Putting a leash on BBC websites

Jeremy Hunt, UK Culture Secretary claimed today that BBC websites may need “clearer red lines” to allow privately held and run competitors to survive. Hunt’s warning suggests that BBC might need to be put on a leash when competing with their private counterparts in areas that do not directly fall into their public service remit. BBC has over 400 different websites, including ones such as Top Gear, the largely public-money-inspired ambitions of which – according to Hunt – may give a signal to private broadcasters that will “put off anyone who’s got an idea for a website to do with cars from bothering to invest in it.”

Hunt’s concerns have been worded by a number of academics. Sappington and Sidak (2002) demonstrate that state-owned enterprises (SOE) may actually act more aggressively toward their competitors than would private, profit-maximizing firms. By pursuing various governmental objectives, SOEs can often end up changing their incentive from profit-maximisation to maximising its production scale. In aggressively pursuing expanded scale and enhanced revenues, SOEs may find it advantageous to engage in anticompetitive behaviour against private, profit-maximizing enterprises. This means that SOE’s are often able to achieve cost advantages in a non-reserved market (i.e. the websites identified by Hunt) by virtue of its statutory monopoly in a reserved market. These advantages can result from economies of scope between the reserved market and the non-reserved market—economies of scope that the SOE’s rivals are denied the opportunity to achieve.

Similar concerns can be derived from literature on mixed oligopolies, where public and private enterprises compete with each other (e.g. Saha and Sensarma [2008], Nishimori and Ogawa [2002]). The mixed oligopoly literature traditionally focuses on the aggressive behaviour of a public firm against its private rivals, and its impact on social welfare. This aggression primarily comes not from the government’s apathy or rivalry to private firms, but from its equal treatment of consumer surplus and profit, which favours redistribution of gains from firms to consumers.

Finally, there is the important question of what goals a public sector broadcaster should pursue. Ruys (1988) for example highlights the difficulty of achieving the public enterprise goal of maximising social welfare but then emphasises that it is still a better goal than anything else that comes from a short-term thinking government.

Hunt also warns about the importance of competition in British broadcasting at the quality end and not just at the mass end of the market, the contrary of which is a valid possibility when SOEs compete with privately owned companies, as pointed out by Sappington and Sidak (2002).

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