Sure, I guess. PErhaps those of us who see a benifit from you hooking up to the sewer could simply contribute to a fund so that you will.
Really? But aren’t these individuals the same individuals who make up society as a whole? I see some overlap here.
Ok. It just seems fundamentally different to me when government is used to protect negative rights rather than to assert controls. I suppose in some situations it amounts to a semantic difference.
After learning more about the question through our discussion, I’d like to rephrase my answer to this that you asked a while back.
I think this does not happen in practice because many of the theoretical ineficiencies that should be due to externalities are much smaller than the costs of regulations designed to correct them. People do not resemble very closely the idealized “rational actors” required to meet the definitions of pareto optimization. They do buy smaller cars partly to help the environment, for instance.
People buying smaller cars to help the environment is not (necessarily) an example of someone not maximizing utility in a rational way. If, for example, it was important to a person’s self-image to think of herself as environmentally aware, then assuming other factors in the car-buying decision are a wash, that might well tip the balance. What counts for a person’s utility depends on what the person cares about.
People not resembling idealized rational actors is likely a wash here, since it also messes with economic efficiency.
If your point is that actual governmental regulations might ofttimes introduce inefficiencies as great or greater than the externalities, I would agree that this is likely sometimes the case, but that the regulation won’t inevitably do this if it is well-designed or if the externalities are of great magnitude. Certainly there is no theoretical reason to think that this could be a valid as a blanket statement. I think this also means that, generally speaking, dismissing government regulations as inherently more inefficient than a free market is misguided, since in any given case one will need to look at what inefficiencies exist in the free market itself, and then examine the regulations in question themselves. This means the automatic dismissal of regulations by many free market advocates is merely lazy avoidance of the issue.
That’d be awfully nice, but you’ve got a big coordination problem since the optimizing thing to do here is be a free rider on a bunch of other people paying for my sewer.
No, I am afraid not. Any increase in production of goods for which there is no demand is a net decrease in marginal utility. It is a fundamental principle of economics.
But you are missing the point. You are comparing apples and oranges by comparing what the government could do with what highly inefficient companies can do.
You assume, as I mentioned a couple of times, that only the government could eliminate the overhead of marketing, and that no private companies could do so. This is false. In circumstances where the government could nationalize the cereal market and increase efficiency by not marketing, the same efficiency could be brought about by any private company. Any time the government eliminates competition, it removes that drive towards efficiency, and thus prevents the discipline of the marketplace. This is not only less efficient in itself, it tends towards less efficiency in the long run.
You assume the government is only twice as inefficient as it could be, and thus is better than private companies who are ten times as inefficient. You are excluding from consideration any company that could do exactly what the government proposes to do, towards which end they would be driven by the market. And by elmininating competition and free markets, you are ensuring that the twice-as-inefficient government will never be improved by competing with a half-as-inefficient private company.
Precisely. In other words, marketing plays a key role in maintaining sales volume and market share. The money you claim is being spent inefficiently is not being spent inefficiently at all. It serves a purpose. And the government will ignore that purpose at its own peril.
Well, if it is a structural feature of the market, then the government cannot ignore that feature any more than a private company can do.
So the government takes over the cereal industry, and doesn’t spend a penny on marketing. Now the market for cereal, which is driven by high spending on marketing, dries up. Instead of 10 cereals for which there is demand, there are none. Your proposal seems to be that we have gone from 10 cereals that people want to buy to 15 that nobody wants. And this, you refer to as an increase in marginal utility.
It’s like buying at ten cents a pound, selling at seven cents, and hoping to make up the difference on volume.
Actually, it does invalidate your point, since the drive towards efficiency comes from free-market competition, which is eliminated by your ideas on nationalizing the cereal industry.
Same objections as to the cereal example, and for the same reasons. Why is it necessary for the government to create a monopoly in order to save money on marketing? Why can’t Sam’s Club create a cola more or less identical to Pepsi or Coke and grab market share, while saving money on marketing?
Oh wait, they already did. And in a free market, no less, and without the government stepping in at all. Who’da thunk it?
