In an article in today’s Australian (available here,), I argue that governments can learn valuable lessons from the current battle between the taxi industry and Uber, as well as from past battles over government protection of market power (such as the tariff wall and AWB’s export wheat single desk). I draw 5 key lessons – the most important one being: don’t create market power in the first place!
Lessons for governments from taxis vs Uber
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[…] Yesterday, alternative share trading venue Chi-X announced the sale of its operations in Australia, Hong Kong and Japan, reportedly for about $570 million (for The Australian‘s coverage of the sale, see here). This serves as a reminded of the benefits of market reform and competition – and of the need to not let vested interests stand in the way of reform. I first advocated introducing competition to the ASX in share trading in a column in The Australian 2008 (available here). The ASX, of course, argued that allowing competition was “fraught with peril” and dressed up its arguments against allowing new competitors as somehow being in the public interest. I rejects those arguments in a further column (available here). However, the ASX continued the fight, as every day that a monopolist can stall a potential competitor’s entry is worth alot of money. As a result, Chi-X had to wait over 3 before the Federal Treasurer awarded it a market licence in 2011. None of claims of Armageddon that the ASX made in its scaremongering campaign came true. Indeed, Chi-X;s entry has been very beneficial. Within a short period of time, Chi-X gained more than 10% market share. As a result of Chi-X’s entry, trades are executed much more efficiently and quickly and trading fees as lower. That Chi-X Australia was able to build up such a valuable business so quickly is further evidence of the outrageous rents that the ASX earned under its government-protected monopoly. Another reason why governments should avoid creating monopolies in the first place, as I have argued elsewhere (see here). […]
[…] Source: Adelaide Economic Policy Forum […]