Learn Liberty video: should government regulate monopolies?

Lynne Kiesling

I am happy to say that Learn Liberty has published another video that we did together. This one is a short one in which I talk about government regulation of monopolies, essentially laying out Schumpeter’s argument that when entry costs are low, monopolies do not persist because monopoly profit serves as a lure to entice entrepreneurs and innovators to create new value propositions (“new combinations”, in Schumpeter’s words) that break down market barriers and definitions.

Those of you with an electricity/natural monopoly background will notice that I assiduously stay away from economies of scale and subadditivity of costs as a cause of monopoly formation. Couldn’t keep the video at 3+ minutes if we opened that Pandora’s box!

The Learn Liberty page for the video also has a description and some discussion of the issues.

Innovative retail competition: is it finally starting … and in Chicago?

Lynne Kiesling

This may be the beginning of what I’ve been arguing for over the past decade plus … today in Smart Grid News, Jesse Berst reports that Constellation Energy has teamed up with Best Buy to enable customers to come into the store, switch their retail provider, and buy home energy management devices (see also the brief note in the Chicago Tribune). Jesse observes that

It has been fascinating to watch power retailing develop in areas such as Texas and the United Kingdom. In the early days, we thought it would be all about price. As it turns out, price is important but it is just the table stakes. To become a market leader, you have to establish brand trust. You have to bundle the power with other products or benefits. And you have to make that bundle ultra-easy to find and purchase.

Absolutely correct. This is the kind of Schumpeterian retail innovation that is a value-creating hallmark of competitive rivalry.

At first blush it also has some similarities with mobile phone retailing — I presume that the retail provider to which a customer can switch is Constellation, and not Direct Energy or any of the other retail providers in the Illinois residential market. I’ll be interested in seeing if Best Buy is willing to make similar arrangements with those retailers. If their contract with Constellation precludes such arrangements, then we run into the murky area of whether or not exclusive dealing contracts are anti-competitive. But if, say, Target strikes a deal with Direct Energy, and Costco and Walmart get in on this innovation, then the retail landscape really starts to look like mobile communications retailing, and things get very interesting.

Note also that this type of market channel is a way for consumers to learn, which is a crucial process in the liberalization of retail sales in an industry that has been vertically integrated and regulated for over a century. Regulation defines product characteristics and boundaries and thus determines the type of product that the consumer is purchasing, so for over a century residential customers haven’t had to think about what they are buying and whether there are ways for them to get more value out of the transaction and relationship. They had no choice, so why give it any thought? Now starts the process of individuals learning how and why they may create more and different value from changing their retail relationship and changing the technology they use in the purchase and management of the electricity they consume.

As it happens, the Best Buy in this pilot is my neighborhood store, so I’ll check it out and report back what’s interesting and important. Free the electricity consumer!

Students: apply now for IHS summer seminars!

Lynne Kiesling

Over the weekend Mike praised the Institute for Humane Studies teaching workshop he attended last summer. I’ll add to that an IHS recommendation for students: attend as many IHS summer seminars as you can while you’re a student!

More than ten week-long seminars sponsored by the Institute for Humane Studies apply classical liberal ideas, such as individual rights and free markets, to topics in history, economics, journalism, policy, and more. From breakfast until the evening reception, you can debate and discuss the ideas of liberty with enthusiastic professors and peers from around the world. IHS covers all meal and program costs. Undergraduates, graduate students, and recent graduates are eligible to apply.

In my experience both as student and as instructor at IHS summer seminars, they are intellectually challenging and engaging, and will be thought-provoking in ways that go well beyond your academic courses. I’ve learned so much in economics, philosophy, political theory, and other areas, and have developed important and meaningful relationships that have enriched my life.

Explore and learn more about IHS summer seminars today. The application deadline for this summer is March 31, which is fast approaching.

Antony Davies’ sobering federal debt summary

Lynne Kiesling

While we’re at Learn Liberty, and in light of today’s Congressional Republican federal government budget proposal, here’s economist Antony Davies on the implications of our government’s indebtedness.

When we covered this in my intro macro class this winter, it was sobering for my 18-20-year old students to realize that they are the people who will bear the costs of this debt burden.

Economists and philosophers on value

Lynne Kiesling

Got two spare minutes and want to spend it enriching yourself? Then watch this great Learn Liberty video from Aeon Skoble. Aeon’s a philosopher who also reads a lot of economics, so he’s in a distinctive position to make this important point — both economists and philosophers use the word “value”, but we mean different things by it. For economists, value is subjective and arises from preferences, context, perceptions that individuals possess. For philosophers, value is objective values, like rights, that are part of our objective moral framework for living together as heterogeneous individual agents in civil society. Moreover, the two concepts are complementary; for individuals to be able to act on and satisfy their diverse individual preferences, they rely on living in a social system grounded in respect for individual rights. Aeon explains that distinction beautifully here.