Again, you miss the point. It is not an increase in utility to make more products for which there is no demand.
Allocating resources to make things which people don’t want to buy is a waste. Resources flow to the point of maximum profit, because that is the point where supply and demand come together. Price is information. People communicate to producers, “In a world of limited resources, this is our highest priority among our unmet needs, and therefore this is where it is most efficient to allocate resources”.
It is pointless to say in return, “I know you don’t want a buggy whip, but we have a lot of them where before we didn’t have any.” I don’t want a buggy whip, and I don’t want cereal type 15. I want a car and a box of Alpha-Bits. That is what I communicated with the myriad buying decisions everyone has been making for the last fifty years. And offering me a bus ticket and a box of crap my kids won’t eat is not, to me, an increase in efficiency.
Again, to take the last as an example, I rather doubt you want to point to Amtrak as a shining example of government efficiency over the private sector. And my garbage is currently being collected by a private company, believe it or not.
Although, as you say, there are government-run operations that work. Sort of. The problem is usually that the government-mandated monopoly, not being subject to competition, has no incentive to operate efficiently or to streamline. And customer service is typically a problem as well.
Which would you rather deal with - the Department of Motor Vehicles, or a salesman in a retail store? Who is more likely to listen to what you have to say, and try to get it for you?
Quite. But this is the source of my problem with the fact that the person in question is also part of the society as a whole. The fact is that people do take their membership into account in making decisions. This would seem to lessen the inefficency.
No, I’m not so sure. The assumption is that rational actors will act o maximize thier individual utility. However, sometimes they will also act to increase thier societal or group efficiency. I don’t think introducing such a modification to the definition of rational actors makes it just as likely that they will act to decrease their individual utility. What I’m saying is that allowing people to take their membership in the group into account should tend to decrease the difference between the individual and group utility. The "inefficiency.
As I said earlier, your correct to state that one cannot make the statement that no regulation is always in in all contexts better than any regulation. Just as it is impossible to support the opposite contention. I agree that any proposal must be looked at and the costs considered. This should include an examination of unintended consequences. But if I am not mistaken, this is what conservatives have been calling for for years regarding social spending.
A problem, sure. But not that big of one. I simply go to each of my neighbors and ask for a donation. I disagree that the “optimizing thing” is to be a free rider. There are more considerations than simply monetary as you have been pointing out.
Ah, I’m with you now. Quite right - to the extent that people do factor group utility into their own personal utility (i.e., care about other people), externality effects are diminished. But while it’s clear that most individual actors do this to at least some extent, it’s not clear that very many collective actors (corporations, etc) do this to any degree at all. This likely means that pollution is going to be a more pressing case of market inefficiency than something like health care in an unfettered free market, just for example.
Well, as I see it, you can believe one of two things:
Cereal companies could have made more money reducing marketing budgets but they haven’t. The free market has taken over 30 years to correct itself. Not entirely unplausible, there have certainly been cases of entire industries “always doing it this way” for many years before someone realised the old way was remarkably stupid.
The cereal market is an example of the free market in action and the free market has rewarded huge spendings on marketing.
I’m not talking about next week or next year, just say 1970s to 2004.
And government agencies adjust to the cereal market in the same way that it adjusts to any market. Governments somehow manage to anticipate demand about such things as water supply, public transport, electricity etc.
I’m not so sure. corporations have a way to make externalities internal that individuals do not. They can advertise their “community spirit” for instance. Also, being deep pockets, they have a vested interest in looking past any legislated rules to the actual possibilities of future damage. The brief history of love canal I linked to a while back, for instance, noted that the corporation in charge of the waste site took better care of it in the 60s than required by EPA regulations in the 80s. These are examples of externalities being turned into internalities. But the basic point that corporations have ways to do this diminishes the idea that they cannot act in a socially responsible manner. Many of the activities that corporation tout in advertising nowadays, for instance, they did before the idea of advertising them became popular.
I will agree, however, that pollution does seem to be a more pressing example of a negative market externality. At least if we are talking globally enough. Global warming seems to be a much more intractable problem than cleaning up a specific lake, for example.
