Telephones or oil, a monopoly is not a market

There’s a regular drumbeat from petroleum interests that begrudge ethanol its share of the gasoline fuel market: “We need to let the market decide.” The latest was just last week. But there’s a problem with that argument. A monopoly is not a market.

Oil accounts for 92 percent of the transportation fuel in the U.S. By any measure, that’s not a competitive market. Sure, it’s not a company monopoly like AT&T used to be. But when multiple companies sell exactly the same product, in the absence of market substitutes, what’s the difference? The fuel pool is effectively barred from competition, and consumers are denied a choice.

The disingenuous call for a “free market” is a red herring. An ethanol “mandate” that cedes less than 10 percent market share in a single sector of transportation is only a hardship when nothing less than 100 percent will do. Consider the evidence: Despite ethanol’s recent significant price advantage and favorable properties—most notably high octane—its proportion remains steady as production increases and exports rise. That’s not how free markets work.

The claim that we’re drilling our way to energy independence is equally deceptive. The U.S. is at its highest output in history, and just a hair behind Russia for the title of world’s top producer. Yet late last month, the U.S. went with hat in hand, begging Saudi Arabia to increase output to bring the price down. Yeah, that’s right. The most powerful nation on the planet continued a long tradition of asking for an assist to ease the price at the pump for American consumers. It’s because we don’t control the price, no matter how much we drill.

Energy independence means controlling your own energy destiny. Energy independence is a genuine market in which we aren’t bound to the consequences of the geopolitical drama of the day. More and more oil drilling clearly isn’t the solution. Market competition is. Only the ready availability of substitutes can provide a permanent fix. We have plenty of energy to diversify. We only need the political will.

The breakup of AT&T provides a useful guide to the promise of interrupting a monopoly. Decades ago, the government intervened to loosen AT&T’s stranglehold on U.S. telecommunications. That effort opened the door to previously unimagined innovation, utterly changing our lives. Today we have flourishing competition, mobile tools of productivity, and the networks to take advantage of them. We have communications virtually everywhere, and an array of options for consumers to choose from. And critically, AT&T continues to thrive and grow as a major player. It wasn’t put out of business; it adapted to compete on a level playing field. And consumers are better off.

Petroleum is no less a monopoly, and has even more serious and persistent consequences than AT&T’s dominance ever did. The absence of substitutes for oil in transportation means we are tethered to the world price, and the world events that affect that price. It means that our national security is hostage to hostile regimes with significant oil reserves. It means that family budgets of U.S. drivers, and travelers, are periodically drained by high fuel prices. It requires U.S. presidents to beg oil nations to open the spigot to compensate for supply disruptions. It means that we will never be energy independent. And—no matter what anyone says—a petroleum monopoly will never be a market.

 

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