Is the "Do Not Call" list a correction of a market failure?

[erislover]

Finally, thanks for understanding Mr 2001. Yes, it is true that in the case of telecommunications, monopolies on hardwires did seem like the way to go, but I question that decision as a long-term approach to effectively handling issues. Granted, I am not exactly up on the history of phone companies, and it certainly seems like a development that would have begged for local monopolies to form anyway, but you mention cell phones and can’t you say the same thing? Someone has to own all those towers!

There is work in deregulating the phone lines, and I’ve started seeing ads for alternative phone service providers (they mostly appeal to the “have you left your phone bill unpaid? Come see us! We don’t care!” group), as well as knowing there are offers from other companies to provide local service. I think AT&T was offering local phone service, and you got a discount if you had their phone, internet, and cable package all together.

Still, I think telemarketers are a sweet deal for phone company profits, and I can’t say that I’m convinced, leaning toward, or even suspecting that competition would have solved this issue. Without the figures I can’t of course say with any authority, but I wonder whether or not the consumer base that currently makes up the DNC list could offset the costs that the phone companies would be paying by offering such a service (and thus losing the money from the telemarketers). Or whether they’d be willing to pay it, at any rate.

In my mind, I look at telemarketing as the phone equivalent of commercials, which I also don’t really like but I wouldn’t consider as evidence of a market failure. I mean, I still watch commercials on cable, right? A service I pay for?

Can we set up a Do Not Advertise list? In what way does telemarketing differ?

[Ms2001]

*Originally posted by erislover *
Finally, thanks for understanding Mr 2001. Yes, it is true that in the case of telecommunications, monopolies on hardwires did seem like the way to go, but I question that decision as a long-term approach to effectively handling issues. Granted, I am not exactly up on the history of phone companies, and it certainly seems like a development that would have begged for local monopolies to form anyway, but you mention cell phones and can’t you say the same thing? Someone has to own all those towers!

That’s true, although it’s much less work to extend a cellular network. You set up a tower at point X, and everyone within Y miles of X instantly becomes a potential customer. With landline phones, once you set up a CO, you still have to build all the poles and literally bring the service to wherever your potential customers are. Customers want their new phone service to start working within a few days of signing up, not a few weeks or months, so you probably won’t get any customers until you’ve already strung wires over a large part of the city. And the existing telco has a huge price advantage, since their wires have been in place for decades and are long since paid for.

As you said, the market for landline phone service is opening up - I’m not sure how it works, but apparently you can use the same wires to get service from a different phone company. I suspect the company that owns the wires gets a kickback, which would put the new company at a disadvantage (just like using your telco’s DSL infrastructure to connect to a separate ISP, or using your cell phone in an area where another company owns the spectrum).

Still, I think telemarketers are a sweet deal for phone company profits, and I can’t say that I’m convinced, leaning toward, or even suspecting that competition would have solved this issue.

Isn’t that the definition of a market failure: when people want something and are willing to pay for it, but competition doesn’t cause it to be offered?

Without the figures I can’t of course say with any authority, but I wonder whether or not the consumer base that currently makes up the DNC list could offset the costs that the phone companies would be paying by offering such a service (and thus losing the money from the telemarketers). Or whether they’d be willing to pay it, at any rate.

Would they really lose money from the telemarketers? There are still plenty of numbers that aren’t on the DNC list, and telemarketers pay by the month, not by the number of calls placed.

In my mind, I look at telemarketing as the phone equivalent of commercials, which I also don’t really like but I wouldn’t consider as evidence of a market failure. I mean, I still watch commercials on cable, right? A service I pay for?

You can subscribe to commercial-free channels (e.g. HBO or Starz) for an additional fee. There’s no equivalent for landline phones.

[erislover]

Isn’t that the definition of a market failure: when people want something and are willing to pay for it, but competition doesn’t cause it to be offered?

Well, are they willing to pay enough for it? I’d eat steaks every day and I’m willing to pay for it… just not what steaks cost, that’s all. Is that a market failure? Or do we just not really all want steaks that badly to eat them all the time? Caviar? Expensive wine? Plasma TV?

