Sunday, March 13, 2011

Competition Is The Consumer's Best Friend

This was probably inevitable. Faced with all of the competition from Bolt Bus, Mega Bus, Chinatown Bus, DC2NY, Vamoose, etc. for cheap bus fares between cities like Washington, D.C. and NYC, the long-time industry leader Greyhound had to match the "predatory" fares and "cutthroat competition" of its new, upstart rivals.  

As the graphic above shows, Greyhound is now offering $15 fares between DC and NYC on the Uncommon Transport website, which is less than 50% of the "standard fare" of $35 listed on Greyhound's regular website for DC to NYC.  And for a route of approximately the same distance - DC to Charleston, WV (250 miles) - but without the intense competition of the 225-mile DC-NYC route, the one-way Greyhound fare is $109.  

Economic Lesson: Intense, even "cutthroat," competition is the consumer's best friend, and often the best regulator.

38 Comments:

At 3/13/2011 1:31 PM, Blogger Hydra said...

Not if it results in overworked drivers and undermaintained buses.

 
At 3/13/2011 1:45 PM, Blogger Dean_L said...

Hydra,

If it means more business they would hire more drivers and still maintain their level of bus maintenance. If they can't afford it then they will lose market share to the competitors that can and will.

If buses start crashing everywhere, people might start considering the train. More choice is ALWAYS a good thing. As Mr. Perry points out, REAL competition keeps suppliers honest better than any government regulation or government provided service ever could.

Now only if someone could convince the Obama administration of it.

 
At 3/13/2011 2:23 PM, Blogger Johnster said...

Exactly, competition keeps honest companys in business. Unfortunately, it will take multiple accidents and probably tens of hundreds of fatalities before customers realize "oh I think I will switch to that other bus company which is more honest".

 
At 3/13/2011 2:29 PM, Blogger Benjamin said...

This comment has been removed by the author.

 
At 3/13/2011 2:32 PM, Blogger Benjamin said...

In Thailand, there have "baht busses." These are pick-up trucks with slats longitudinally over the wheel wells. Simple roof. Drivers pick their own routes.

Naturally, drivers accommodate passengers. The cost is low as the over head is low.

Deregulation of city transit and also sidewalk push-cart vendors would open up literally millions of businesses across the USA to small entrepreneurs.

Not everyone has $250k to start a new restaurant, or can afford to get an MBA. But most people could save the $8k or so it would take to buy a good used pick truck, put a roof on it, and start plying the roads.

Ironically, it is not the federal government that suffocates this micro-scale entrepreneurism but rather local governments in all areas. Just try going to Newport Beach CA or Phoenix or South Carolina, and start driving your baht bus around. The cops would have you in prison in a day or two. Same for your food push cart. Oddly, there seems to be no ideological group in America that has made the issue of possible micro-businesses into their calling. The Tea Party is worthless on this issue.

I can't understand this phobia Americans have of other people actually starting real, tangible business that you can use and enjoy.

Both business types would lower living costs too.

 
At 3/13/2011 10:15 PM, Blogger AIG said...

"Unfortunately, it will take multiple accidents and probably tens of hundreds of fatalities before customers realize "oh I think I will switch to that other bus company which is more honest"."

Thats a ridiculous scenario. Bus and transit services of this sort exist in countless countries around the world, where they compete much more aggressively than they do in these cases in the US. No such things happen.

Do you think bus drivers are kamikazes who don't care about their own lives either? You think bus drivers are willing to get speeding tickets and fines, loose their licenses and be out of a job? You think bus rout operators are idiots and don't care if they lose a 250k bus on the road, have their insurance company drop them, and have the families of the victims sue for tens of millions?

These bus companies have been operating for years, and are clearly driving the big boys into the corner (even for less traveled routs than Boston-NYC-DC)

 
At 3/13/2011 10:25 PM, Blogger AIG said...

"Deregulation of city transit and also sidewalk push-cart vendors would open up literally millions of businesses across the USA to small entrepreneurs."

Probably not. It would certainly be beneficial and a great thing. But it is unlikely to reach such a scale simply because it would be able to serve only lower segments of the market. The returns would also appeal only to lower segments of entrepreneurs. There aren't millions of them around. So its not likely that a change in the regulatory structure of cities and localities is going to produce scenes out of Thailand in the US (after all, who do you know who would willingly get themselves on the back of a pick-up truck to be driven around, even if it were free? The US market is far higher than Thailand)

Not a bad thing at all. In fact it would be really great especially because it mainly helps the lower segments. But thats why its not on most people's radar.

