Great post Vaibhav! I am absolutely fascinated by economic history so I found this post to be particularly interesting. One of your comments was very timely insight of what we spoke about in today’s case on Google car: “A monopoly like Google is different. Since it doesn’t have to worry about competing with anyone, it has wider latitude to care about its workers, its products and its impact on the wider world…Changing the world often comes at huge upfront costs, a role perfectly suited for ambitious monopolies like EIC”.
While I agree with the statement above, there are two things that come to mind that make me question whether the benefits of a monopolistic market outweigh the costs:
1. The lack of competition helps monopolies by allowing them to undertake major projects with huge upfront costs- however, could it also hurt them by not pressuring them to become more efficient and/or thoughtful with their costs? If there aren’t any companies working towards the same goal, I don’t see how they could be motivated to improve their operating models. Despite this, shareholders seeking a particular type of exposure will still allocate their capital to these monopolies because they do not have another option; unfortunately, the returns they receive will not be as high as they could be.
2. What happens when a monopoly shifts away from its original value proposition and actually begins to destroy value (i.e. social, economic well being in the territories they work on)? I am not that knowledgeable on the EIC but, did they have any checks and balances that ensured that their business and operating strategies were aligned to create value for everyone involved?
Interesting post! I was not familiar with Progressive’s unique value proposition to clients as a car insurance company. What I found most surprising was the creation of the Immediate Response Claims Handling, which aims to help customers within 9 hours. The potential challenge I see with this feature of their operating model is scalability. In the event of a natural disaster, for example, how can the insurer keeps its promise of getting to every customer within a short time period? Having less individuals working in the claims department could exacerbate the problem.
On the other hand, a great benefit to this program is that replacement vehicles are used for smaller periods of time since customers have their cars fixed much quicker- this higher “churn rate” probably reduces the amount of car inventory they need to have in each of their offices and the costs to carry it.