Politeía Digest

Quis custodiet ipsos custodes?

Death of the Duopoly

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Being binary is bad for business, so when will politics cure its bipolar disorder? Nick Gillespie and Matt Welch on the lessons Washington should learn from the real world.

By Nick Gillespie and Matt Welch

Nothing in American life today seems as archaic, ubiquitous and immovable as the Republican and Democratic parties.

The two 19th-century political groupings divide up the spoils of a combined $6.4 trillion that is extracted each year from taxpayers at the federal, state, county and municipal levels. Though rhetorically and theoretically at odds with one another, the two parties have managed to create a mostly unbroken set of policies and governance structures that benefit well-connected groups at the expense of the individual.

Americans have watched, with a growing sense of alarm and alienation, as first a Republican administration and then its Democratic successor have flouted public opinion by bailing out banks, nationalizing the auto industry, expanding war in Central Asia, throwing yet more good money after bad to keep housing prices artificially high, and prosecuting a drug war that no one outside the federal government pretends is comprehensible, let alone winnable. It is easy to look upon this well-worn rut of political affairs and despair.

And Americans are, in increasing numbers. Perhaps the most important long-term trend in U.S. politics is the four-decade leak in market share by the country’s two dominant parties. In 1970, the Harris Poll asked Americans, “Regardless of how you may vote, what do you usually consider yourself—a Republican, a Democrat, an independent or some other party?”

Fully 49% of respondents chose Democrat, and 31% called themselves Republicans. Those figures are now 35% for Democrats and 28% for Republicans. While the numbers have fluctuated over the years, the only real growth market in politics is voters who decline affiliation, with independents increasing from 20% of respondents to 28%.

These findings are consistent with other surveys. In January, Gallup reported that the Democrats were near their lowest point in 22 years (31%), while the GOP remained stuck below the one-third mark at 29%. The affiliation with the highest marks? Independent, at 38% and growing. In a survey released in May, the Pew Research Center found that the percentage of independents rose from 29% in 2000 to 37% in 2011.

It is generally taken for granted that the Democrats and Republicans will always be around. But that may just be the influence of what cognitive scientists call “existence bias”—the pervasive idea that the status quo is stable and ongoing. What if the same factors that have given our incumbent parties an advantage also threaten to hasten their demise?

Economists have a particular fondness for studying what Democrats and Republicans have become: the longest-lived duopoly in American history. The Nobel Prize-winning economist John Forbes Nash (the subject of the book and movie “A Beautiful Mind”) was all about duopolies. He showed that two powerful competitors frequently end up locked in a stable, mutually beneficial dance of tit-for-tat—they collude, in short, to carve up a captive market.

Economists have paid less attention to the chief vulnerability of duopolies: How collusion against the interests of customers produces an inevitable revolt, sweeping one or both dominant players into the dustbin of history.

In a widely circulated 2009 paper surveying the economic literature on the topic, the late Larry F. Darby presented a list of classic duopolies, including such familiar pairings as MCI and AT&T, and Macy’s and Gimbels. Tellingly, several of the players no longer existed: MCI (then known as WorldCom) became history’s largest bankruptcy in 2003; Gimbels was the country’s dominant department store chain in the 1930s but went out of business in 1987.

There is nothing inherently stable about two organizations dominating a particular market in the hurly-burly of modern American life. In fact, there are many reasons to suspect that such arrangements are unstable—particularly when technology allows captive consumers to flee.

It is worth taking a closer look at one case on Mr. Darby’s list: Kodak and Fujifilm. For much of the 20th century, Kodak was synonymous with color photography. Memories captured on film were “Kodak moments,” and the Dow Jones Industrial Average listed the company for more than seven decades. At one point it enjoyed an amazing 96% share of the U.S. market for film. Such was its dominance that the federal government sued Kodak for antitrust violations not once but twice, producing out-of-court settlements in 1921 and 1954.

Fujifilm began competing with Kodak globally in the 1970s and seriously in the U.S. after the 1984 Olympics. Though always the junior partner on Kodak’s home turf, the conglomerate held its own enough that the duopoly soon attracted academic studies. Their underlying assumption was that the duopoly would be stable for the foreseeable future. Read More in The Wall Street Journal


Written by Theophyle

July 2, 2011 at 5:14 pm

One Response

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  1. Asta-i, am invatat rusa, nu am “vrut” limba imperialistilor, cade-le-ar bombele in ocean.

    victor L

    July 2, 2011 at 5:35 pm

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