IHS’s great summer workshop for college teachers

Michael Giberson

Last summer I had a lot of fun at the too-short IHS Liberty and the Art of Teaching workshop. Well, I say “too short,” but the truth is that they packed so much information into 2 days that I couldn’t absorb it all.

I did absorb a few bits, though, as related in my reflection on what I gained from the teaching workshop, which has been posted at Kosmos Online. The workshop was a great production on IHS’s part, filled with teaching advice backed by years of successful practice (and in many cases, also backed by systematic study of student progress and retention).

As reported in my Kosmos post, I used what I learned at the workshop to reorganize my U.S. Energy Policy and Regulation course as well as (less successfully) to tweak my Energy Economics course. In addition, I’ve made several more minor adjustments in classroom practice, partly due to presentations at the IHS workshop and partly as a consequence of reading Teaching With Your Mouth Shut prior to this Spring semester.

I continue to be amazed at how willing universities are to push graduate students into the classroom with little actual guidance on successful teaching, at how often PhD programs will send their students out into the academic workforce with little training in this key job skill, and at how little supervision universities provide to newly-hired teachers fresh from the graduate programs that provided little training in teaching well. Teaching well can be hard work, yet often it is treated as so obvious as to be beneath serious concern. The IHS workshop helps fill the gap.

They are taken applications for the Summer 2012 workshop up until April 15, 2012.

Are refiners and wholesalers price gouging on petroleum products in Alaska?

Michael Giberson

As the chart below shows, during the summer of 2008 gasoline prices in Anchorage, Alaska switched from following typical prices in the lower 48 to a modest but notable amount above such typical prices. Not shown, but you can check it out at Gasbuddy.com where I generated the chart, after the summer of 2008 Anchorage prices have tracked more closely with Honolulu, Hawaii prices instead of prices in the continental United States.

Anchorage, Seattle and Houston gasoline prices from March 2006-March 2012

Anchorage, Seattle and Houston gasoline prices from March 2006-March 2012

We’ve discussed this before. As noted here in a post in 2009, “For years, average prices in Alaska were about the same as the U.S. average price.  Higher costs of delivery in Alaska were mostly offset by the nation’s lowest gasoline tax, just 8 cents a gallon, and the result was a price that more or less tracked the U.S. average price.” More from that post:

That pattern changed beginning in June 2008.  Prices had been marching up everywhere, but the price march stalled in the lower 48, while in Alaska (and Hawaii) prices continued to rise for another month.  Prices fell sharply throughout the country from July through December – excepting a short pause during the late hurricane season in the lower 48 – but Alaska’s prices now seemed to track the higher prices of Hawaii rather than returning to the U.S. average.

The 2009 post reported the conclusions of an Alaskan investigation: no illegal collusion found, but oligopoly probably is minimizing competitive pressure.

Some Alaskan politicians want to do something about current, continuing, relatively high (compared to nearby Seattle) prices. A committee of the Alaskan state senate just held hearings on SB 28, an act that would declare it illegal to sell or offer to sell certain petroleum products at unconscionable prices. (More information on SB 28 here.)

From the Associated Press:

JUNEAU, Alaska — A bill aimed at gasoline refiners that would ban price gouging received a hearing Tuesday before a skeptical Senate committee.

Sen. Bill Wielechowski said his proposal is a response to the “unconscionable” disparity between the prices Alaskans pay for gas and heating fuel compared to rates elsewhere on the West Coast that have traditionally been similar. …

Under the proposal, prices could not exceed 10 percent of those charged by Seattle-based refiners. Alaska’s attorney general would be allowed to investigate claims against companies refining more than 1 million gallons of fuel per year, and companies guilty of price gouging would face a penalty equal to at least 10 times the profit gained from the practice.

Sen. Cathy Giessel, R-Anchorage, said the proposal misses its target.

She said it amounts to a “jobs bill for attorneys” by setting up an environment for constant lawsuits, and that it would drain companies providing Alaskans a much-needed product. She also said Seattle isn’t a fair comparison. Tesoro has exorbitant transportation costs to get crude oil from the North Slope and elsewhere, she said, and they also run their production facilities on cheaper fuel.

“This appears to vilify refineries by saying that they’re ‘unconscionable’ and ‘disreputable,’” Giessel said.