RE: Consumer Reports on Deregulation
In the recent PBS series Commanding Heights Alfred Kahn pointed out that when he took over as head of the CAB, the largest division within the agency was the enforcement division, making sure that prices were no too low. He also said the agency was measuring the size of sandwiches to make sure they weren't too big. On Wed, 12 Jun 2002 [EMAIL PROTECTED] wrote: On Bill's pint about quality competition. I've heard that during the days of regulated air travel, airlines apparently competed on the beauty of the stewardesses. I've been told by numerous sourcces (but have no real evidence) that some business magazines would rate the quality of the stewardesses in each airline. If you favor hiring people based on their ability to serve coffee and tea instead of their looks, you might favor deregulation. mitch mitchell - Original Message - From: William Dickens [EMAIL PROTECTED] Date: Monday, June 10, 2002 5:08 pm Subject: RE: Consumer Reports on Deregulation Also relevant is quality and availability of service. Previously pricesmay have been cheap/falling but the range of offering, customer treatment or availability may have constrained enjoyment of the serviceto a sub optimal level. Deregulation could/should change this. (I think it has in my limited experience) Exactly the opposite of what happened in the formerly regulated markets I'm familiar with. With prices fixed at a level that gave most good companies very good rates of return they competed by increasing quality. Quality has declined most noticeably in air travel and the brokerage industry, but arguably in trucking and banking as well. I'm also not sure to what extent the prices charged were also controlledby governments as a macroeconomic tool to reduce measures of inflation? Any thoughts? Since the regulatory agencies tended to be captured by the regulated industry (or at least sympathetic) prices tended to be too high (thus the price declines) rather than too low. As someone else said, the counterfactual is everything. CR is comparing the price declines during the 50s, 60s and early 70s with the price declines in the late 70s, and 80s. Productivity growth was notably faster in the earlier period than the later period. Would prices have declined as much in the 80s in trucking airlines, and phone service if there hadn't been deregulation? From the studies I've seen I seriously doubt it. Of course not everybody's prices decline. Regulation did tend to set prices too low for many low volume markets. In those places prices have skyrocketed. I suspect that some of this is just price rising to meet marginal cost, but because these are also markets with substantial fixed costs (maintaining terminals, ticket agents etc.) there is probably also some element of natural monopoly pushing prices in these markets up above long-run marginal cost. I would guess that there are three factors that account for CR's anguish about deregulation: 1) Their sense of fairness is offended by the big price increases experienced in difficult to serve markets, 2) Coming from the upper middle class as they do, they put more value on quality and are less concerned about price than the marginal air traveler/bank customer/brokerage customer so they experience the change from high q high p to low q low p less favorably than the new people attracted to the market by the change, and 3) deregulating a monopoly may cause an increase in price and to some extent that is what deregulation did (perhaps most notably in the cable industry, small air markets, and certain types of phone service). With respect to 3) don't think I'm not aware of the competition that cable faces from satellite or how contestable air markets are. Imperfect competition and limit pricing still leave plenty of room for monopolistic distortion. I don't think that _the_ definitive study on the costs and benefits of deregulation has been done and I very much doubt that CR's study is it. After all, CR used to (still does?) insist that economists have to be wrong about the predictability of capital markets because there are numerous mutual funds that have had 5 or more years of ROR above the market average - - without asking how many would be expected on the basis of chance alone. Thus they used to endorse mutual funds with exceptional records which, of course, tend to be the ones with the riskiest strategies (and by the studies I've seen only infinitesimally better expected returns). Sigh... - - Bill Dickens William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens Art Woolf Phone: (802) 656-4711 Vermont
RE: Consumer Reports on Deregulation