 
At 3/13/2011 10:28 PM, Blogger AIG said...

"And for a route of approximately the same distance - DC to Charleston, WV (250 miles) - but without the intense competition of the 225-mile DC-NYC route, the one-way Greyhound fare is $109. "

Thats pretty expensive! But we have to be frank, the two routs are not comparable, even if they are of similar distances.

 
At 3/13/2011 11:38 PM, Blogger Hydra said...

They could hire more drivers, and overwork them just as much as the existing drivers, too. Until their costs from excess accidents exceeds their savings from using fewer drivers, where is the incentive to hire more drivers?

 
At 3/14/2011 12:01 AM, Blogger Hydra said...

Real competition keeps businesses ( minimally) honest, but often too late.

A person buying a bus ticket has a right to expect that reasonable diligence is given to protect his life and deliver him to the destination specified.

Historically, we know that is not always the case. Your theory is correct so far as it goes, but it fails to match the facts on the ground.

Now, if bus companies competed outright on price per fatality free mile traveled, you might be right.

But they price per trip. As if surviving the trip was a given.

Since that isn't true, the ticket prices given amount to false advertising.

Instead of regulations concerning how much your drivers can work, or when the brakes must be inspected, have a regulation that promotes market driven regs.

 
At 3/14/2011 12:13 AM, Blogger Hydra said...

Johnster is correct. The theory of perfect competition requires perfect knowledge by the consumer, who operates at a disadvantage, in the real word.

Hence govt, in a ( misguided) attempt to level the field.

Govt would do well to concentrate on creating new market based solutions.

 
At 3/14/2011 12:47 AM, Blogger Hydra said...

AIG :

What I hear you saying is that government regulation ( speeding tickets, etc.) Is what keeps these companies in line.

 
At 3/14/2011 12:57 AM, Blogger Hydra said...

Jitneys operate in many countries. They operate a fixed route, but deviate to provide door to door service. Such a plan competes with both bus and taxi services, so it is generally outlawed here.

Modern IT services combined with the jitney concept could make ride on demand possible.

 
At 3/14/2011 6:32 AM, Blogger juandos said...

"Until their costs from excess accidents exceeds their savings from using fewer drivers, where is the incentive to hire more drivers?"...

In this country?

The promise of both criminal and maybe more importantly civil litigation, both that have a real effect on the bottom line...

 
At 3/14/2011 8:15 AM, Blogger LoneSnark said...

"But they price per trip. As if surviving the trip was a given."
As no one has died, it seems surviving the trip is a given. Hell, bus travel is statistically much safer than car travel.

Keep in mind these bus companies are not huge. One major accident would probably bankrupt the company, even if it wasn't their fault.

 
At 3/14/2011 9:46 AM, Blogger Hydra said...

Juandos is pointing out that government is what keeps these companies under control.

When you get in your car, you know your fatigue level and accident history.

If buses advertized their safety history ( like cigarettes?) Customers could make informed choices, if there are any to be made.

The bus line involved in last weeks crash had a crash in each of the three previous years.

A bus involved in a deadly crash in Virginia, a few years ago, was so old the steering gear disintegrated.

Bad as govt is, crashes are even less efficient as market regulators. Amway, what's wrong with giving customers more information?

Most will ignore it anyway.

 
At 3/14/2011 9:47 AM, Blogger Hydra said...

As no one has died?

 
At 3/14/2011 10:54 AM, Blogger Kevin said...

Hydra, you assume that business managers are only reactionary (like politicians). In reality, it is in their interest to be future-minded (unlike politicians). If you and I can foresee such consequences, then surely a successful business innovator will be able to foresee them as well.

Also, the very accidents you cite happened in spite of regulations, which cannot prevent accidents any better than business managers can because regulators cannot see the future any better.

And, companies don't need to advertise their safety (or lack thereof); plenty of people will do that for them in the form of reviews, news articles, and word of mouth. More now than ever, consumers who make uninformed decisions really have no excuse.

 
At 3/14/2011 12:23 PM, Blogger Marko said...

Juandos is right, as usual.

As I like to say, we conservatives are not for anarchy. Government regulation (in the large sense, including civil litigation) is necessary to keep the market free, and in this case to internalize externalities. However, the government often goes much farther than what is necessary to keep the market free.

In this case, you might be shocked by the level of federal regulation of buses and bus drivers. There is a nice summary here http://www.fmcsa.dot.gov/safety-security/safety-initiatives/other/bus.htm but it fails to give you an idea of the hundreds of pages of regulations (thousands?) involved. You can't over work drivers because it violates DOT regulations. Well you can, but if you get caught you pay fines or go out of business.

