Here is yet another example that free market capitalism actually works for consumers: Netflix recently reduced the price its service plans such that our 3 DVDs at a time plan now costs $16.99, about a dollar less than we used to pay. The funny thing is that we did not have to request the reduction or to take any action in connection with this change. One day Netflix sent us a notice in the mail informing us that our price has been reduced.
Have the good people at Netflix switched from being ardent capitalists to firm believers in socialism? Not really. Market economics is at work once again. Netflix is facing mounting competition from Blockbuster, who is leveraging its retail stores to offer plans that allow consumers to rent via mail or through its stores for the same price. This increasing pressure has evidently convinced Netflix executives that a price cut is in order.
Nevertheless both Netflix and Blockbuster are firm believers in bilking their customers whenever they can. I haven't forgotten that just a few years ago Netflix arrogantly raised the price of its 3 DVD plan to about $22. They only dropped it back once their customers rebelled and they started to lose subscribers to the competition. Blockbuster on the other hand was, for years, content to rip-off hoards of consumers by charging ridiculous rental and late-return fees. They too only succumbed once free market competition emerged, in the form of Netflix.
What does all this tell you about capitalism? To me it says two things. First, capitalism clearly works. If you take the video rental market as an example, prices for video rentals have come down dramatically over the past several years. Second, free market capitalism can only work if there is indeed a free market. Netflix and Blockbuster would each immediately revert back to their predatory selves if they felt that competition was no longer a barrier to raising prices. By the way, I am not singling out these two companies. I could make the very same argument for pretty much any other business on the face of the planet.
As far as I am concerned, the bottom line in all this is self evident: the role of government is to ensure that the free market is operating correctly. It needs to ensure that every business in the country feels a healthy competitive pressure. From that point forward the market will make things right. This is true of health care, it is true of power utilities, it is true of airlines, it is true of agriculture, it is true of telecommunications, it is basically true of every single industry out there. I did not pick the above industries by co-incidence, these are some of the biggest industries which enjoy government protectionism, waivers from anti-trust laws, and subsidies. We would all be better off if the government created a truly free market and at that point acted simply as a neutral referee rather than as a protector of special interests.