No, because if they did that, nobody would buy their cereal because they see ads for “choco-frosto-bombs” on TV and buy that instead. The key idea here is that the only way to avoid this marketing cost is if there were only one player in the market and the only way to do that is for the government to make it illegal for anyone else to make cereal.
One thing I haven’t touched is the non-economic sides of the argument. Government cereal, while it might be a good idea economically, would not be something I would support in real life for precisely the reasons you outlined above. The freedom to create a new cereal is more important than cheap cereal IMHO. Even though the majority might benifit economically, I would still rather be living in a world of $5 cereal and the freedom to innovate than a $1 cereal market with no freedom to innovate
No, because if they did that, nobody would buy their cereal because they see ads for “choco-frosto-bombs” on TV and buy that instead. The key idea here is that the only way to avoid this marketing cost is if there were only one player in the market and the only way to do that is for the government to make it illegal for anyone else to make cereal.
One thing I haven’t touched is the non-economic sides of the argument. Government cereal, while it might be a good idea economically, would not be something I would support in real life for precisely the reasons you outlined above. The freedom to create a new cereal is more important than cheap cereal IMHO. Even though the majority might benifit economically, I would still rather be living in a world of $5 cereal and the freedom to innovate than a $1 cereal market with no freedom to innovate. But this is a purely non-economic argument which has not much bearing on the debate at hand. We are arguing whether there is any circumstance in which the govt can be more efficient than private enterprise.
I’m lost. Have we had a cite which demonstrated that the ratio of production to marketing has remained steady throughout the cereal industry for 30 years?
Ok, but even if you can show a trend over that time period, you may not have shown that it will hold over 2004 to 2008. Much less 2004 to 2034.
But government agencies do not adjust to market conditions the same way that private entities do. This is the whole point. Government agencies do not own the capital they are entrusted with. They do not have the same sort of fiduciary responsibility that CEOs do. They do not evaluate risk the same way either. They will not shut down or increase their production capital in the same way given the same information that a private group would.
When cereal takes a big hit in demand from the next low carb craze, how will governments react? How quickly? If they refrain from advertising, how will they win back their customers? How long will they run at a loss, producing more product than they sell before they begin to lay off workers and shut down plants? What happens when a referendum requires them to keep the workers on and the plant open even though the market does not support it?
As my example of house brands demonstrated, there is another alternative - cereal companies can go after a certain sector of the market by creating non-marketed brands - and have.
Or, more likely, all of the above. Cereal companies sell to different parts of the market with different strategies. All these differing strategies are subject to the discipline of the marketplace. Your notion of government monopolies, of course, is not.
Well, your major selling point for the government monopoly scheme seems to have been that the government would adjust to the market by concentrating on producing things nobody wants.
I suppose this will be considered a variant on Godwin, but you need to look at the history of the economic development of the Soviet Union. Especially notice the different development of the consumer goods market. There, your notion that the government can make up for a lack of clear-cut information about supply and demand by saving on marketing was implemented.
It didn’t necessarily work out as well as you might assume.
If I have $1 million and I produce 100 automobiles and 400 horse whip buggies and you have $1 million and you produce 50 automobiles, who made a more efficient use of that money? It seems like we have a semantic difference here. According yo your definition, producer B would have increased marginal utility more than producer A which I regard as rather absurd.
Well, first of all, the government can not only put existing companies out of buisness, it can also prevent anyone new from entering the market which your proposed monopoly could not do. In any case, even if this we were to ignore this, just by showing two market conditions, one of which is more efficient than the other does not neccesarily lead that the less efficient one will transition to the more efficient one. It seems to me that a great many markets get stuck in a stalemate of several big companies, all of which are big enough to not bow out of the market but none of which are big enough to completely dominate and become a monopoly. Sure, the market might eventually sort it out and one company will monopolize the market, but were looking on the timespan of a few decades to centuries here.