Huh? Why would the _nature_ of quality competition be affected by deregulation? I suspect that it is true that competition was on the basis of both quality of service and attractiveness of flight attendants back in the 60s and 70s, but it was the women's movement, the Civil Rights act (particularly its application to age discrimination) and the flight attendants' union that changed this. Not deregulation. But there is a lot more to quality competition than flight attendants. In flight meals were more substantial and more frequent. Ticket lines were shorter for coach passengers. Major airline employees were more polite. There were lots of give always (decks of cards, airline pins, etc.) Flight attendants with time on their hands would strike up conversations with passengers. I don't know that anyone has tried to quantify this, but I don't know anyone who flew much before deregulation who doesn't think that the quality of service with the major airlines declined before and after deregulation. Given that deregulation seems to have caused fairs to drop in the major markets this is exactly what an economist would expect. - - Bill William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens [EMAIL PROTECTED] 06/12/02 09:45PM On Bill's pint about quality competition. I've heard that during the days of regulated air travel, airlines apparently competed on the beauty of the stewardesses. I've been told by numerous sourcces (but have no real evidence) that some business magazines would rate the quality of the stewardesses in each airline. If you favor hiring people based on their ability to serve coffee and tea instead of their looks, you might favor deregulation. mitch mitchell - Original Message - From: William Dickens [EMAIL PROTECTED] Date: Monday, June 10, 2002 5:08 pm Subject: RE: Consumer Reports on Deregulation Also relevant is quality and availability of service. Previously pricesmay have been cheap/falling but the range of offering, customer treatment or availability may have constrained enjoyment of the serviceto a sub optimal level. Deregulation could/should change this. (I think it has in my limited experience) Exactly the opposite of what happened in the formerly regulated markets I'm familiar with. With prices fixed at a level that gave most good companies very good rates of return they competed by increasing quality. Quality has declined most noticeably in air travel and the brokerage industry, but arguably in trucking and banking as well. I'm also not sure to what extent the prices charged were also controlledby governments as a macroeconomic tool to reduce measures of inflation? Any thoughts? Since the regulatory agencies tended to be captured by the regulated industry (or at least sympathetic) prices tended to be too high (thus the price declines) rather than too low. As someone else said, the counterfactual is everything. CR is comparing the price declines during the 50s, 60s and early 70s with the price declines in the late 70s, and 80s. Productivity growth was notably faster in the earlier period than the later period. Would prices have declined as much in the 80s in trucking airlines, and phone service if there hadn't been deregulation? From the studies I've seen I seriously doubt it. Of course not everybody's prices decline. Regulation did tend to set prices too low for many low volume markets. In those places prices have skyrocketed. I suspect that some of this is just price rising to meet marginal cost, but because these are also markets with substantial fixed costs (maintaining terminals, ticket agents etc.) there is probably also some element of natural monopoly pushing prices in these markets up above long-run marginal cost. I would guess that there are three factors that account for CR's anguish about deregulation: 1) Their sense of fairness is offended by the big price increases experienced in difficult to serve markets, 2) Coming from the upper middle class as they do, they put more value on quality and are less concerned about price than the marginal air traveler/bank customer/brokerage customer so they experience the change from high q high p to low q low p less favorably than the new people attracted to the market by the change, and 3) deregulating a monopoly may cause an increase in price and to some extent that is what deregulation did (perhaps most notably in the cable industry, small air markets, and certain types of phone service). With respect to 3) don't think I'm not aware of the competition that cable faces from satellite or how contestable air markets are. Imperfect competition and limit pricing still leave plenty of room for monopolistic distortion. I don't think that _the_ definitive study
Re: Consumer Reports on Deregulation
Bill notes that prior to deregulation In flight meals were more substantial and more frequent. Ticket lines were shorter for coach passengers. Major airline employees were more polite. There were lots of give always (decks of cards, airline pins, etc.) Flight attendants with time on their hands would strike up conversations with passengers. I don't know that anyone has tried to quantify this... I bet there is something in the literature but if not quantifying quality changes would be a nice project for a bright student. First place that I would look is passengers per airplane, i.e. seat room. Alex -- Dr. Alexander Tabarrok Vice President and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621-1428 Tel. 510-632-1366, FAX: 510-568-6040 Email: [EMAIL PROTECTED]