Readers might also be shocked by the level of local regulations of taxis, town cars, livery drivers, shuttles, buses, etc., and not just in New York. Municipalities take extraordinary measures to prevent 'too much' competition in this area. I have litigated cases where counties in VA violated the Federal Constitution by attempting to regulate intestate trade - they wrote and enforced ordinances that prevented out of county taxies from picking up anyone in their county. I got those laws changed, but there are tons of them out there. It is hardly the wild west.

This is another case where we should only permit laws that increase market freedom, not that decrease freedom.

As an aside, I wouldn't take a bus from DC to NY if you paid me 30 bucks, thanks Greyhound.

 
At 3/14/2011 1:29 PM, Blogger Hydra said...

In reality, it is in their interest to be future-minded

===================================

I don't disagree that it is in their interest. All I'm saying is that history sugests the facts on the ground are a lot different from the theory.


If it is already in their interest, then a little government regulation can make it more in their interest, unless the regulations are insufficient, a la the number of lifeboats on the Titanic.


If it is already in their interest to be proactive, then there should be little or no additional costs to complying with government rules.

 
At 3/14/2011 1:35 PM, Blogger Hydra said...

True, those accidents happened in spite of regulations, but we don't know hwo many were prevented by the same regs.

We also don't know if those accidents happened as a result of deliberately circumventing the regulations, and if that is the case the argument that owner have a reason to be proactive, goes out the window.

Finally, once an accident has happened, it is sure to be examined to see if rules were broken, in which case penalties will be applied retroactively, in addition to damages caused by the accident.

Regulations may not prevent accidents but incentive still matters.

 
At 3/14/2011 1:46 PM, Blogger Hydra said...

More now than ever, consumers who make uninformed decisions really have no excuse.

==================================

I agree that this is becoming slightly more true, but the consumer is still far in the dark on most purchases.




In 2007 (the most recent year for which statistics are available), up from 8,555 in 2003. In those same five years, 1,651 people died in bus crashes.


How can you check a charter bus company’s US Department of Transportation safety score?

Get the company’s US DOT number. You can get the number by calling the company and asking for it, or it is written on the side of every bus. Going by the company name can be a bit trickier, since many companies have similar names, and some may have different operating names than their official registered name.

Go to the Federal Motor Carrier Safety Administration Website, where you can check a company’s rating and SafeStat score.

 
At 3/14/2011 1:53 PM, Blogger Ron H. said...

"Ironically, it is not the federal government that suffocates this micro-scale entrepreneurism but rather local governments in all areas."

What's ironic about it? What possible interest could the federal government have in local businesses?

 
At 3/14/2011 1:59 PM, Blogger Hydra said...

Government regulation (in the large sense, including civil litigation) is necessary to keep the market free, and in this case to internalize externalities. However, the government often goes much farther than what is necessary to keep the market free.

=================================

Right, and what better way to regulate the regulations than to have market based regulations?


Going either too far, or not far enough inreases Total Cost, so anyon interested in reducing waste should be looking for the right amount of regulation, not just less regulation.

 
At 3/14/2011 2:52 PM, Blogger Ron H. said...

"What I hear you saying is that government regulation ( speeding tickets, etc.) Is what keeps these companies in line."

As usual, you misheard. Speeding tickets are one of the many things that keeps DRIVERS in line, along with a desire to survive the trip unharmed, themselves.

"A person buying a bus ticket has a right to expect that reasonable diligence is given to protect his life and deliver him to the destination specified."

Correct. And, if that expectation isn't met, he or his estate will likely extract big bucks from the bus company as settlement of a lawsuit. That, and a desire to continue in business, provide incentives to a company to perform to customer expectations.

"But they price per trip. As if surviving the trip was a given.

Since that isn't true, the ticket prices given amount to false advertising.


You have this wrong also. There is no guarantee either express of implied that you will survive the trip, but as I pointed out, it is in the company's interest to to see that you do. You can assume, based on the minuscule risk you face, that you will in fact survive.

Do you have any idea what the numbers are for fatalities per bus passenger mile? I suspect they are much lower than the numbers for auto travel, and may even approach those for air travel.

"Instead of regulations concerning how much your drivers can work, or when the brakes must be inspected, have a regulation that promotes market driven regs."

Bus companies are already driven by desire for profit, and by competition to provide customers with a service they want and are willing to pay for. No government coercion is needed. How do you keep missing this important point?

 
At 3/14/2011 5:24 PM, Blogger Benjamin said...

Ron H.-

I say "ironically" because probably 90 percent of the braying you hear is about "federal regulations" etc.

