3/06/2010

EU anti-trust laws hurt their economies, make markets less competitive

From the WSJ:

Europe's highest court ruled Thursday that setting minimum retail prices for tobacco in Ireland, France and Austria is against European laws.

The three countries all argued that minimum prices protect public health by making sure tobacco isn't too cheap.

The European Court of Justice ruled that setting minimum retail prices was against the law as it hindered competition. The court also said that the countries had other ways of battling the health effects of smoking, for example by raising excise duties on the products. . . .


Suppose you want to buy a new digital electronic camera. You go to a store and have the store spend lots of time let you look at the different cameras and answer your questions. People do that and then they go and try to find the cheapest price they can find for the camera that they want. The problem that creates is that the store doesn't spend the money to teach customers about the different cameras. Consumers are hurt and fewer cameras are sold. How to solve this problem? Have minimum retail price regulations on the retailers that sell your cameras.

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7 Comments:

Blogger John A said...

Cameras...

OK, my own experience is in a different area. You've heard of the "Manufacturer`s Suggested Retail Price" - well it is usually just that, a suggestion, allowing stores to sell at whatever price they need to.

But not always. Want to sell sneakers - excuse me, athletic footwear - in your store? The big names (Nike, Adidas, etc) enforce a price by contract.

3/06/2010 4:13 PM  
Blogger ged said...

"The problem that creates is that the store doesn't spend the money to teach customers about the different cameras."

OK, I give up; what's the problem? Since when does a business refusing to provide a service for which it receives no payment create a problem? It seems to me as if that would be similar to the "problem" I create when I decline to work without payment, or when GM refuses give me a new car for free.

3/06/2010 8:10 PM  
Blogger Raven Lunatic said...

Suppose you want to buy a new digital electronic camera. You go to a store and have the store spend lots of time let you look at the different cameras and answer your questions. People do that and then they go and try to find the cheapest price they can find for the camera that they want.

I'm not convinced. You're overlooking the laziness/convenience factor. If somebody's going in to a store to talk to somebody about a product, and their employees actually go through the trouble of explaining which camera suits the customers needs & desires best (including cost), they're generally not going to leave and shop around unless they already Know they can find what they want elsewhere for significantly cheaper. This is true for a few reasons: most people don't want to have to drive around town to try to find the Best price; that costs time and gas.

Further, it's unpleasant on an emotional/social/psychological level to get all sorts of help from someone, say "yes, this is exactly what i want" and then leave, both being rude to the person Who Helped You, and leaving behind something you know you want.

So yes, some people may do what you describe, but on the other hand, i'm willing to bet that the number of people who do that is smaller than the number of people who specifically go to stores who have helpful staff.

3/07/2010 2:39 AM  
Blogger John Lott said...

Dear Raven Lunatic:

Thanks for the comment. I am not saying that everyone will get the service and then buy the camera someplace else, just that if some people do that, it makes it hard for the retail outlet to recoup their costs. The more customers who free-ride, the more likely it won't pay for the store to continue providing the service.

ged, I hope that problem is clearer now for you. Thanks.

3/07/2010 3:37 AM  
Blogger Chas said...

When I bought my Canon G10, I got my information online from extensive reviews and comments and then bought the camera online as well to get the best price.
I wouldn't waste my time talking to a kid behind a counter who runs a cash register.
The best information and prices are online.

3/07/2010 7:36 AM  
Blogger ged said...

Sorry, John, but I still can't see the alleged problem. Every since I encountered the Coase Theorem in Jack Hirshleifer's class, I've been suspicious of appeals to externalities, free rider problems and other supposed market imperfections. I don't doubt that they exist; it's just that I tend not to take them at face value.

So how can in individual entrepreneur solve this problem without the "help" of government price controls and other regulations? Every time I venture into the wine country to pick up a few bottles I begin by visiting the ubiquitous win tastings at the different vineyards. Most of the wineries charge some sort of charge for the tastings, which may be applied towards the cost of any wine the taster purchases during the visit. Nobody seems to complain, even though these charges were far less common in the past. Is there some particular feature of the photography market that would make this infeasible there? I doubt it.

3/08/2010 5:55 PM  
Blogger John Lott said...

Dear ged:

The Coase theorem says that when the gains from trade are bigger than transaction costs it doesn't matter who you assign property rights to. If the gains from trade are less than transaction costs, it does matter. This is not the same thing as saying that there is no free-riding.

The point is that firms CAN solve this free-rider problem on their own. It is the government that makes it so that they can't internalize these externalities.

3/08/2010 11:58 PM  

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