RE: Consumer Reports on Deregulation
On Bill's pint about quality competition. I've heard that during the days of regulated air travel, airlines apparently competed on the beauty of the stewardesses. I've been told by numerous sourcces (but have no real evidence) that some business magazines would rate the quality of the stewardesses in each airline. If you favor hiring people based on their ability to serve coffee and tea instead of their looks, you might favor deregulation. mitch mitchell - Original Message - From: William Dickens [EMAIL PROTECTED] Date: Monday, June 10, 2002 5:08 pm Subject: RE: Consumer Reports on Deregulation Also relevant is quality and availability of service. Previously pricesmay have been cheap/falling but the range of offering, customer treatment or availability may have constrained enjoyment of the serviceto a sub optimal level. Deregulation could/should change this. (I think it has in my limited experience) Exactly the opposite of what happened in the formerly regulated markets I'm familiar with. With prices fixed at a level that gave most good companies very good rates of return they competed by increasing quality. Quality has declined most noticeably in air travel and the brokerage industry, but arguably in trucking and banking as well. I'm also not sure to what extent the prices charged were also controlledby governments as a macroeconomic tool to reduce measures of inflation? Any thoughts? Since the regulatory agencies tended to be captured by the regulated industry (or at least sympathetic) prices tended to be too high (thus the price declines) rather than too low. As someone else said, the counterfactual is everything. CR is comparing the price declines during the 50s, 60s and early 70s with the price declines in the late 70s, and 80s. Productivity growth was notably faster in the earlier period than the later period. Would prices have declined as much in the 80s in trucking airlines, and phone service if there hadn't been deregulation? From the studies I've seen I seriously doubt it. Of course not everybody's prices decline. Regulation did tend to set prices too low for many low volume markets. In those places prices have skyrocketed. I suspect that some of this is just price rising to meet marginal cost, but because these are also markets with substantial fixed costs (maintaining terminals, ticket agents etc.) there is probably also some element of natural monopoly pushing prices in these markets up above long-run marginal cost. I would guess that there are three factors that account for CR's anguish about deregulation: 1) Their sense of fairness is offended by the big price increases experienced in difficult to serve markets, 2) Coming from the upper middle class as they do, they put more value on quality and are less concerned about price than the marginal air traveler/bank customer/brokerage customer so they experience the change from high q high p to low q low p less favorably than the new people attracted to the market by the change, and 3) deregulating a monopoly may cause an increase in price and to some extent that is what deregulation did (perhaps most notably in the cable industry, small air markets, and certain types of phone service). With respect to 3) don't think I'm not aware of the competition that cable faces from satellite or how contestable air markets are. Imperfect competition and limit pricing still leave plenty of room for monopolistic distortion. I don't think that _the_ definitive study on the costs and benefits of deregulation has been done and I very much doubt that CR's study is it. After all, CR used to (still does?) insist that economists have to be wrong about the predictability of capital markets because there are numerous mutual funds that have had 5 or more years of ROR above the market average - - without asking how many would be expected on the basis of chance alone. Thus they used to endorse mutual funds with exceptional records which, of course, tend to be the ones with the riskiest strategies (and by the studies I've seen only infinitesimally better expected returns). Sigh... - - Bill Dickens William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens
Re: Consumer Reports on Deregulation
[EMAIL PROTECTED] wrote: . . . I've heard that during the days of regulated air travel, airlines apparently competed on the beauty of the stewardesses. . . . If you favor hiring people based on their ability to serve coffee and tea instead of their looks, you might favor deregulation. Why should the opening of competition in pricing c cause a shift from one nonessential (eye candy) to another (coffee service)? Because more families started flying? -- Anton Sherwood, http://www.ogre.nu/
RE: Consumer Reports on Deregulation