Local regulations are often much more pernicious and intrusive. I cannot build a skyrise condo in Newport Beach CA without getting approval from the city's voters. It is one of the highest income, wealthiest and perhaps most R-Party district in the nation. And try push-carting or running a jitney there. Har-har.

In fact, when some people say they are "against regulations" they mean those regulations they don't like. Other regs are okay, if they protect perceived property values or traditions or quality of life in their neighborhood.

Where is my Constitutional right to start up a terrific soup push-cart in Newport Beach? In the trash can, where the Tea Party will leave it, that is for sure.

Yeah, go on braying about drilling in the Gulf. Like I, or millions of other Americans, have the resources to set up a rig out there.

But what I could do is drive a jitney on my way to work, and pick up some passengers. Or try my hand with a push-cart. I still say wiping out such local regs would result in millions of new small businesses. The demand for push-cart food would be huge, probably wiping out McD's coast to coast. Food is better and cheaper from a push cart.

Would I ride in the back of a pick-up truck? Sure, if the price was $1 and not $2.50. AIG is a weenie.

Oh yeah, the Tea Partiers will set us free to start up such low-capital businesses. Har-har.

 
At 3/14/2011 10:07 PM, OpenID Sprewell said...

Benjie, it is a libertarian outfit like Institute for Justice fighting for pushcart vendors, not anybody else you prefer. And the tea party folks are probably closest to libertarians, though they disavow all labels to focus on excessive govt spending. As for local regs, of course people are most pissed about federal regs, as they actually wanted the local regs. The whole concept of federalism is that each local govt can represent the local voters with the regs they want: the problem with the excessive federal regs is that local governance is being upset by some national majority forcing their regs on everybody else. In general, the less regs the better, but who gets to choose the regs matters a lot too.

 
At 3/14/2011 10:28 PM, OpenID Sprewell said...

Oh, also, AIG mentioned before that these mobile vendors are for the poor, that's actually not the case anymore. With the advent of the internet and mobile services like twitter, they've gone pretty upscale in the kind of food they offer, which is why the restaurants are pissed. Of course, it's hilarious when the same overzealous regulators go after the raw food hippies, wonder how the hippies rationalize their constant calls for more govt with the times when the govt bites them.

 
At 3/14/2011 10:59 PM, Blogger Ron H. said...

"I say "ironically" because probably 90 percent of the braying you hear is about "federal regulations" etc."

And rightfully so, but I doubt that you hear much braying about the federal government suffocating micro-scale entrepreneurism.

 
At 3/14/2011 11:09 PM, OpenID Sprewell said...

Whoops, meant to link to this video about how restaurants are pissed and using the police to go after the food trucks.

 
At 3/15/2011 9:00 AM, Blogger Hydra said...

Speeding tickets are one of the many things that keeps DRIVERS in line, along with a desire to survive the trip unharmed, themselves.

But your argument is that the companies are self interested. They can monitor the drivers speeds, and set schedules that don't require speeding, but they don't do it, (any more than private individuals do) with the result that government speed monitoring is required.

 
At 3/15/2011 9:15 AM, Blogger Hydra said...

Correct. And, if that expectation isn't met, he or his estate will likely extract big bucks from the bus company as settlement of a lawsuit.

================================
Failing to meet his expectation, and letting the heirs attempt to sue is missing the point entirely.

Retroactive regulation is far less cost effective than proactive regulation. (Japanese nuclear reactors?) Besides, as you point out, the company just goes bankrupt.

In theory, you are correct, but as a practical matter of getting people to their destination safely AND at low cost, competition is an insufficient metric.

Total Cost = Production Cost + External Cost + Government Cost

The cost of the kind of lawsuits you suggest is part of the external costs, and the government costs of providing the courts is part of the goverment cost.

The goal is lowest total cost, not lowest production cost.

 
At 3/15/2011 9:24 AM, Blogger Hydra said...

Hydra, you assume that business managers are only reactionary (like politicians). In reality, it is in their interest to be future-minded (unlike politicians).

=================================

I disagree. Frequently business has to concentrate on the next quarter: the only way to long term profits is to have short term profits. Plenty of CEOs have cleaned up in the short term and left their businesses in a shambles.

Government, as an institution,or organization, has a much longer term focus, and can afford to.

However, part of it consists of two year politicians, four year politicians, and six year politicians. We should not confuse their short term goals with the goals of government at large.


It is not in either government nor union interest to kill the corporate golden goose, but neither is it in their interest to let the goose run wild.

 
At 3/15/2011 9:34 AM, Blogger Hydra said...

