When Monopoly is Better

As former student and teacher of economics, I am a strong advocate of competition and the power of competitive markets to advance societal welfare. However, I also understand that in the real world, there are cases where competitive markets fail and that some form of monopoly is inevitable and even the better alternative. One instance where competitive market fails is when economies of scale exist in an industry, i.e. a firm actually becomes more cost-efficient the bigger they become. In such an industry, it makes economic sense to have just one player. I believe scale economies exist in the canine pedigree registry and the championship titling system “industries”.

A duopoly in the registry and titling system only implies waste of scarce societal resources – two sets of overhead costs for essentially the same services demanded. If two clubs are offering the same services, both sets of players can actually gain more if they band together, share administrative costs and revenues, and provide a single set of services. The reality is that there are two clubs now – a result more of difference in vision rather than the pursuit of the optimal set-up. Personally, I would rather see competition in the election of officers of a single club. This is how this natural monopoly is supposed to be regulated. Since there are 2 clubs now in existence, I simply watch with keen interest the on-going developments.

There are 3 simple scenarios how this game will play out. One, PCCI remains the dominant club. Two, both clubs become equals. Three, AKCUPI replaces PCCI as the dominant club. In all scenarios, society loses because significant resources are channeled into club promotional activities. Customers bear this additional cost. Costs escalate as both clubs reach equal status. Aside from promotional costs, customers may end up with the sad state of maintaining two sets of pedigrees and titles. As a customer, I dread this scenario. The returns to the club itself will depend on who becomes dominant.

In my opinion, the likely scenario is that a single dominant club will ultimately prevail in the market for legitimate pedigree and valued championship titles. The only way a second club can continue to exist is for it to segment the market and differentiate its product. Mostly likely, market will be segmented between pedigree purists and cost-conscious commercial breeders. Product differentiation will manifest itself as battle between first class and second-class pedigrees and titles. In a perfect world where pet buyers are knowledgeable, there is no room for commercial breeders and second-class papers and titles. Since this is an imperfect world, there will be one esteemed club and a lesser club. There will be an AKC and a UKC. It will be a fierce battle, with few winners, bitter losers, and customers as unwitting victims. Our only consolation is that we customers can influence the outcome with our wise patronage.

Part of me still dreams of the day we shall all realise that our common interests are best served by one club only. May that be the club that we all deserve.

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