Seems we did have such a price: screening phone calls. And people weren’t willing to pay that. So how does the phone company offer more than CallerID, for less, and still make more money off it? Well, they could charge more to make up for it, but that’s a steak people would find overpriced, I’m sure.

Not that I’m saying a DNC list is a bad thing. I don’t necessarily care for the idea, but there’s a shitload of things I don’t like and my opinions aren’t consulted on them so I see no reason to take exception to this. I’m just trying to get my head around a market failure in better terms.

You can subscribe to commercial-free channels (e.g. HBO or Starz) for an additional fee. There’s no equivalent for landline phones.

Not for most regular programming.

Would they really lose money from the telemarketers?

If the only people on the DNC list are people that would never purchase from a phone solicitor then no.

[blowero]

*Originally posted by erislover *
**Dude, you asked me some of those questions! Unbelievable.
Since my “never” response possibly isn’t clear, I will restate what I said. I simply said that if we were approaching this from a maximum utility/happiness/etc angle, then we should also include the loss of happiness of telemarketing workers losing their jobs, as we should consider the loss of revenue for phone companies, and so on.

It was never, ever, ever, ever, ever in a million years meant to say anything you seem to want it to over the past million responses.

Also, I like the revision from “arguments” to “comments” in your last post. I am aware I used the word “lazy” as I am aware I have made comments that in fact strayed from the OP. **

Oh, I see - so anything you throw out that turns out to be incorrect was just “hypothetical”. Whatever; I’ve had enough of you.

[hawthorne]

Easy now, folks.

The competition thing is important. Part of it is the new technology thing that Mr2001 talks about. Cellular technology is not a natural monopoly in the way that fixed line phone services are… or at least were. Now, one of the old arguments about monopoly was whether the best solution was nationalisation, regulation or do nothing. The do nothing school said two things: (i) the cure might be worse than the disease and (ii) that the appeal of the monopoly profits would be a spur to innovation and in the long term the monopoly power would go away (this is a Schumpeterian “creative destruction” sort of line). That, BTW, is what I see going on with Linux.

But an objection to that line is that large firms retain considerable power even once their big market power has been undermined by technological or regulatory developments - in other words, the bits of the old US phone monopoly still have so much market share that they prevent serious competition.

An alternative to this is that the regulatory framework hasn’t changed to reflect the new technological conditions of the market and still favour their old clients.

I’m surprised by two lines erislover has been running. The first is the suggestion that

I think people should have put more pressure on phone service providers to create a market solution.

Surely it is the role of entrepreneurs to find market niches? And how in the absence of alternative services they can migrate to is a customer supposed to pressure a phone company? Unlike unions, consumers have little power to bargain as a group (because they are geographically diffuse, because any one product makes up a small part of their budget etc).

The second line I was surprised at is the “clean bathroom” one. Firstly, couldn’t that argument be applied to all economic activity? I work harder to get myself a better standard of quaffing wine, a coffee machine with a 4-foot eagle on top and a personal masseur - at first it seems nice, but after a while I’m no happier than I was. I’m not saying that this is a stupid line - I buy it to a degree myself, and the econometric evidence is quite supportive - but it does suggest that material progress is largely a waste of time.

Another interpretation is that applies not to people’s real interests, but only to their idle perception of them. In this version, material progress is useful, but people take it for granted. This too, I can buy to a degree. But if you apply it to government services it indicates that people’s whinging about taxes is just a reflection of their forgetting the value of all the bathrooms the government cleans.

[artemis]

*Originally posted by erislover *
**In my mind, I look at telemarketing as the phone equivalent of commercials, which I also don’t really like but I wouldn’t consider as evidence of a market failure. I mean, I still watch commercials on cable, right? A service I pay for?

Can we set up a Do Not Advertise list? In what way does telemarketing differ? **

Well, MY television doesn’t spontaneously turn itself on and start blaring advertising jingles every time a commercial is aired . Sorry if yours does. I don’t think many people would own a TV if that was how they operated.