Do you have any idea what the numbers are for fatalities per bus passenger mile? I suspect they are much lower than the numbers for auto travel, and may even approach those for air travel.

================================

Actually I do, but what is the point? Are you going to give the operators credit for the fact that their passengers are protected by a much larger vehicle?

Passenger mile isn't he only metric: airlines don't look near as good if you calculate on the basis of fatalities per trip, for example.

As a system, you would have to count the auto fatalities external to the buses, to get an accurate safety figure. But anyway, all that is exteranal to the differences we can see in the safety statistics of buses under different management.

If we can see and measure those differences, then they indicate that not all companies are playing on a level field, and it is appropriate to a fair market to adopt policies and regulation that provide the lowest total cost to the public.

Whether we succeed in doing that is the issue, not whether we should try.

 
At 3/15/2011 12:31 PM, Blogger Ron H. said...

"Total Cost = Production Cost + External Cost + Government Cost

The cost of the kind of lawsuits you suggest is part of the external costs, and the government costs of providing the courts is part of the goverment cost.
"

LOL! You don't even understand your own argument. The external cost is the killing of a passenger and the loss to his heirs. The cost to the business of paying a settlement becomes a production cost. The threat of having to pay for that external cost encourages companies to avoid imposing the cost in the first place. There are already rules in place that enforce payment. Government threats don't work any differently or any better, but only add cost which is ultimately paid by the customers and taxpayers.

You seem really stuck on the idea of pareto efficiencies, which appear to make things simple by assigning only dollar values to everything, but ignore the fact that all value is subjective. Whose values shall "we" use? Try to get past that if you can, it isn't serving you well.

"Amway, what's wrong with giving customers more information?

Most will ignore it anyway.
"

You have answered your own question here. You suggest adding cost, then acknowledge that it's wasted.

"But your argument is that the companies are self interested. They can monitor the drivers speeds, and set schedules that don't require speeding, but they don't do it..."

They don't have to. The drivers are already doing it. Why incur the additional cost of monitoring, and perhaps passing the cost on to customers, when government is already doing it for them, a cost borne by all of us, whether we ride buses or not.

"Actually I do, but what is the point? Are you going to give the operators credit for the fact that their passengers are protected by a much larger vehicle?

Passenger mile isn't he only metric: airlines don't look near as good if you calculate on the basis of fatalities per trip, for example."


Well, let's have it. How about some references, since you know the numbers. What are the fatality numbers for trips taken for buses and airplanes?

"Retroactive regulation is far less cost effective than proactive regulation."

This is more stuff you just pulled out of your ass. Do you have any references for this apparently obvious (to you) but unsubstatiated assertion?

"If we can see and measure those differences, then they indicate that not all companies are playing on a level field, and it is appropriate to a fair market to adopt policies and regulation that provide the lowest total cost to the public.

Whether we succeed in doing that is the issue, not whether we should try.
"

And you wonder why people correctly identify you as a lefty. Your elitism is showing. You continually assert that we know what is best for everyone else, as they seem unable to determine it for themselves.

 
At 3/18/2011 8:20 PM, Blogger Hydra said...

Regards retroactive regulation. Seen any news coming out of Japan. Lately?

You read my use of
we wrong. If you were not jumping to erroneous assumptions about me and my political convictions, you would see that I make no claims about what we know about what is best.

What I propose is a system that will allow us to agree on what is best, which is a second order argument to whatever results that system produces.

The problem with our system is that it hasn't enough feedback and not enough . All I'm suggesting is we need a lot more kinds of property and property needs to have equal protection.

Then we can let the market decide what is best for "us".

 
At 3/18/2011 8:35 PM, Blogger Hydra said...

Giving your customer information is a cheap way of providing a better product. My car is certified for 10k miles between oil changes. If I'm dumb enough to change it at 3k, it doesn't mean the effort in getting the message out was wasted. Spark plugs are often good for 100k miles. But its still a good idea to take them out and put them back. Otherwise, when the time comes you may not be able to get them out.

Just a tip from your elitist leftist. I suppose you will want a citation, before you can see the sense in it.

 
At 3/18/2011 9:34 PM, Blogger Hydra said...

Too much regulation wastes money. So does too little. Money is a proxy for resources, and therefore wasting money is bad for both the economy and the environment. So, if competition is good for the consumer, why exclude regulation from competition?

Both lefties and eighties hate that idea, and for different reasons. Therefore I must be on to something. Both sides are out to protect their turf, and both sides are paying too much for protection.

 

Post a Comment

Links to this post:

Create a Link

<< Home