18th July 2008
The Malta Independent - Friday Wisdom
The Malta Independent - Friday Wisdom
Liberalisation of the hearse service market has let loose what seems
an over and disproportionate reaction by other transport service operators
including public buses, white taxes and minivans who then forced other operators
like the unscheduled bus/coach service to down tools for fear of loss of blood
and treasure.
Let’s get two points clear. I am all for orderly liberalisation of the markets where genuine competition may exist that would bring better value for the consumer. Monopolies should be dismantled wherever possible and where the size or nature of the market does not allow for dismantling of monopolies then these should be strictly regulated.
Secondly, while everyone has a right to strike to defend their interest, we should not tolerate anybody who thinks that the rule of law can be freely swapped with impunity for bullying, wild threats and irrational behaviour that affects innocent consumers making alternative arrangements, like using their own private means of transport, to mitigate the inconvenience of the strike.
There is however something odd, almost funny, in all this. In its search for a long overdue solution to remove public transport monopolies, the government seems to have chosen the hearse service as a test case. This service does not lend itself well to liberalisation and frankly I don’t think that liberalisation is in the interest of the consumer, certainly not anywhere near the same scale of the benefits that would result from liberalisation of much more obvious and crucial public transport services.
Liberalisation is suited for services which have strong sensitivity to price movements. In technical economic terms this is referred to as elasticity of demand, meaning that services with high elasticity of demand have a strong correlation to the price. The lower the price, the higher the demand.
The most obvious example of this is mobile telephony service. When introduced under monopolistic arrangements the service had very restricted clientele who could see value in paying a high price for the facility to be contactable on the move. As the technology moved and the market was liberalised, prices for usage of mobile telephony started to tumble, opening the markets for basically everybody else and inventing many more ancillary products that could be used on what remains essentially a voice telephony service. Liberalisation of mobile telephony benefited everyone because the service had a high elasticity of demand.
Compare this to the hearse service. Would more people opt to die purely because the funeral service gets cheaper? Clearly it is a very inelastic service. No one would opt to die twice even if the service is free. On the other hand, the service would be used whatever it costs when needed once the inevitable happens. If there is a service which is absolutely inelastic to its price, the hearse service is it.
Furthermore even if there were a free market it is very doubtful if this would work in favour of the consumers. Indeed it could very well work against them. Hearse service is required at a very sensitive time when relatives suffering the loss of their loved one would be in no position to shop around for the most competitive offering. Their frame of mind at the time when funeral arrangements decisions have to be made on the spot without much time to think and when they are emotionally upset, renders hearse service users price takers if not from the hearse service providers directly then from the undertaker who puts all funeral arrangements together.
Formation of cartels is inevitable even if the number of service providers were to double. And if this were to happen, it would mean that double the investment would have to be made which remains locked and unused in garages for much longer meaning that the cartel will ultimately jack up the prices of the hearse service to cover the increased inefficiencies of having many more vehicles being used for much fewer days.
In the circumstances, consumers of hearse services would benefit much more from regulation than from liberalisation. Whenever consumers are placed in a situation of distress needing a service for which the circumstances do not allow the proper workings of the free market, then the consumer has to be protected. Hearse services should be priced regulated not price liberalised. Competition would then be on the basis of quality although obviously operators would be free to compete on price if they wish but within the regulated price cap.
Take taxi service in an international free market economy where there is true competition between different modes of transport. Still, when I walk out of a foreign airport, I cannot be expected to negotiate my fare trip with the individual taxi driver. I have to pick the taxi which stands next in line. So because I have no real opportunity to use the levers of the free market to protect me as a consumer of the taxi service, I rely on regulation which is evident to me through the working of the taxi meter inside the cab. Many times it is not the quantum of how much I am being asked to pay that matters, but the knowledge that I am being asked to pay the right price as approved by the regulators of the land I am visiting. Consumers hate paying high prices but they hate much more the feeling of being cheated through market abuse.
The over-reaction by the general community of public transport services providers is therefore indicative that what is being objected to is not merely the liberalisation of the hearse services, which frankly is neither here nor there, but the establishment of models that could be transported to other more important segments of the public transport industry.
