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Knowledge Monopolies: What You Don't Know Can Cost You
March 2008
Why is it that many of us distrust the mechanic when our car is getting serviced? Often we fear that we are being overcharged, or being duped into paying for unnecessary work. At the root of the problem is the fact that the mechanic knows more about the situation than we do.
Our mechanic has a virtual monopoly on knowledge about the state of our car. For many of us, all we know about what our car needs is what the mechanic tells us, and he has an economic interest that is different from ours. His "knowledge monopoly" gives him power to exploit us to further his economic interest. Not all mechanics do, but the situation makes us uncomfortable none-the-less.
The Toronto Star recently reported on a study by Henry Schneider, an economist at Cornell University, who made undercover visits to several mechanics with a car that had known defects. He found that 61% of the money spent on repairs was unnecessary. As an economist, he didn't make any moral judgements on his findings. He merely concluded that the mechanics were responding to economic incentives and exploiting the market power their knowledge monopoly gave them.
What does this mean for energy buyers?
Well, certainly, most energy marketers and utilities know more about the energy business than the average energy buyer does. In most circumstances, the energy buyer is forced to rely on the seller of energy commodities and utility services for information that is relevant to the purchase. The sellers have a knowledge monopoly. And who likes buying from a monopoly?
What steps can a buyer take to break this monopoly?
Energy buyers should avoid dependence on a single energy supplier. After all, if you can buy only from one supplier, you pretty much have to take that supplier's word on what the market price is. If you have two or more suppliers, you can compare the information you get from each, and that gives you more information to make a decision.
What if you could take your car to an independent mechanic who doesn't do repairs? He has no economic interest in the size of the repair bill. His job is just to diagnose your car and tell you what needs fixing. Armed with his advice, you could find a garage that would do only the necessary work, and at the least cost.
Maybe that's not practical for car repairs, but it make sense when you are spending millions of dollars on energy.
Advisors like Aegent exist to help energy buyers break these knowledge monopolies. By providing independent information and insight, Aegent helps energy buyers deal with suppliers and utilities as equals when in comes to knowledge and understanding, protecting the buyer's interests and lowering costs.
Two good sources of information about natural gas and energy markets are our weekly natural gas and electricity review and outlook pages. Many people list these sites in their "favorites" section for easy access. They may be found at: