skip to main |
skip to sidebar
Two examples of how ‘competition breeds competence’
From Mark Perry.
"When government agencies or heavily regulated industries are
insulated from market competition, the incentives to offer better
service and lower prices, along with the incentives to innovate, upgrade
and improve are either significantly weakened or non-existent. But when
faced unexpectedly with some market competition, it’s amazing how the
normally sclerotic, anti-consumer and unresponsive government agencies
or protected industries can suddenly become responsive and
consumer-friendly. Here are two examples:
1. The Kelston Toll Road in the UK. I reported last August on CD
that an entrepreneurial UK grandfather built a 400-yard private toll in
just ten days that allowed drivers to bypass a 14-mile construction
detour. A landslide last February closed a road between the towns of
Bristol and Bath and construction was originally scheduled to take until
last Christmas to complete. The private owner was therefore expecting
toll revenue through December to cover his $500,000 in construction and
repair costs, along with the cost of staffing a toll both 24 hours each
day, and hopefully generate some profit for his entrepreneurial efforts.
But
the local government, possibly unhappy with the competition from the
private toll road, suddenly made an emergency decision to spend an extra
$1 million to speed up the road construction project, which was
completed six weeks ahead of schedule in mid-November. Now the toll road
entrepreneur and his wife are upset and have accused the local
government of trying to bankrupt him with the early opening of the road
five weeks ahead of schedule. And perhaps the road construction would
have been completed early even without the private toll road, but it
seems pretty likely that the presence of competition from the private
toll road may have imposed some additional incentives that changed the
normal “we don’t care, we don’t have to” attitude of the local civil
servants (who often are neither very “civil nor “servile”).
2. Big Taxi vs. Uber.
After being protected from competition for generations by government
regulations that restrict the number of traditional taxis in most major
cities like New York, Chicago and LA, the “taxi cartel” has recently
come under competitive pressure from new ride-sharing services like Uber
and Lyft that offer consumers a transportation alternative to taxis at
lower prices and with better, faster service. Suddenly, the traditional,
sleepy taxi industry is being forced to act and think more
competitively in response to the upstart ride-sharing services, which is
behavior that is completely alien to an industry that never faced the
discipline of market competition before. For example, the LA Times is reporting that:
All
taxicab drivers in Los Angeles will be required to use mobile apps
similar to Uber and Lyft by this summer, according to a measure passed
by the Los Angeles Taxicab Commission this week.
The order, passed
on a 5-0 vote, requires every driver and cab to sign onto a
city-certified “e-hail” app by Aug. 20 or face a $200-a-day fine. The move is seen as a way to make taxicab companies more competitive with rideshare apps such as Uber and Lyft.
Los
Angeles cab companies reported a 21% drop in taxi trips in the first
half of 2014 compared with the same period the previous year, the
steepest drop on record. Cab companies largely attribute the drop to the
popularity of app-based ride services.
William Rouse, general
manager of Yellow Cab of Los Angeles, says his company has utilized a
mobile app for several years. The app, Curb, allows riders to hail and
track a cab, provide payment and rate drivers. “If our industry
is ever going to get a chance to move passengers from Uber back to
taxis, each one of these companies should have an app,” Rouse told The Times. “It’s a shame that the city had to mandate it in order for this to happen.”
Last summer, ABC News reported that:
Meet
the new secret weapon to get a leg up in the cutthroat competition
among cabbies — charm school. Taxi drivers in Washington state are
getting lessons that they hope will give them an edge against startups
such as Lyft and Uber. About 170 taxicab operators paid $60 out of their
pockets for a four-hour training session to learn about topics
including customer satisfaction and developing relationships with
institutional clients.
Pretty amazing how the taxi
cartel is suddenly starting to change the way it operates now that its
drivers are facing intense market competition/discipline from Uber and
Lyft.
Bottom Line: Perry’s Law says that
“competition breeds competence.” These two cases above help to
illustrate that principle, and provide examples of how direct, ruthless,
even cutthroat competition is often the most effective form of
regulation, and provides the intense discipline that forces firms to
maximize their responsiveness to consumers. To maximize the competence
of producers and suppliers, we have to maximize competition, and to
maximize competition we usually need to reduce the government barriers
to market competition like occupational licensing and artificially
restricting the number of taxis that are allowed to operate in a city.
In other words, we need to move away from the ubiquitous crony
capitalism that protects well-organized, well-funded, concentrated
groups of producers like the taxi cartel, barbers, funeral home
operators, and sugar farmers from market competition. Government
regulation typically reduces competition, which then reduces the
competence of producers, and reduces their willingness to serve
consumers and the public interest, which make us worse off. I say the
more market competition the better, for consumers and for the human
race. As Bastiat pointed out in 1850:
Treat all
economic questions from the viewpoint of the consumer, for the interests
of the consumer are the interests of the human race.""
No comments:
Post a Comment
Note: Only a member of this blog may post a comment.