Perhaps I was a bit hasty to say that all marketing would be unneccesary. Marketing is split up into two types, that which is designed to bring new consumers into the market and that which is designed to convince existing consumers to choose your product. The government would still have to continue with the former but not with the latter. But in some industries, the latter is what dominates nearly all of the marketing. For emerging industries, say ebay.com for example, the key thrust of the marketing is to simply make people aware that your market segment exists, ie: you can sell stuff online. Very little is devoted to telling people why ebay is better than sold.com or amazon book store. OTOH, take the mobile phone carrier market for example. Everyone who is going to get a mobile phone has already got one. Those that don’t have mobile phones don’t have them for a very good reason and marketing is not going to convince them not to get one. So nearly all of the advertising is concerned with telling you why thier
Actually, it does invalidate your point, since the drive towards efficiency comes from free-market competition, which is eliminated by your ideas on nationalizing the cereal industry.
Same objections as to the cereal example, and for the same reasons. Why is it necessary for the government to create a monopoly in order to save money on marketing? Why can’t Sam’s Club create a cola more or less identical to Pepsi or Coke and grab market share, while saving money on marketing?
Oh wait, they already did. And in a free market, no less, and without the government stepping in at all. Who’da thunk it?
Again, you miss the point. It is not an increase in utility to make more products for which there is no demand.
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Which is why Sams Club cola is rapidly gaining huge gobs of market share, just like RC cola and Shashta did :rolleyes:. Coke, Pepsi & Dr Pepper combined have had a 90%+ market share of the soft drink market for at least 30 years, Despite the dozens of smaller soft drinker makers who have tried to challenge them using the exact same strategy. All else being equal, past history would lead me to bet heavily against Sams Club becoming a major playing in the cola market.
And allocating resources to Cannabilistic Marketing is also a waste. The debate here is which is more of a waste. The distribution of information is not free. In an ideal market, it would be and nobody would need to spend money on marketing since rational agents auto-magically know exactly which brand of cereal they prefer. But seeing as that’s not the case, what I’m arguing is that sometimes the money spent on distributing this information is not worth the added efficiency that free markets can bring.
Okay, not Amtrak then, as I said, I’m not familiar with the US system. But the european train system is almost entirely govt run (with the exception of Britain IIRC) yet is generally regarded to be generally pretty damn good. And reading some of the pit stories about shitty customer service, it seems to me that apathetic salespeople is something the free market is taking a loooong time to correct.
Not a scientific cite but I certainly don’t believe it’s decreased during that period of time. I don’t have the time or the energy to go looking through google trying to find data but, assuming that distribution costs/production costs etc. increase roughly in line with inflation, if cereal box prices increased significantly higher than inflation would tend to suggest that the extra money is being put into marketing. Even if it didn’t increase
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Ok, but even if you can show a trend over that time period, you may not have shown that it will hold over 2004 to 2008. Much less 2004 to 2034.
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Granted, but you also can’t show it wont hold over that time either. The proper way of doing analysis is to work out the likelyhood of it holding and multiply it by the net benifit of it holding. I’ve implictly assumed a 50% chance of it holding but you can suggest another figure if you like.
For the govt cereal to lose money, it needs to be 10 times more inefficient than the free market cereal company. I regard this as highly unlikely. Government agencies do respond to consumer dissatisfaction, albeit in a much weaker form than free markets. If people are unhappy with a govt institution, they complain to their political representative. And if their political representative doesn’t fix it, he gets voted out. Just recently, there was a big brohaha in Sydney about the trains not running on time and heads rolled and new people were brought in and apparently the situation is much better. Granted, its not as efficient as the free market but it doesn’t need to be. It only needs to be 1 tenth as efficient.
Sure, yeah. Even under free markets, monopolies can sometimes lead to more choice than competition. My wrists are very tired so I’ll just steal someone elses Econ 1A lecture notes:
A government monopoly would have the same benifits.
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I suppose this will be considered a variant on Godwin, but you need to look at the history of the economic development of the Soviet Union. Especially notice the different development of the consumer goods market. There, your notion that the government can make up for a lack of clear-cut information about supply and demand by saving on marketing was implemented.
It didn’t necessarily work out as well as you might assume.