THAT, in a nutshell, is how telemarketing differs from the other forms of advertising you’ve mentioned. It’s far more intrusive. I have indirect control over other modes of advertising, because I can choose when I will deal with them. I choose when to turn on the television (and thus subject myself to TV commercials), when to sort through my mail and deal with the junk mail, when to open my computer’s inbox and toss out the spam. But I cannot choose when the telephone rings. And disabling the phone ringer so that I don’t have to listen to the frequent random ringing that telemarketing generates makes the phone useless for its other (more legitimate) functions.

Telemarketing is more akin to door-to-door solicitation than it is to any other form of advertising - and many communities have long restricted (or even banned) door-to-door solicitation because of its intrusiveness. Why should telemarketing get a pass?

We don’t need a national Do-Not-Call list; we need to make telemarketing illegal, period. Merchants already have plenty of ways open to them to advertise to potential customers; let them use those.

[erislover]

*Originally posted by hawthorne *
Surely it is the role of entrepreneurs to find market niches?

Well, that’s why I said this was more of a personal principle than anything. If people have to organize a force to create political action, they can create a force to attempt market changes without political action. I’m not sure it would work, because I’m not sure people could really organize to combat something like this.

And how in the absence of alternative services they can migrate to is a customer supposed to pressure a phone company?

Mostly they can’t, of course, but the market didn’t create this market, so if this fails, how is it a market failure?

The second line I was surprised at is the “clean bathroom” one. Firstly, couldn’t that argument be applied to all economic activity?

Certainly, it could at least be applied to most of it.

but it does suggest that material progress is largely a waste of time.

Whoa, I don’t know about that. To me it suggests that lobbying over preferences in market services is excessive. You note that interpretation here:

Another interpretation is that applies not to people’s real interests, but only to their idle perception of them. In this version, material progress is useful, but people take it for granted. This too, I can buy to a degree. But if you apply it to government services it indicates that people’s whinging about taxes is just a reflection of their forgetting the value of all the bathrooms the government cleans.

They are! That’s why government is so wasteful, because people demand something, it is largely taken care of, and it becomes invisible. “Fucking roads” and “why aren’t there more police” and so on and so forth… the money is allocated and vanishes from any public eye, because the bathrooms are clean and we never notice.

It’s more than an analogy, I think it is largely indicative of service issues and their perception in general. We have a genuine increase in the standard of living, but the increased happiness for these actions is marginal because it settles down into taking it all for granted.

So again, I am asked “What could people do?” and the answer I give is “Well there was this which works in a more or less open market” and the response is “But whine they couldn’t do that because because because!” and the because seems to be to me the situation that was created from extra-market entities, which makes me wonder whether we’re correcting a market failure or correcting our previous mistakes from previous hand-wringing. Unlike blowero’s fear, I am simply asking the questions and trying to give answers to see where the disussion leads. I’m not saying my suggestions would work, but I wonder why they weren’t tried. I’m not saying people are lazy, but I am saying that a cost may have existed that people weren’t willing to bear. We’re not talking clean water here, we’re talking about owning a phone line for the basic price and not expecting to get random calls from people for free because it is somehow “my” phone line. I’m sorry if I don’t see this as an issue the federal government would need to get involved in.

artemis

Well, MY television doesn’t spontaneously turn itself on and start blaring advertising jingles every time a commercial is aired.

Neither does my phone. When I don’t want to receive phone calls, I turn it off (or at least the ringer). Sorry if your phone doesn’t do this.

And disabling the phone ringer so that I don’t have to listen to the frequent random ringing that telemarketing generates makes the phone useless for its other (more legitimate) functions.

Sure, just like I’d miss emergency broadcasting and the local news if my television was off. It is a cost I have been more than willing to bear over the years.

[blowero]

*Originally posted by artemis *
Well, MY television doesn’t spontaneously turn itself on and start blaring advertising jingles every time a commercial is aired . Sorry if yours does. I don’t think many people would own a TV if that was how they operated.