p.s. it's on the web now... http://www.consumerreports.org/main/detailv2.jsp?CONTENT%3C%3Ecnt_id=157017; FOLDER%3C%3Efolder_id=18151bmUID=1023794495677 or at tinyurl.com: http://tinyurl.com/ctr (tinyurl is a brilliant service that changes those bulky URLs into manageable - indeed, tiny - ones. downsizing at its best). FWIW, i find this statement ... The marketplace has become more adversarial toward consumers. Absence of strict rules has inspired aggressive tactics, which have led competitors to respond in kind. Sellers have gained disproportionate power over buyers through widespread use of hidden charges, fine-print loopholes, ever-changing prices, and unauthorized switching of service. ...the most thought-provoking - it argues that, in a competitive market, companies will gang up on consumers. which seems prima facie inane, given the presence of competition gives consumers the power to a) switch and b) complain in public and c) sue. (the example given of the free-checking-for-life chap seems to scream out for a lawsuit; perhaps he doesn't have his original 1985 contract, but surely SOMEONE has THEIRS ... you'd think the Class Action light would be flashing somewhere...) the conclusion seems to be that deregulation breeds a new anticompetitiveness, collusion on the part of companies to screw their customers. it seems more likely that the first sentence, if truncated, is true: the marketplace has become more adversarial. both sides get to compete in it - producers and consumers - and that, on the whole, strengthens the marketplace itself. nothing wrong, from the consumer's point of view, with higher prices, as long as services or products are commensurately better too. thinking the above through, it's actually rather amazing that the prices in the CR graphs continue to fall (mostly) all the way through last year. as others have noted already, there's little comparison between a telephone bill in 1975 and one in 2000, in terms of the services you're getting - or can get - for your money. etb
Consumer Reports on Deregulation
The July 2002 issue of Consumer Reports (not yet on their website) has an article on p.30 on Deregulation with a summary Why consumers suffer most in a free market - and what you can do about it. Their strongest argument is a graph on p.30 on titled Prices: A long-term decline. Consumer prices often fell after deregulation. But inflation-adjusted prices were falling for decades before, typically at a faster rate. The chart shows prices for airlines, local telephone, long distance, cable TV, and electricity from 1950 to 2000, which are roughly supportive of their claim. Is there a rebuttal to this somewhere? Robin Hanson [EMAIL PROTECTED] http://hanson.gmu.edu Asst. Prof. Economics, George Mason University MSN 1D3, Carow Hall, Fairfax VA 22030- 703-993-2326 FAX: 703-993-2323
Re: Consumer Reports on Deregulation
Do they define their use of free market and deregulation? Has the deregulation talked about resulted in a freemarket? Bryan From: Robin Hanson [EMAIL PROTECTED] Reply-To: [EMAIL PROTECTED] To: [EMAIL PROTECTED] Subject: Consumer Reports on Deregulation Date: Mon, 10 Jun 2002 12:11:06 -0400 The July 2002 issue of Consumer Reports (not yet on their website) has an article on p.30 on Deregulation with a summary Why consumers suffer most in a free market - and what you can do about it. Their strongest argument is a graph on p.30 on titled Prices: A long-term decline. Consumer prices often fell after deregulation. But inflation-adjusted prices were falling for decades before, typically at a faster rate. The chart shows prices for airlines, local telephone, long distance, cable TV, and electricity from 1950 to 2000, which are roughly supportive of their claim. Is there a rebuttal to this somewhere? Robin Hanson [EMAIL PROTECTED] http://hanson.gmu.edu Asst. Prof. Economics, George Mason University MSN 1D3, Carow Hall, Fairfax VA 22030- 703-993-2326 FAX: 703-993-2323 _ Chat with friends online, try MSN Messenger: http://messenger.msn.com
RE: Consumer Reports on Deregulation
Also relevant is quality and availability of service. Previously prices may have been cheap/falling but the range of offering, customer treatment or availability may have constrained enjoyment of the service to a sub optimal level. Deregulation could/should change this. (I think it has in my limited experience) I'm also not sure to what extent the prices charged were also controlled by governments as a macroeconomic tool to reduce measures of inflation? Any thoughts? David Mitchinson +447956256281 -Original Message- From: [EMAIL PROTECTED] [mailto:[EMAIL PROTECTED]] On Behalf Of Robin Hanson Sent: 10 June 2002 17:11 To: [EMAIL PROTECTED] Subject: Consumer Reports on Deregulation The July 2002 issue of Consumer Reports (not yet on their website) has an article on p.30 on Deregulation with a summary Why consumers suffer most in a free market - and what you can do about it. Their strongest argument is a graph on p.30 on titled Prices: A long-term decline. Consumer prices often fell after deregulation. But inflation-adjusted prices were falling for decades before, typically at a faster rate. The chart shows prices for airlines, local telephone, long distance, cable TV, and electricity from 1950 to 2000, which are roughly supportive of their claim. Is there a rebuttal to this somewhere? Robin Hanson [EMAIL PROTECTED] http://hanson.gmu.edu Asst. Prof. Economics, George Mason University MSN 1D3, Carow Hall, Fairfax VA 22030- 703-993-2326 FAX: 703-993-2323
