The proposed merger between the cable television interests of Time Warner Cable and its principal rival, Comcast, demonstrates a neat example of how the theory of the free market differs so radically from the marketplace in practice.
In the storybook version of how business works, companies compete for customers by offering rival services and the company with the best products and prices wins. In this fairytale, everyone wins. Customers benefit from competition through a better choice of products and cheaper prices, the good companies take a handsome profit and prosper, and the bad companies go to the wall.
In real life, this heroic version of how the world spins is far less noble. In the mythical version of the free market, companies fiercely compete with each other for market share by trying to outdo each other in pleasing customers. In reality, companies tend to forego the difficult and expensive art of wooing customers from a rival and resort to buying the competition. Buying business is far easier than earning it.
The untrammeled free market leads inexorably toward gargantuan monopolies with complacent managements that end consumer choice, fix prices, treat customers disdainfully and stifle innovation. Only fierce anti-trust legislation, accompanied by a sharp set of regulators, protects consumers from this tendency to replace healthy competition with a single company (or a duopoly) offering a single line of products.
Cable television already resembles a monopoly commodity. Companies bid to become the sole “triple play” supplier to an apartment block or a neighborhood -- providing access to broadcast television programming, the Internet, and landline telephone service in a bundle. On top of this “natural monopoly” -- caused by the physical limitations of the cable technology that allows limited access to customers -- could now be added the effective monopoly of a single behemoth company enjoying an overweening market share.