Netflix operates through the mail--that's one of the technologies it leverages and it does so very heavily. In theory, the price of shipping discs all over the country would be reflected in the price of a Netflix subscription. Theoretically, lots of business for Netflix should translate to lots of business for the Post Office. But the reality is a little more complicated. The Post Office, for one, is not profitable. It loses more and more money every year, but it continues to function because it's a government-run organization. But what if that weren't the case?
I don't know the actual numbers, but the fact that the Post Office operates at a loss says to me that postage is lower than what the market would set. This means that heavily-leveraging the mail gives you an unfair advantage--part of your business operating costs are being transferred to taxpayers, but are invisible to your customers. Therefore, it would have been perfectly reasonable for Blockbuster Video, for example, to cry foul and say that Netflix was using unfair business practices. I don't know if it would have won them anything, but they could have made that argument, and I find it rather intriguing, at least from an academic standpoint. Instead, Blockbuster re-vamped its business model to imitate Netflix and try to address Netflix's weaknesses with using their stores to focus on immediately available new releases and video game rentals. And that seemed to be working until GameFly and RedBox came along.
Of course, the world has changed again: Netflix is moving towards more streaming content delivery and Blockbuster is dying a slow, painful death. But you can see these sort of externalities (economics term for things that are part of the market but aren't accounted for in market price) bubbling up all over the place. Look at the price of beef. Beef should not be anywhere near as cheap as it is, based on, I dunno, the food pyramid. But the beef industry heavily leverages the corn industry (most beef cattle are corn-fed, despite the fact that cows don't digest corn particularly well), which itself is heavily, heavily subsidized.
These externalities go the other way, too. Consider tariffs. Suppose the government places an import tariff on sugar to make American sugar more competitive. That's great for American sugar-farmers, but for the rest of us it means that we're playing a price for sugar that is actually above market value. That means that chocolate torts, for example, are priced above market value. That means that a desert at a restaurant is going to priced above market value. That means that entertainment expenses for businesses trying to court clients or partners are, likewise, priced above market value, which is then reflected in the cost of the goods they produce.
And so on, up. I wouldn't call a sugar tariff drastic or cataclysmic, and at some point in the chain the effects will be negligible. And one must also consider that more business to sugar farmers would also affect the economy (but, given the nature of supply and demand, it would almost certainly not drive the price of anything else down). More broadly, I do think this can serve as a cautionary tale about over-reliance on government to shape the market. Interference of any kind can be much farther-reaching than we think.
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1 comments:
the problem there is that government subsidies and tariffs are not by a longshot the only costs that is born by the consumer and not the company.
When chemical company disposes of its waste in an unsafe manner, they save money, and therefore their customers save money. The cost, however, is born by people who suffer medical conditions as a result of toxins in their environment. It's similar with companies that deplete natural resources, only the cost will only really be made manifest when that resource runs out.
Without a government ensuring that companies don't pass their bottom lines to people who aren't even in the producer-consumer relationship, the market becomes a very dangerous thing.
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