Regards,
Shodan
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Well, yes it is rather godwinish because your positing a system under which all goods were government produced and the government lacked the basic oversights that democratic governments have todays. I would not say that the majority of systems would run better under government control, only that some do. Who knows, maybe even in the Soviet Union, there was at least a couple of sectors in the economy which managed to do better than the US. I’m not enough of an expert in the Soviet economy to comment but I would appreciate if anybody had any tidbits about soviet economics that worked.
I just can’t see that happening if the price of the government cereal is actually 10% of the price of the privately produced cereal and the cereals really are the same otherwise. That may have been hyperbole to demonstrate your point, though. (The unmarketed house brands that I have seen run about 2/3 the price of brand name, not 1/10.) But if it is, then it is also an exaggeration of this inefficiency. Government monopoly comes at a cost, and that cost is loss of the market forces. Exaggerating the inefficiency could make it appear that government monopoly would be net gain.
Anyway, the main thing is that laissez faire market <-> government monopoly is not a valid dichotomy. I’m sure you know that, but lots of people assume that without even realizing that they’re doing it.
Based on the figures you quote, you are comparing apples and watermelons. Increasing marginal utility means concentrating your resources on meeting higher-priority demands. If there is a market for cars and none for buggy whips, then any resources I allocate towards making buggy whips is a decrease in the marginal utility of those resources. Thus if a government organization (or anyone else) spends any effort satisfying a need that doesn’t exist, it is marginally less efficient than another organization that concentrates the same resources only on things for which there is a market. Any production that cannot be sold is wasted and a net loss.
If I can produce 100 automobiles with a million dollars, then by definition I am more efficient than someone who can only produce fifty. But if I spend any of my million producing any buggy whips, I am wasting that portion of my time and resources, since nobody will buy my buggy whips. I would be even more efficient, and increasing the marginal utility of my available resources even more if I spent the time and energy making even one more automobile than any number of worthless, unsaleable buggy whips. Because I can sell the extra autmobile, and get a return on my investment.
Same as in your cereal example. Supposing some entity, government or otherwise, could become more efficient by foregoing all marketing. If they can get away with it, that is, if the market rewards them with greater profits and larger market share, then they are more efficient. But they are wasting that greater efficiency if they create things that they cannot sell. They will always be better off, and experience a higher rate of marginal utility, if they concentrate on creating products that consumers want to buy, instead of any number of things that just sit in the warehouse and incur storage costs.
What monopoly do you think I am proposing? I thought you were the one arguing in favor of government monopoly being more efficient.
In a competitive free market, that is indeed the tendency. In a monopoly, especially a government-sanctioned monopoly, that tendency disappears.
Natural monopolies are rather rare, and not generally the end result of a mature market.
I don’t see why a government monopoly needs to continue with the first kind of marketing either. They can just say, “Here is it, take it or leave it.” I don’t see any consequence if consumers don’t want their product, and apparently neither do you, if you think the government would benefit from producing things nobody wants anyway.
Well, Sam’s Club was founded in 1983. Before that, their market share was zero. So yes, they are gaining market share over the last twenty years, and they don’t spend a lot on marketing.
I thought you had admitted above that marketing was not always a dead loss.
Sorry, but this is simple nonsense. This is not a definition of an ideal free market. If we are allowed to make up fantasies, then we don’t need a government monopoly either, since boxes of cereal grow on trees.
I think you have a mistaken idea as to how the market operates. It is a dynamic equilibrium, not a static system. Bad employees go into customer service (in a free market) and get weeded out by the market (eventually). What mechanisms exist to weed out bad customer service in a government monopoly?
Regards,
Shodan
PS - If you don’t mind my asking, could you preview? It is a little difficult to read what you write, and figure out who said what, and that makes me less efficient in responding, and decreases the utility of the thread. TIA.
I’m having a little trouble understanding exactly how your defining marginal utility. The question is quite simple, 2 companies, 1 makes 100 autos, 1 makes 50 autos. We don’t know what else they are making with the money, the first could be making 1000 buggy whips and the second could be spending it on hookers and blow. Which has the greater marginal utility?