But erislover said that in the context of the question “Was there a market failure?”, so it doesn’t count as an argument.

[Cheesesteak]

There is another difference between TV/Radio commercials, Junk Mail and telemarketing. The first two types of advertising fund the forums through which the ads are sent, helping to subsidize other uses of the medium. TV shows are funded, in whole or in part, by the advertising shown on the station. Remove the ads, and the production values of the shows will necessarily decline. Mail service is funded in part by all of the junkmail that is sent, which helps to keep the price of a stamp down.

Telemarketers do nothing to help defray the cost of my phone, I pay for that 100% on my own, yet I must still endure their pitches.

I’d say that this is certainly an indication of market failure, but I don’t think that ‘failure’ should carry any particular negativity. There are a whole host of things that the free market doesn’t handle particularly well, they go over a whole bunch of them in Econ 101, do I don’t see why this particular issue is a concern.

Many people’s lives were/are negatively affected by telemarketing, and they were forced to take ever increasing and onerous steps to protect themselves. While erislover may feel comfortable turning off his phone, many people cannot do similarly, and are thus forced to handle these calls. This new law allows anyone who is bothered by telemarketers to opt out, and anyone who wants to hear these offers can stay in.

[erislover]

Telemarketers do nothing to help defray the cost of my phone, I pay for that 100% on my own, yet I must still endure their pitches.

But the telephone company makes money from them. Remove that money, for example, and you think your rates wouldn’t increase any? I would imagine businesses and telemarketers could be said to subsidize the cost of phone lines much like some make the argument that compact car buyers subsidize low MPG vehicles. To genuinely make this we’d need figures for what the phone companies charge telemarketers and what the costs of supplying them this service is and so on, but at first pass it seems to have some merit as a way of looking at it.

If the company wants to maintain profits, and a sector of their consumer base disappears, what has to happen?

[Inoshiro]

Just a little tangential observation: I recently moved and experienced the following ironically humorous episode. Every day around 6:30 pm I got a call. It was my phone company. They wanted to sell me a package of services which included their own version of a do not call list. I told them one day that they themselves were the main nuisance callers and to stop fucking calling me! To their credit they did. The idiot phone doesn’t ring much anymore.

[jacksen9]

If the company wants to maintain profits, and a sector of their consumer base disappears, what has to happen?

Increase productivity, find cheaper resources, get the government to pay them to not do business with telemarketers, raise prices so slightly that consumers do not respond, redeploy any resources that were devoted to this activity toward something possibly more profitable in the long run… maybe r&d.

[artemis]

*Originally posted by erislover *
Neither does my phone. When I don’t want to receive phone calls, I turn it off (or at least the ringer). Sorry if your phone doesn’t do this.

The problem is, that there’s NEVER a time when I don’t want to receive certain phone calls. If my elderly parents call to tell me about a health problem, or my hospital collegues call me for advice (I’m a physician), or a friend wants to invite me out for dinner, that’s a call I want to take. I can’t predict when those calls will come, so disabling the phone so that I don’t hear the telemarketers calling prevents me from receiving those calls, too. By making it nearly impossible to get hold of me promptly (because I’ve disabled the phone ringer, or am using an answering machine to pick up my calls) telemarketing degrades the utility of the telephone system, much the same way that the increasing deluge of spam is quickly destroying the utility of email.

[erislover]

By making it nearly impossible to get hold of me promptly (because I’ve disabled the phone ringer, or am using an answering machine to pick up my calls) telemarketing degrades the utility of the telephone system, much the same way that the increasing deluge of spam is quickly destroying the utility of email.

I just don’t see that, is all. Maybe I don’t get as many telemarketing calls as others do. Well, now I don’t get any, I have a cell phone.

[hawthorne]

Continuing on Cheesesteak’s theme, TV ads are different because whilst they might pollute the programming, they don’t congest the spectrum. Plus, as others have pointed out, there are competitive alternatives to ad-funded TV - subscriber TV, time shifting and videos. I guess there is an argument that I’m being subsidised in my entertainment because other people make advertising worthwhile, though.

erislover
Maybe I don’t get as many telemarketing calls as others do. Well, now I don’t get any, I have a cell phone.

