Obama to sign executive order to ignite corporate competition

On Friday, President Barack Obama announced he would sign an Executive Order directing every relevant agency of the Federal government to take steps in identifying bottlenecks to competition and to create new ways to increase competition in the economy. The Executive Order puts agencies on a fast-track path to, within 60 days, identify the steps they’ll take.

“Competition is good for consumers,” Obama told Yahoo Finance in an interview at the White House on Thursday. “And ultimately it’s good for business. That’s the way the free market works. The more competition we have, the more products, services, innovation takes place.”

As one of the first actions in this new, government-wide push, the Commerce Department is filing with the Federal Communications Commission (FCC) to call on it to increase competition in the set-top box market.

Cable and satellite TV boxes sit on televisions in hundreds of millions of American homes, showing up on every month’s bill as “converter rental.” According to analysis by the White House, the cost cable set-top boxes — on average $231 to rent per year — has risen 185% while the cost of computers, televisions and mobile phones has dropped by 90%.

“It’s been tied to the provider, and you rent it and consumers spend billions of dollars on this every single year,” Obama said. “There hasn’t been much innovation”

The effort to open up the set-top box market is just part of a broader effort for the administration.

“The idea is that whether we’re talking about financial services, whether we’re talking about products like the box on your cable TV — across the board if we have more players who can potentially participate, fewer barriers to entry, the rules aren’t rigged, then you get more people trying to get your business and you get better products at cheaper prices,” he said.

The Council of Economic Advisors (CEA) released a report on Friday that documented evidence that competition has been reduced in the economy. The report pointed to a decades-long decline in new business formation and increases in industry-specific measures of concentration. The report pointed to efficiencies of scale, increases in merger and acquisition activity, firms’ crowding out potential competitors, and regulatory barriers to entry.

“I think the general theme is that American business is the cornerstone of our economy,” Obama said. “Our private sector thrives and innovation is the hallmark of the United States. That’s our big comparative advantage with other countries. But it starts to become less effective, and reduces both what consumers get and the kind of innovation we generate if we get closed systems or if people are gaming the system.”

The CEA noted increasing industry concentration, outsized returns to a few firms, and lower rates of firm entry and labor mobility. The table below shows that in most industries from 1997 and 2012, the top 50 largest firms in each have seen their share of the pie grow.

Several agencies are already using their authority to advance competition. The Federal Aviation Administration (FAA) of the Department of Transportation (DOT) has sought to provide competitive airline carriers with greater access to takeoff and landing slots at capacity-constrained “slot-controlled” airports. The FCC, in its most recent spectrum auction design, established a market-based spectrum reserve designed to ensure against excessive concentration in holdings of low-band spectrum.

Still, the CEA and Obama argue that consumers and workers would benefit from additional policy actions by the government to promote competition.

Obama said this executive action focusing on consumer issues is key for leveling the playing field.

“I think that Congress has been stuck, partly for ideological reasons, in taking some common sense steps that would improve the economy and help working families. But I will tell you that consumer actions like this, or the actions that we took with respect to financial advisors making sure that they have an obligation to the people they’re advising to actually do what’s best for their clients as opposed to the services that they may be pedaling — you know, rules like that — they seem small bore initially ’cause they don’t get a lot of attention, but they can add up to billion or dollars out of the pockets of consumers,” Obama said.

The President said that while the economy has improved since he took office, not all of this is translating as much as it should for workers.

“[Wages and incomes] haven’t gone up as quickly as people had been accustomed to in previous generations,” he said. “But the fact of the matter is it is indisputable that the economy is much better now than it was when I came into office. We’re continuing to make progress. And my hope is that during this debate we focus very practically on what are the additional steps we can take to make a difference.” –Yahoo Finance By Nicole Sinclair