Thread

1. throwaway13337 · 1789952505 · focus · HN ↗

   There's a pattern to the kinds of companies PE buys and I think it points to the real problem.

   They like companies with some kind of moat that makes it hard to unseat them. Basically, companies where there is no alternative for the consumer. That way, they can inflict abuse but know there will be nowhere to run.

   There are two different ways to achieve this. Monopoly and regulation. Hospitals have both government granted locational monopoly and tons of regulations that make it impossible to compete.

   Private equity is the symptom, not the disease.

   Until we get at the disease, new monsters will be born with different name filling the same ecological niche. It's economic natural selection played out in the environment we created.

   1. ip26 · 1789963037 · focus · HN ↗

      Regulation is usually what you accept in exchange for a monopoly. I would argue a granted monopoly without any regulation is evidence of regulatory capture.

      If you want to argue from first principles, and we accept for a moment that granted monopoly is the system we are working in (whether or not you feel it's the optimal regime) then I'd argue there's a clear gap in regulation, as flagrant abuse of the consumer has not been prevented.

      1. Nifty3929 · 1789963725 · focus · HN ↗

         Not really. Monopolies are an invitation to competition: Your margin is my opportunity, as it were. They are therefore hard to maintain absent some kind of external force to support it: Regulations (regulatory capture), licensing, explicit grant from the government, intellectual property laws, or some kind of collusion or market manipulation (more leading to oligopolies rather than monopolies).

         This is how industrial barons of the early-mid 20th century operated, as an example, with collusion and price fixing type things. Or hospitals and medical facilities today with certificate-of-need laws enforced by the government.

         1. ip26 · 1789974128 · focus · HN ↗

            Take garbage hauling. You have five haulers running the exact same routes through town, stopping at different houses. Government is unhappy with the tremendous added wear on the roads from the redundant trucks, and the extra traffic, so it strikes a deal and grants exclusivity to one hauler.

            This is a granted monopoly. It has real positives, such as the same service at 5x less road wear. It should also be obvious that to be positive overall the deal needs to prevent abuse of the public.

            1. anamax · 1789999486 · focus · HN ↗

               Nope.

               If there are 5x as many truck runs, the trash per truck is 1/5th.

               The more likely result is that each of the providers runs far fewer trucks than a single provider would because trucks and drivers cost money. Unless the 5 companies figure out how to get the total revenue to 5x, they can't pay for that.

               Let's do an example.

               Suppose we have a street with 100 houses and it takes 5 houses to fill a truck. Therefore, it will take 20 truck runs to collect that street's trash.

               If there is only one trash company, it will need 20 truck runs to service that street.

               If there are five trash companies, each with an equal share of those 100 houses, each of those companies needs only 4 runs to service its 20 houses. Why would any of them do more runs?

               Yes, the average distance per run may be higher for the 5 companies, but it won't be 5x.

               1. tanseydavid · 1790014481 · focus · HN ↗

                  Now do Amazon deliveries. I'm only half-joking.
               2. datsci_est_2015 · 1790028654 · focus · HN ↗

                  > Yes, the average distance per run may be higher for the 5 companies, but it won't be 5x.

                  You contradict yourself at the end of the comment. Yes, it could be estimated a linear equation (mx + b) where m is the cost per house and b is the cost per route, roughly. And then you could have a system of which equations, where each row in the system’s matrix corresponds to an additional company.

                  The optimal result is probably not 1 company, but it’s probably not 1 company per house either

            2. IAmBroom · 1790013025 · focus · HN ↗

               Some part of Ohio functions as a granted monopoly for the power company.

               They are given 5-year contracts, but an agency exists to tabulate complaints, reaction time to outages, and so on. If they don't impress the agency near the end of their contract, it will be opened up for market bidding.

               Because of this pressure, the monopoly power company has even been known to reduce rates, proving a priori that they are indeed serving the public interest at a commendable level.

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