Competing with the Government

Competing with the Government

Anti-Competitive Behavior and Public Enterprises

Editor: R. Richard Geddes
ISBN: 978-0-8179-3992-2
Publication Date: 3/23/2004
Pages: 116

Government-owned and government-subsidized firms compete with private firms in a variety of activities but are often endowed with privileges and immunities not enjoyed by their private rivals. Competing with the Government reveals how these privileges give government firms an artificial competitive advantage that fosters a wide range of potentially harmful effects. Examining a variety of instances in which government and private firms compete—including freight carriage, electric utilities, financial services, and others—the authors raise fundamental questions about the proper relationship between business and government in a market economy and underline the need for significant policy change regarding competition between government and private firms.

Drawing from a wealth of case studies, they detail how state-owned enterprises (SOEs) enjoy an array of government-granted privileges and immunities that can be used anticompetitively, revealing why an SOE is more likely to engage in anticompetitive behavior than a privately owned firm—and why anticompetitive behavior by SOEs is likely to be harmful to society. They show how the U.S. Postal Service—as well as postal services abroad—have consistently been guilty of anticompetitive behavior. And they make a strong case that government-sponsored enterprises such as Fannie Mae and Freddie Mac have actually violated the Sherman antitrust act by monopolizing the automated underwriting market.

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R. Richard Geddes

Richard Geddes is an associate professor in the Department of Policy Analysis and Management at Cornell University and an adjunct scholar of the American Enterprise Institute.




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The government's artificial advantage over private businesses—and how it hurts us all

Government-owned and government-subsidized firms compete with private firms in a variety of activities but are often endowed with privileges and immunities not enjoyed by their private rivals. Competing with the Government reveals how these privileges give government firms an artificial competitive advantage that fosters a wide range of potentially harmful effects.

Examining a variety of instances in which government and private firms compete—including freight carriage, electric utilities, financial services, and others—the authors raise fundamental questions about the proper relationship between business and government in a market economy and underline the need for significant policy change regarding competition between government and private firms.

Drawing from a wealth of case studies, they detail how state-owned enterprises (SOEs) enjoy an array of government-granted privileges and immunities that can be used anticompetitively, revealing why an SOE is more likely to engage in anticompetitive behavior than a privately owned firm-and why anticompetitive behavior by SOEs is likely to be harmful to society. They show how the U.S. Postal Service—as well as postal services abroad—have consistently been guilty of anticompetitive behavior. And they make a strong case that government-sponsored enterprises such as Fannie Mae and Freddie Mac have actually violated the Sherman antitrust act by monopolizing the automated underwriting market.

R. Richard Geddes is a Hoover research fellow, an associate professor in the Department of Policy Analysis and Management at Cornell University, and an adjunct scholar of the American Enterprise Institute.

Contributors: R. Richard Geddes, David E. M. Sappington, J. Gregory Sidak, Peter J. Wallison

 


TABLE OF CONTENTS


 

Contributors / ix

 

Introduction / xi
     The Issues / xi
     Acknowledgments / xv

Chapter 1

David E. M. Sappington
J. Gregory Sidak
Anticompetitive Behavior by State-Owned
Enterprises: Incentives and Capabilities
/ 1
Some Legal Background / 2
Anticompetitive Incentives of State-Owned Enterprises / 5
     The Objective of an SOE / 5
     An SOE’s Pricing / 7
     Avoiding Restrictions on Below-Cost Pricing / 8
     Raising Rivals’ Costs / 11
     Economies of Scope between Monopolized and Competitive Markets / 12
The Ability of State-Owned Enterprises to Act Anticompetitively / 14
Conclusion / 17
Appendix: A Formal Analysis of SOE Pricing / 19
Notes / 22

Chapter 2

R. Richard Geddes
Case Studies of Anticompetitive SOE Behavior / 27
Special Privileges and Immunities Enjoyed by SOEs and GSEs / 28
     Monopoly Power / 29
     Credit Guarantees / 30
     Captive Equity / 31
     Exemption from Bankruptcy / 32
     Tax Exemptions / 33
     Direct Subsidies / 34
     Regulatory Exemptions / 34
     Other Government-Granted Privileges / 34
Anticompetitive Uses of Government-Granted Privileges / 35
Case Studies of Competition between Government and Private Firms / 37
     Freight Carried by Passenger Rail / 37
     Financial Services / 40
     Water Utilities / 42
     Electric Utilities / 45
     Weather Forecasting / 48
     The Provision of Information / 51
     Marine Towing Services / 52
Summary and Conclusions / 53
Notes / 54

Chapter 3

Peter J. Wallison
Applying the Microsoft Decision to Fannie Mae and
Freddie Mac / 59

Fannie Mae and Freddie Mac / 60
Automated Underwriting Systems / 62
The Microsoft Decision / 63
     Monopolization / 64
     Attempted Monopolization / 67
     Tying / 67
The GSEs’ Use of Automated Underwriting Systems / 69
     Monopolization / 71
     Attempted Monopolization / 76
     Tying / 80
Conclusion / 82
Notes / 82

Chapter 4

R. Richard Geddes
Anticompetitive Behavior in Postal Services / 85
Privileges Enjoyed by a Government Postal Service:
The Case of the USPS / 86
USPS Pricing and the Postal Reorganization Act of 1970 / 90
Examples of Anticompetitive Behavior in Postal Services in Other Countries / 97
     Deutsche Post / 98
     Sweden Post / 102
     Belgian Post (De Post-La Poste) / 104
     Joint Ventures Involving European Posts / 105
Summary and Conclusions / 105
Notes / 107

 

Index / 113



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