Opinion

Monopolies Cost Americans $300 a Month. We're No Longer the Land of Free Markets

Thomas Philippon

By Thomas Philippon

The final irony is that US policymakers are now looking to Europe for clues about modern market regulations. The same pundits who made fun of the EU’s General Data Protection Regulation (GDPR) two years ago are now thinking about the best way to create its US equivalent and offer much-needed privacy protection to US consumers.

By Thomas Philippon

When I landed in Boston in 1999, the United States was the land of free markets. Many goods and services were cheaper here than in Europe. Twenty years later, American free markets are becoming a myth. Internet service, cellphone plans, and plane tickets are now cheaper in Europe and Asia than in the US. In 2018, the average monthly cost of a broadband internet connection was $31 in France, $39 in the UK and $68 in the US. American households also spend twice as much on cellphone services as households in France or the UK.

This is a result of policy choices. In 1999, the US had free and competitive markets while European markets were dominated by oligopolies. The airline industry is a prime example. Over the past two decades a wave of mergers has turned the US airline industry into an oligopoly while Europe has opened its skies to competition, thanks in part to low-cost carriers such as Ryanair and EasyJet. US regulators allowed these mergers to happen without meaningful challenges. EU regulators, on the other hand, encouraged the entry of low-cost competitors by making sure they could get access to takeoff and landing slots.

There are many layers of irony in this historic reversal. One irony is that the free market ideas and business models that benefit European consumers today were inspired by US markets. Another irony is that some leftwing US politicians are now contemplating policies that most Europeans would find extreme. We do not think private health insurance companies should be abolished. We favor wealth taxes, but we do not think they are a cure for all ills.

Read the full article in The Guardian.
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Thomas Philippon is a Professor of Finance.