Yeah, but thats just an unavoidable cost of the government producing things. I would still prefer the government to be making the 100 autos as opposed to private enterprise making 50 though, even if they were wasting money making buggy whips as well.
But my point is the only way for it to be possible to forgo all marketing is if this entity could establish by fiat a complete monopoly in this industry. Anybody that tried to compete would be arrested. At the present stage, only the government has that sort of power.
Well, your quote was:
I assumed what you were trying to get at was that it were indeed the case that a monopoly could produce something cheaper, the market would automatically move towards a monopoly. First of all, it wouldn’t work because free market monopolies have no power to arrest people entering the market. Second of all, it won’t work because even if it were the case that a monopoly could produce something cheaper, it doesn’t follow from that that the free market would move towards a monopoly. Free market systems and evolutionary systems have the same tendancy to get stuck at local maximas. To take a rather artifical example, image we have a good that costs $1 to produce if you have 50% market share, $2 to produce if you have 60% market share and $0.10 to produce if you have >90% market share. If 2 producers each have 50% market share, none of them can increase their market share so both will be producing at $1. The free market has no mechanism to move production to $0.10 even though this is the more efficient point.
Such a situations could arise quite easily with the confluence of 3 effects. Economies of scale, Diseconomies of scale and monopolistic influence. Economies and Diseconomies of scale means there is an equilibrium point where getting bigger means your less efficient and getting smaller means your less efficient. However, if monopoly effects only kick in significantly past the equilibrium point and outweight the diseconomy factor, then there will be another equilibrium point in the system which is more efficient but impossible to get to. If I had some pictures this would probably be a lot clearer.
Just to clarify: this has nothing to do with governments or regulation, I’m just making the point that a free market doesn’t neccesarily tend towards the most efficient solution.
Yeah, they made money, good for them. But unless they become they become drastically more successful then they do now, they really don’t factor into the calculation. Remember we’re looking at the entire market as a whole. So if the government took over, it would be bad for people who buy Sams Club cola but good for people who buy Coca Cola. Given that there are more people who buy Coca Cola than Sams Club Cola, the net effect is good.
Sorry, I forgot to make it clear before. Cannabalistic marketing only refers to the second type. Cannabalistic marketing is a complete dead loss as far as the consumer is concerned.
Really, since when was perfect knowledge not a part of ideal free markets? Basic Supply/Demand curve analysis assumes perfect knowledge and so does many of the other basic tenents of free market theory. The fact that it’s wildly unrealistic doesn’t stop it fro being ideal.
Okay, when you show me how all government agencies are completely filled to the rafters with lazing malcontents who do nothing at their job each day but jerk off in the bathrooms, then I’ll prove to you how capitalism leads to a race to the bottom and corporations chaining workers to their desks. Deal?
Government agencies work because there are enough people in them who care about providing a good service even if they don’t have to. I might not personally care if you get your tax returns back on time but if my boss cares then I’ll at least pretend to care too otherwise he’ll fire me.
BTW: It occurs to me that it’s possible to still introduce market forces into a government regulated industry. The government simply auctions off 5 year cereal contracts which allows the buyer 5 years of exclusive control of the cereal market. Companies are then exposed to market forces so you avoid some of the inefficiency problems that governments have and also avoid the cannabalistic marketing costs a pure free market would have.
“If profit margins are not excessive, these differences given an idea about the marketing costs from purchasing and selling in the same quarter in the same region. In that case marketing costs only comprise short term storage costs and transaction costs. The marketing costs plus the profit margins are on average 17% of the consumer price (see Table 2.2).”
Perhaps we are working with an unworldly assumption that marketing costs can rise to 10 times production costs without something else giving way.
It suggests that “Nearly four-fifths of the $530.8 billion U.S. consumers spent for farm foods (excluding seafood and imports) in 1995 was spent on marketing costs. Food marketing costs are measured by the marketing bill, which represents the difference between the farm value of food produced on U.S. farms and the final cost to consumers at grocery stores and eating places. These costs include labor, packaging, transportation, energy, advertising, and other miscellaneous costs.”
