Monopolistic Traders in Rural Areas – What Hospitals and Collegetown Bagels Have in Common
The city of Ithaca, New York is Cornell University’s home base. It is almost rural in comparison with urban hubs such as Boston and NYC. However, when contrasted with the surrounding areas of Dryden and Lansing NY, Ithaca feels extremely developed. Despite being the largest municipality in the area, there exists a lack of options for consumers in many different markets. In reality, Cornell is made up of two major sections, Collegetown, closer to campus, and downtown Ithaca Commons which is further and not very walkable from the Cornell campus. In the winter months, the downtown Commons is simply too far to visit without a car, and bus service is not very timely and overcrowded, making businesses located there relatively inaccessible to students. Even if the Commons was easily reachable from Cornell’s campus, the area needs more of some goods and services than what the combined downtown area can provide. In spite of this, Collegetown is where many upperclassmen live and therefore the place they need to purchase goods and services. If a Cornell student has a need for a good or service, their options of how to meet that need are often constricted to this small area off campus. This may be out of a need for convenience given busy schedules or for lack of alternatives. Whatever the reasons, many businesses in Collegetown absorb the role of the monopolistic traders with respect to Cornell students.
Monopolistic traders gain their power by being the only option for buyers to buy from and the only option for sellers to sell to in a trading market. While the example of sparse Collegetown businesses differs in some respect from a traditional trading network, many of the same key principles still exist. To maximize profit, all businesses will try to minimize their costs. However, since Collegetown businesses know they are often a student’s only option, they can then increase the price of their goods and services to exorbitant levels. This isn’t the case for all types of businesses – competition does exist for certain types of institutions such as dry cleaners (two) and Asian restaurants (at least 14). However, I experienced this problem firsthand this past weekend when it was my roommate’s birthday. When searching for birthday treats to make her day more festive, the issue of where to purchase this dessert in a convenient manner became very apparent. It was freezing out and the next bus to downtown Commons wouldn’t arrive for over an hour. Even then, the bakery in the Commons was closed for the night. Something walkable in Collegetown was our only option. We realized the only place that sold any type of pastries or cupcakes was Collegetown Bagels. They did in fact have an array of desserts suitable to celebrate a 19th birthday and we settled on a 12 count box of mini cakes. The price was outrageous. A few of the individual cakes were $6 each as compared with the $4 box of a dozen at the supermarket. Collegetown Bagels knew it was a company selling products in high demand as it was the only distributor who could provide the product of celebratory desserts in a store that was both open and close to the Cornell campus. Therefore it sold these goods for an extremely high price. While their bagels and coffee are delicious, their dessert offerings were overpriced due to the company’s position as a monopolistic trader over the Cornell student population.
This phenomenon is not unique to our small, rural college town of Ithaca. In fact, many rural areas experience the issue and realities of monopolistic competition in different markets as well. This can be seen on a far greater scale than the dessert shortage in Collegetown with respect to hospital monopolies, whose monopolistic behaviors can have a far greater impact on their customers – patients. Despite many governmental programs to make healthcare affordable for all, an article from The Intercept states that “the design of the Affordable Care Act does not hold up well when faced with the reality of how markets actually work outside cities” (Walker). This is because the ACA is designed (like many other business models) to have competition improving quality and accessibility. Like in Ithaca, a lack of competition remains so that, “in low-density areas, people often live within a reasonable distance of just one hospital or hospital network, which become de facto monopolies” (Walker). These hospitals rely on desperation to keep them in power so that they can too act as monopolist traders maximizing their profits at buyers’ and sellers’ expenses. Furthermore, the gravity of these monopolies led many rural American households to spend “nearly $1.2 trillion on hospital care, representing approximately $9,200 for the median household, or 14.7 percent of median household income” (Roy) in 2018. Additionally, not only are the financial effects of monopolistic markets harmful to patients (the buyers in the network), “Previous studies have generally shown that hospitalized patients have better outcomes in more competitive hospital markets than in less competitive markets.” (New England Journal Of Medicine). Overall the intermediary filling the role of the monopolistic trader harmlessly gains in hypothetical networks like the ones from our problem sets, but in the real world uses their extreme relative power to inherently cause detriment to the buyers and sellers involved.
Sources:
https://theintercept.com/2017/09/06/aca-obamacare-failing-rural-hospital-monopolies/
https://www.nejm.org/doi/full/10.1056/NEJMsa1901383
https://freopp.org/improving-hospital-competition-a-key-to-affordable-medicine-343e9b5c70f