Tuesday, November 27, 2007

Legislating economics

Blogging over at AZTALK, Robert Robb, Arizona Republic columnist, reports that a state legislator is going to introduce legislation restricting how cell phone companies can compete. He notes that while legislators can change laws, "They don't, however, have the power to repeal or suspend the laws of supply and demand."

Would you support legislation requiring cell phone companies to charge more for their phones?

I assume few people would.

How about legislation forbidding cell phone companies from requiring a contract extension to get a new cell phone and limiting all service contracts to just a year?

I suspect many people would say, sure.

In reality, they are the same legislation.

State Sen. Jim Waring is mad at his cell phone company and plans to offer legislation restricting service contracts and their extensions. The inevitable result of such legislation will be higher costs for phones.

Meanwhile, Verizon is going to unbundle phones from their service.

In a major shift for the mobile phone industry, Verizon Wireless said yesterday that it planned to give customers far more choice in what phones they could use on its network and how they use them.

While there are technical limitations involved, the company’s move could lead to an American wireless market that is more like those in Europe and Asia, where a carrier’s customers can use any compatible phone to easily reach a wide array of online services — and take their phones with them when they switch companies. The move, which surprised industry watchers because Verizon Wireless is known to be highly protective of its traditional business, is part of a larger shift in the communications world.

It appears that the market is ahead of the proposed legislation.

HT: Megan McArdle

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Saturday, November 17, 2007

Tattoo Regulation is coming

In Microeconomics we're just now looking at regulation in the marketplace. Here in Arizona, tattoo parlors are asking for state regulation.

Valley tattoo-parlor owners, eager to protect and burnish the reputation of their industry, are calling for state regulation of the tattoo trade.

Shop owners have teamed up to form the Arizona Tattoo and Piercing Association, and one of the organization's first steps was to meet this week with state legislators who say they now intend to introduce legislation to regulate the tattoo industry...

"What we heard from the tattoo industry is that they want to be more respected, and unless there is some sort of regulation, shops can exist which will give a bad name to the whole industry," Schapira said.

He said he intends to introduce legislation to bring regulation to the tattoo industry at the upcoming session of the Legislature.

Burton-Cahill said she considers the matter "an issue of public health."...

"This is becoming an increasing trend with the reputable operators," said Will Humble, assistant director of the department. "The majority of the shop owners are doing things in a sanitary way but a handful is not doing everything they can. The bigger members of the industry are trying to make sure those disreputable kinds of places don't give tattooing a bad name."

I suspect that the industry will be sucessful in getting a regulatory scheme implemented. I also predict (from the capture theory of regulation) that in a short time the regulation will result in reduced competition and higher prices.

Link for Mesa CC students



Differentiating the Process

Businesses in Monopolistic Competition work hard to differentiate their product or service. Often they do this through marketing. The classic four P's for marketing a product are Product, Price, Promotion and Placement. However, services make up 80% of the US economy today and those involve three additional P's - People, Process and Physical Evidence.

Two stories in today's business section of the Arizona Republic focus on companies working on Process. Papa Johns wants you to order pizza via text messaging.

Pizza chain Papa John's International is about to start taking some new phone orders, but this time there won't be a voice on the other end.

The restaurant chain is rolling out a service that lets customers order pies via text message. Customers first create an account online where they save as many as four different "favorite" orders that include any combination of pizza, sides and drinks, as well as a delivery address or carry-out information and payment type. Once that's complete, customers can send a text message at any time using the shorthand "FAV1," "FAV2," "FAV3" or "FAV4."

In addition to differentiating their service, I suspect that text message ordering is less costly than talking to someone on the phone. Dutch Bros. Coffee wants to change how you order coffee.

The drive-through and walk-up coffee shop seems to be a hit with ASU students and staff, in part because first-timers get a free cup of coffee. And that deal applies to anyone, not just those with university connections. The shop tries to breed loyalty and attract repeat business from customers who want staffers to know their names as much as they know their regular coffee orders.

"They're nice, they're friendly, they remember my name and she (the clerk) knows what I want even before I get there," said Tim Clark, 27, who pulled into the drive-through recently in a red Toyota Land Cruiser.

Rather than talk through an intercom box, customers order their drinks at a drive-up window.

Thompson and his regional manager Dave Vines said the system is faster than other drive-through setups and gives customers the added personal touch of more direct human contact.

"It's all designed for speed," Vines said. "And we believe you should never turn your back on a customer."

Taxes are included in the price of drinks so customers don't have to fumble with pennies and odd change. Cash is deposited into an old-fashioned cash box.

Again I suspect that this approach will decrease costs and increase profits. Note that fast food restuarants do most of their business through the drive through window.