For the general public the outcome of the hearse service issue per se is not really important. What is much more important is getting competitively priced and efficient transport service which we use throughout our life not just at the end of it. The government should be careful not to win victories which do not matter at the expense of remaining blocked on issues that can really bring about positive change to our daily lives. Public transport reform is one such issue
Let’s get two points clear. I am all for orderly liberalisation of the markets where genuine competition may exist that would bring better value for the consumer. Monopolies should be dismantled wherever possible and where the size or nature of the market does not allow for dismantling of monopolies then these should be strictly regulated.
Secondly, while everyone has a right to strike to defend their interest, we should not tolerate anybody who thinks that the rule of law can be freely swapped with impunity for bullying, wild threats and irrational behaviour that affects innocent consumers making alternative arrangements, like using their own private means of transport, to mitigate the inconvenience of the strike.
There is however something odd, almost funny, in all this. In its search for a long overdue solution to remove public transport monopolies, the government seems to have chosen the hearse service as a test case. This service does not lend itself well to liberalisation and frankly I don’t think that liberalisation is in the interest of the consumer, certainly not anywhere near the same scale of the benefits that would result from liberalisation of much more obvious and crucial public transport services.
Liberalisation is suited for services which have strong sensitivity to price movements. In technical economic terms this is referred to as elasticity of demand, meaning that services with high elasticity of demand have a strong correlation to the price. The lower the price, the higher the demand.
The most obvious example of this is mobile telephony service. When introduced under monopolistic arrangements the service had very restricted clientele who could see value in paying a high price for the facility to be contactable on the move. As the technology moved and the market was liberalised, prices for usage of mobile telephony started to tumble, opening the markets for basically everybody else and inventing many more ancillary products that could be used on what remains essentially a voice telephony service. Liberalisation of mobile telephony benefited everyone because the service had a high elasticity of demand.
Compare this to the hearse service. Would more people opt to die purely because the funeral service gets cheaper? Clearly it is a very inelastic service. No one would opt to die twice even if the service is free. On the other hand, the service would be used whatever it costs when needed once the inevitable happens. If there is a service which is absolutely inelastic to its price, the hearse service is it.
Furthermore even if there were a free market it is very doubtful if this would work in favour of the consumers. Indeed it could very well work against them. Hearse service is required at a very sensitive time when relatives suffering the loss of their loved one would be in no position to shop around for the most competitive offering. Their frame of mind at the time when funeral arrangements decisions have to be made on the spot without much time to think and when they are emotionally upset, renders hearse service users price takers if not from the hearse service providers directly then from the undertaker who puts all funeral arrangements together.
Formation of cartels is inevitable even if the number of service providers were to double. And if this were to happen, it would mean that double the investment would have to be made which remains locked and unused in garages for much longer meaning that the cartel will ultimately jack up the prices of the hearse service to cover the increased inefficiencies of having many more vehicles being used for much fewer days.
In the circumstances, consumers of hearse services would benefit much more from regulation than from liberalisation. Whenever consumers are placed in a situation of distress needing a service for which the circumstances do not allow the proper workings of the free market, then the consumer has to be protected. Hearse services should be priced regulated not price liberalised. Competition would then be on the basis of quality although obviously operators would be free to compete on price if they wish but within the regulated price cap.
Take taxi service in an international free market economy where there is true competition between different modes of transport. Still, when I walk out of a foreign airport, I cannot be expected to negotiate my fare trip with the individual taxi driver. I have to pick the taxi which stands next in line. So because I have no real opportunity to use the levers of the free market to protect me as a consumer of the taxi service, I rely on regulation which is evident to me through the working of the taxi meter inside the cab. Many times it is not the quantum of how much I am being asked to pay that matters, but the knowledge that I am being asked to pay the right price as approved by the regulators of the land I am visiting. Consumers hate paying high prices but they hate much more the feeling of being cheated through market abuse.
The over-reaction by the general community of public transport services providers is therefore indicative that what is being objected to is not merely the liberalisation of the hearse services, which frankly is neither here nor there, but the establishment of models that could be transported to other more important segments of the public transport industry.
For the general public the outcome of the hearse service issue per se is not really important. What is much more important is getting competitively priced and efficient transport service which we use throughout our life not just at the end of it. The government should be careful not to win victories which do not matter at the expense of remaining blocked on issues that can really bring about positive change to our daily lives. Public transport reform is one such issue
No comments:
Post a Comment