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View Diary: Time to resurrect an old idea: Economic Rent (107 comments)

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  •  (adding value) (13+ / 0-)

    That's typical of a healthy market!

    A person buying those services can choose from a variety of offerings, matching up their needs to value propositions, paying for and receiving good value for their dollar.  Service providers can innovate and compete on multiple axis:

    1.  Efficiency of service delivery
    2.  Quality of service delivery
    3.  Value added frills and related services in addition to a solid delivery on axis 1 and 2.


    Goods work in a similar way, with margins dependent on value added.

    A great example here would be Apple Computer vs the many PC manufacturers.

    Apple stuff costs more, but Apple chooses to add a lot more value too.  Whether or not that value is meaningful to a consumer depends on their needs and how they value things.  The choice then is Apple vs some PC where margins vary, cost of acquisition vary, features and form vary, and so on.

    A great negative example is the cell phone carriers, or private health insurance, both of which demonstrate considerable unhealthy behavior.  Maybe toss subscription TV in there too.

    All of those markets have one thing in common:  Cost of choice is high.  

    Where cost / availability of choice is low and there are many choices, people can and will choose, and will choose often, always seeking to optimize value for dollar to match up their needs / wants.  This is always healthy, and always does a lot of damage to rent-seeking behavior, because it's easily seen as unfavorable, not a value add, difficult to compete with those actually adding value.

    Where cost / availability of choice is high whether or not there are many choices, people won't choose much, if at all, and generally cannot easily match up value for dollar to their needs / wants.  This is almost always unhealthy, and rent-seeking behavior is the norm rather than the exception.  Additionally, innovation is low too.

    Switching from cable to satellite TV has a fairly high cost.  Equipment must be returned, deposits paid, devices rewired, house interface changed, programming on devices updated / created / modified, programming offerings updated / different, and it goes on and on.  Usually, there are contract terms too.

    Even though we have a few suppliers, the rights of way needed for cable only insure we have one choice open to us, and there are only two sat companies.  Not exactly easy to put sats up there.

    Look at the bundled program options, pass through on taxes and fees and near parity costs for the different options.  Most importantly, look at the lack of innovation, right along with the high prices and thick margins for them.

    Broadband is a similar thing with cable everywhere expensive, innovation moderate at best, yet they use the rights of way.

    Where government comes into play is doing the work to regulate and keep markets healthy, so those making profit are earning it by adding value, not just existing, promoting choice, etc...

    Where that's not possible, like with utilities, the best case for everyone is to have thin margins, the utility serving as a commons for other value added business.

    Anyway, those are some of the ways I've been discussing rent-seeking profit without earning it behavior.

    Loved your diary, and plan on adding some of it to my own advocacy efforts.

    In these times, where dollars are scarce, highlighting where government can protect people, while at the same time emphasizing value for dollar seems to be something a lot of people can wrap their heads around.  If they start looking hard at the various markets they participate in, asking the question "where is the value added?" it won't take them long at all to get closer to common ground with us.

    ***Be Excellent To One Another***

    by potatohead on Mon Oct 24, 2011 at 09:08:35 AM PDT

    [ Parent ]

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