RE: Consumer Reports on Deregulation
Also relevant is quality and availability of service. Previously prices may have been cheap/falling but the range of offering, customer treatment or availability may have constrained enjoyment of the service to a sub optimal level. Deregulation could/should change this. (I think it has in my limited experience) Exactly the opposite of what happened in the formerly regulated markets I'm familiar with. With prices fixed at a level that gave most good companies very good rates of return they competed by increasing quality. Quality has declined most noticeably in air travel and the brokerage industry, but arguably in trucking and banking as well. I'm also not sure to what extent the prices charged were also controlled by governments as a macroeconomic tool to reduce measures of inflation? Any thoughts? Since the regulatory agencies tended to be captured by the regulated industry (or at least sympathetic) prices tended to be too high (thus the price declines) rather than too low. As someone else said, the counterfactual is everything. CR is comparing the price declines during the 50s, 60s and early 70s with the price declines in the late 70s, and 80s. Productivity growth was notably faster in the earlier period than the later period. Would prices have declined as much in the 80s in trucking airlines, and phone service if there hadn't been deregulation? From the studies I've seen I seriously doubt it. Of course not everybody's prices decline. Regulation did tend to set prices too low for many low volume markets. In those places prices have skyrocketed. I suspect that some of this is just price rising to meet marginal cost, but because these are also markets with substantial fixed costs (maintaining terminals, ticket agents etc.) there is probably also some element of natural monopoly pushing prices in these markets up above long-run marginal cost. I would guess that there are three factors that account for CR's anguish about deregulation: 1) Their sense of fairness is offended by the big price increases experienced in difficult to serve markets, 2) Coming from the upper middle class as they do, they put more value on quality and are less concerned about price than the marginal air traveler/bank customer/brokerage customer so they experience the change from high q high p to low q low p less favorably than the new people attracted to the market by the change, and 3) deregulating a monopoly may cause an increase in price and to some extent that is what deregulation did (perhaps most notably in the cable industry, small air markets, and certain types of phone service). With respect to 3) don't think I'm not aware of the competition that cable faces from satellite or how contestable air markets are. Imperfect competition and limit pricing still leave plenty of room for monopolistic distortion. I don't think that _the_ definitive study on the costs and benefits of deregulation has been done and I very much doubt that CR's study is it. After all, CR used to (still does?) insist that economists have to be wrong about the predictability of capital markets because there are numerous mutual funds that have had 5 or more years of ROR above the market average - - without asking how many would be expected on the basis of chance alone. Thus they used to endorse mutual funds with exceptional records which, of course, tend to be the ones with the riskiest strategies (and by the studies I've seen only infinitesimally better expected returns). Sigh... - - Bill Dickens William T. Dickens The Brookings Institution 1775 Massachusetts Avenue, NW Washington, DC 20036 Phone: (202) 797-6113 FAX: (202) 797-6181 E-MAIL: [EMAIL PROTECTED] AOL IM: wtdickens
Re: Consumer Reports on Deregulation
A few suggestions follow. for deregulation across several industries: Robert Crandall and Jerry Ellig, Economic Deregulation and Customer Choice (1996), Fairfax, VA: Center for Market Processes, George Mason University. This article has many useful references. for airline deregulation: Steven Morrison and Cliff Winston, The Economic Effects of Airline Deregulation (1986) Washington, DC: Brookings Institution. for railroad deregulation: General Accounting Office, Railroad Regulation: Economic and Financial Impacts of the Staggers Rail Act of 1990, Report RCED-90-80 (1990). Cliff Winston, et al., The Economic Effects of Surface Freight Deregulation (1990), Washington, DC: Brookings Institution. for cable deregulation (and reregulation): Tom Hazlett, Prices and Outputs Under Cable TV Reregulation, J. Reg. Econ. 12 (1997). Tom Hazlett and Matthew Spitzer, Public Policy Toward Cable Television, Cambridge: MIT Press (1997).
