Friday, October 24, 2014

RiteAid "Blocks" Apple Pay, Google Wallet

RiteAid seems to have decided its backing of the Merchant Customer Exchange (MCX) mobile payment initiative conflicts with accepting either Apple Pay or Google Wallet payments.

At the moment, RiteAid does not support either Apple Pay or Google Wallet payments.

So should RiteAid be legally compelled to support Apple Pay or Google Wallet? Most likely would disagree. The implicit reasoning might entail some thinking that RiteAid is free to sell whatever products it wants, and be paid any lawful way it chooses.

Retailers, like many other businesses, make decisions all the time about what products to sell, how to sell them and how to distribute them. Manufacturers often must pay for the privilege of being featured in the best locations on retailer store shelves, for example.

Newspapers, magazines and television stations makes decisions every day about publishing or televising some stories, rather than others.

The point is that quite a lot of discretion normally is exercised by most companies selling most products, as a routine occurrence.

True functional monopolies tend to be treated differently. Most are familiar with the notion that some products are “natural monopolies.” Roads, water systems, electrical grids and wastewater systems provide examples.

But some other businesses that have in the past been seen as natural monopolies, might not be such clear cases. Railroads, cable TV networks, airports and telecom networks have at points in time been viewed as natural monopolies.

There now are greater practical questions about whether that really is the case. Some might argue the issue tends to be the possibility of functional oligopolies or monopsonies, not strictly monopolies.

Many now would argue that, although not natural monopolies, it might still be the case that only a few leading providers can prosper in some businesses with “scale” economics.

Still, the view policymakers have of these industries really does matter. A true natural monopoly might never have any competition, so regulation makes sense. Competitive markets do not require such regulation.

Somewhere in the middle are markets where scale matters, but monopoly is not a fundamental or natural characteristic.

That is why RiteAid deciding which payment methods to accept does not require regulation. Some might argue sewers, highways, electricity or water systems are natural monopolies, and do need regulation.

Video entertainment services, linear or over the top, are not monopolies, and require no regulation of content, anymore than RiteAid must be required to accept all known forms of payment.

But there is a popular notion that Internet access, which is not a natural monopoly, requires regulation of the sort typical of such industries, namely “common carrier” rules that might prescribe what products can be sold, how they might be packaged and what they might legally cost.

Public policy choices have consequences. And one consequence of regulating industries that are not natural monopolies, as though they were, will tend to depress investment and suppress innovation.

Some might not care. One can always point to instances, in any area of commerce,  where material interests among ecosystem participants conflict, and where an economic or financial loss by one part of the value chain results in material benefit for other parts of the value chain.

For buyers, higher prices are a burden; for sellers a benefit. Retail product costs for consumers also represent the basis for wages for workers in the selling industries and firms.

So long as markets operate, such tensions within any product ecosystem can adjust, over time. What arguably does not work so well are imposed rules that actually prevent such adjustments, which is what common carrier regulation tends to do.

To oversimplify a complex matter, RiteAid should not be forced to accept Apple Pay or Google Wallet.

Neither, for similar reasons, should RiteAid be told what lawful products it can sell, or how much it can charge for those products, or where those products can be displayed.

Every other competitive industry and firm likewise should be allowed to craft its offers as it deems the market prefers. That might, in some industries, involve accepting advertising, product placement fees or other support that defrays end user cost.

That is why “sponsored data” or “free apps” that people can use without incurring charges or usage are significant. The extend access to desired apps and services, and save consumers money, while still creating a revenue model for the sponsoring entities.

Common carrier regulation is a hammer for which every problem is a nail.

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