The railways are a poor example of competition as they aren’t really “private” and in fact receive more government subsidy now than when nationalised.

You can’t just say “assymetric information” and “prisoner’s dilemma” and assume that forms a complete case against an effective market. People care, when they go to the supermarket, primarily about quality and price. The former is largely ensured by brands, the latter is clearly displayed. You can’t just assume there are a whole load of other issues people care about - if they really did you would assume there would be a market for making that information clear (as there is on, for example, nutritional information).

dreamingspire,

I think it is easy to forget the extent to which railways compete either with cars (outside London), with buses (inside London) or with planes (international travel). That increases competition beyond the amount among railway companies.

A lot of the problems establishing competition that you mention were actually solved under the original, private, railway system.

remind me to bring some of these to the next Global Warming Denialist meeting…

It might not be high on your list of priorities, but it would high on theirs, if their funding depends on your choice.

Which would give each of them an incentive to give you a better deal than the others. More to the point, those that give worse deals than the current average will tend to be replaced by those that give better deals than the current average. So that average will tend to rise with time.

This analysis fails to take into account negative externalities and asymmetric information. It is true that a consumer has other choices available to shopping at Tesco, but it is very difficult for the consumers to know the true social cost of the products they buy, which is why they will often buy the cheapest option when in fact it may be more expensive in terms of their overall well being in the long term. Even if they did have perfect information, you the individual consumer is faced with a Prisoner’s Dilemma in reasoning how other consumers are going to behave - leading to a Pareto sub-optimal outcome.

Personally I think breaking everything down to methodological individualism is bullshit, but if you are going to do it then you shouldn’t cut corners. Perfect competition is a fantasy, as attested to by the vast field of welfare economics.

Railways aren’t necessarily a monopoly. They both compete with other modes of transport and can easily be arranged to have multiple companies running popular routes. I think there is a good book on this by the IEA.

I’m afraid that to the ears of a Ridley Road market shopper, that’s nigh on sacrilege. Especially as “irregular hours” is also my chosen euphemism for not usually having anywhere to get to after I’ve dropped the little one at school.

#1
Alas, Matthew, your neat little economics diagrams don’t work quite so well when 1 in every [8 isn't it] quid we spend goes to Tesco. I guess, yes, the farmers could always sell elsewhere; maybe even get another 5p from Sainsbury’s. Of course, where competition is meaningful, I totally agree with you. But in massive natural monopolies with huge (or even impossible - like a set of railway lines) costs to entry, it’s a bit silly to make those sort of claims.

Your bit about competition and choice not being necessary because you just want high standards - rather than choice - misses the point. Choice and competition aren’t nice little add-ons. They’re the way you get high standards. By creating an imperative for companies to do things as efficiently as possible. The discipline of having to serve a market that can go elsewhere creates incentives for companies to innovate and get their services right.