BackIPL, Net neutrality and the importance of competition
There is a striking parallel between the markets for cricket and Internet services
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A new cricket league could be in the works. A previous attempt by media entrepreneur Subhash Chandrato enter the cricket business had failed. His Indian Cricket League was an innovative idea that was later adapted by the Indian cricket establishment as the wildly popular Indian Premier League. Memories of that failure have still not assuaged the fears of the men who control cricket.
There is a striking parallel between what is happening in the market for cricket and the heated debate about Net neutrality. Allow us to explain.
The market structure for cricket has three components: the players who offer their talent, the spectators who are keen to watch them play and the cricket board that brings the two together. The market for Internet services also has three components: the content providers, the content users and the telecom companies who bring them together on their networks.
There is one nuanced difference if one looks at the financial transactions involved. Take the cricket case first. The cricket board or the team owners who have bought rights from the board pay big money to the cricketers to perform in the circus. The spectators and the television broadcasters pay the board big bucks to get a chance to see the games. So the organizations that administer cricket in effect take money from the viewers and pass them on to the cricketers, while keeping some of it as a toll.
The financial flows in the Internet business are slightly different. The telecom companies do not pay anybody once they have bought their licences to use bandwidth. They actually receive money from the consumers who use a telecom network to access content. The essential Net neutrality debate is whether the telecom companies are justified in taking a premium from select content providers so that they have privileged access to consumers.
Anyway, both the cricket administrators and telecom companies are central participants in what are called platform markets by economists. They bring producers and consumers together, though in slightly different ways. One feature of a platform market is that it tends towards monopoly. A social networking site that has millions of users will pull in even more users because people want to connect with each other. These new members of the social networking site then act as a magnet for even more users.
That is how it works in cricket as well. The spectators will be drawn to the cricket league that has the best players. The best players will want to play in the league that is watched the most. That draws in even more consumers. That is why a challenger league will have to put up massive amounts of money to attract enough star cricketers. Also, the availability of good players even makes the contests more interesting for viewers. There are several network effects at play.
The problem is that these network effects lead to market dominance, and sometimes downright monopoly. Sometimes that leads to corporate arrogance towards consumers, as we see in the case of cricket. Sometimes it harms innovation, as the famous browser wars showed, when Microsoft’s dominance in the operating system market undermined browsers such as Netscape Navigator.
There is a regulatory challenge here. What should the government do to protect consumer interest? Should it create laws that determine how platform markets are priced? Or should they put all their effort in ensuring that there is enough competition to ensure that consumer welfare is protected?
Take the cricket example once again. Should the government decide the prices at which players are bought as well as the prices at which cricket fans get to see the games on either television or in the stands? Or should it just seek to break the existing monopoly so that consumers are allowed a choice: some cricket leagues may have business models that offer their games free while others may have business models that are based on premium pricing.
Protecting competitive markets is the more sensible choice, be it in cricket or in digital networks.
What should Indian regulators do to protect competitive markets? Tell us at views@livemint.com
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