So, we can get marketing costs quite high in comparison to production costs. But only if we include things like transportation packaging and energy usage. Also, we have to follow the food from raw material to store shelves. Simply looking at cereal in the box to store shelves does not seem to generate the sorts of disparity between production costs and marketing costs you were postulating. Marketing is the costs needed to get the food to market. We may not be talking simply about advertising. Specifically the only thing your government monopoly could stop doing was the advertising.
“…the PCM (Price Cost Margin) denotes the proportion of total shipment value that is above production costs. Between 1973 and 1995, the RTE (Ready to Eat) cereal industry’s PCM (approximated with data from the cereal breakfast foods industry) climbed from 0.46 to 0.75 (fig. 2). The PCM’s of other food manufacturing industries are much smaller. For example, the PCM’s of the soft drink; frozen specialty foods; mayonnaise, sauces, and dressings; and cookies and crackers industries in 1997 were 0.37, 0.45, 0.46, and 0.55, respectively.”
So, the total price difference between the cost the consumer pays and the cost to produce cereal is something like 1.5, not 10. And remember, that this includes a lot more than simply advertising. It includes transportation, packaging, the labor associated with these, as well as other miscellaneous costs.
Can you be so confident that your government monopoly can beat that?
But for a few more posts, let’s assume that the hypothetical you laid out. The cereal industry spends 10 times the production costs on marketing (defined strictly as advertising) than it does on production. Let’s further assume that this is some sort of systematic characteristic of the market in question. That is every company that has tried to reduce their marketing budget has failed.
Then your statement:
May be true. But only if we grant that the spending is in fact inefficient. What about competition from other breakfast foods? Will you ban bagels and power bars? Are you certain that people will continue to buy cereal at exactly the same rate (or even at a high enough rate) with no advertising? Will you ban the advertising of other breakfast options? If you make all of the assumptions you started with, it may be true that some sort of monopoly could operate more efficiently than a group of competitive entities. However, I think it is more likely that you have simply not take something into account. It seems unlikely to me that advertising could systematically eat up 9/10ths of an industries budget without some sort of reason. Simply outlawing the advertising and requiring the savings go to price reduction would accomplish a similar thing. How would this differ from the government monopoly you postulated?
Oh, wait a second. Are you assuming that the only function of the advertising is to differenciate one cereal from others?
I did not read very far in that las link I posted. It includes this bit:
“Connor’s research shows that the major branded cereal producers spend 10
to 15 percent of the value of their sales on mass-media advertising, a significantly higher amount than in most other food manufacturing industries.”
So, our hypothetical government monopoly might have to be consistently 10% more efficient than our private enterprises in order to break even. And even then, they would only provied a 10% price cut. Much more of a Faustian bargain than we started with.
Just FYI for anyone still following the discussion.
I have to appologize to you, Shalmanese. I did not see this post of yours. My bad.
No. I am saying that for the sake of this discussion we can consider IBM and AMD as part of Intel and ignore anti trust legislation. Even doing so they are not a monopoly. Motorola, Microchip and many other companies make CPUs. I agree not many of them compete with “Intel” in the 3Ghz PC market. But the fact is that this is not the endall of the CPU market.
Yes, but their technological design allows them to compete on the lower power arena and build up a business which may someday be able to compete in the higher performance arena.
My theory is that mutual funds are something relatively new. I don’t have any numbers to back me up, but several things conspired to allow the current CEO compensation problem. One of the problems is the large numbers of stockholders who simply ignore their voting rights. These stockholders leave very large companies in the control of unusually small numbers of people. I would say, therefore, that is simply has not happened yet. A new problem requires some time to address. It will require additonal time for the solution to percalate through the market.
As long as the actions are not illegal, the percieved benifits would have to be pretty marginal for such tactics to work. Remember, Big Oil needs their distributors as much as the distributors need big Oil.
Again, My appologies for missing this post. You posted it one minute after mine and only a minute before Shodan posted one of his. I did not read above that one and missed yours. No disrespect intended.
