high artificial restrictions. There are a wide variety of ways for firms to make money in the market and there are many other markets that provide substitutes.

[wufwugy]

ISP is definitely not one of the markets I'm worried about even with its super high artificial restrictions. There are a wide variety of ways for firms to make money in the market and there are many other markets that provide substitutes.

I want to expound on this, in part because it gets at a concept very useful for life that is at the heart of economics: marginalism.

A response to what I said in the quoted, which is a response I've gotten here before, is "but if you have to use your internet to run your business, you don't have substitutes." For our intents and purposes, that is true. You DO have substitutes, but they are costly enough that we can assume you don't have substitutes. BUT people using ISP to run their businesses are not the only part of the equation. ISPs have a bunch of different customers with a bunch of different preferences and different changes in marginal behavior based on changes in ISP's inputs. Example, if an ISP racks up its price, the internet-business-operator takes it on the chin and wrings his hand. He gets screwed. BUT the family down the street who uses the internet for email only, they may then drop the cable ISP and use only their smart phones for internet. Another example, maybe the ISP decides to throttle too much. Maybe this screws over the internet poker player, but down the street may be a family that only has high speed internet because their son games, and maybe he's the kind of kid who likes playing with legos and outside in the woods a lot and after enough frustration with getting throttled while playing Diablo 3 he decides it is more worth his time to stop gaming and do those other things. Then his family drops the high speed internet because they're no longer using it.

In each scenario, the ISP's "bad" behavior may gain it money from the poor schmuck who runs his business on the internet, yet the ISP could still lose by net due to losing revenues from others who were also affected and were marginally attached to their consumption of the ISP's product. This is how the internet-business guy won't get screwed over, because the ISP will make decisions based on its marginal gains and marginal losses, which it gets from the customers and revenues on its margins.

This essentially exemplifies the most profound concept in all economics: Adam Smith's invisible hand.* Even when the internet-business guy depends on the ISP to not behave badly, the ISP depends on its marginal customers to keep making profits, which means that it is because of the internet-business guy's neighbors that are marginal customers of the ISP that internet-business guy gets a good product from the ISP.


*The invisible hand is essentially a description of how people acting in their own self-interest in voluntary transactions makes society better for all.