Aha! So when they have to pay a fair bit of the cost of wasting your time, they stop calling. Yep.

Mostly they can’t, of course, but the market didn’t create this market, so if this fails, how is it a market failure?

I don’t understand this.

again
They are! That’s why government is so wasteful, because people demand something, it is largely taken care of, and it becomes invisible. “Fucking roads” and “why aren’t there more police” and so on and so forth… the money is allocated and vanishes from any public eye, because the bathrooms are clean and we never notice.

It’s more than an analogy, I think it is largely indicative of service issues and their perception in general. We have a genuine increase in the standard of living, but the increased happiness for these actions is marginal because it settles down into taking it all for granted.

On one point I think you’re confused. The substantive point requires a Simpsons reference.

Even when the marginal benefit is zero, the total benefit may still be quite something. As a rule, I consume things up to the point where the marginal net benefit of the last unit I buy is zero. This maximises my net benefit.

I think you misnamed your “clean bathroom” example. I may take it for granted that the bathroom is clean, but my real demand for clean bathrooms is still there. I’m still benefiting from it, I just take it for granted. And that mindset amongst taxpayers would lead to them consistently undervaluing public programmes.

I think what you meant is a “Bear Patrol” problem - that people unthinkingly demand an expensive solution to a tiny problem and then forget about the costs. In that case the benefits are fleeting and largely illusory (and the government action is excessive), but in the bathroom case the benefits continue even if we don’t think of it every time we take a crap in a public place (in which case the government action is liable to be insufficent).

---

This “Do not call” list has been characterised as a non-market solution. How about we characterise it instead as a redefinition of property rights - a new set of market-consistent rules which define property rights which were previously left fuzzy, the further defining and enforcing of property rights becoming necessary due to the new opportunities for fraud technological progress has exposed?

[erislover]

I think what you meant is a “Bear Patrol” problem - that people unthinkingly demand an expensive solution to a tiny problem and then forget about the costs.

No, I don’t think that’s the case here. I’m comparing “appreciating not getting telemarketing calls” along the lines of “appreciating clean bathrooms at my favorite restaraunts” etc.

I may take it for granted that the bathroom is clean, but my real demand for clean bathrooms is still there. I’m still benefiting from it, I just take it for granted.

Yes, this is exactly what I mean. But the perceived benefit is marginal, whether or not we can say there is some objective benefit.

Aha! So when they have to pay a fair bit of the cost of wasting your time, they stop calling. Yep.

“Aha!” what? I would imagine they would!

I don’t understand this.

The telecommunications market was granted monopoly status like most utilities for a given area. While one might say they would have been a monopoly anyway, they certainly were a monopoly then because of government fiat. That market was artificial. So if the artificial market fails, where do we point the blame? To the people that created it or to the economic behavior of the parties involved?

[Morgainelf]

Disclaimer: DMA Member here.

OK. I avoid GD because I am a terrible debater, so please don’t expect me to argue. It just won’t happen.

I’m jumping into this thread because I see a few real pieces of either misinformation or missing information that I think need to be brought up.

1. The DMA actually has approximately 5,000 members. Certainly not all telemarketing organizations, but quite a few. Also, you don’t need to be a member of the DMA to subscribe to their Do Not Call preference list. It is provided for a fee of $700 per year. Only 10% of the $7,000+ per year that the federal list will cost.

2. The cost to the economy from the enforcement of a national do not call list will not be felt mainly by the cutbacks on telemarketing jobs. Last year alone outbound telemarketing accounted for 185 million transactions and $200 billion in goods and services sold. A decrease in this business will impact the overall economy.

3. Can someone please clarify for me how the telephone company is in any way responsible for regulating telemarketing? This idea seems to pervade this thread, but it’s not making sense to me. Telemarketers pay for the service of using a phone carrier, just as anyone else does who makes phone calls. What they choose to do with the phone is really not the responsibility of the phone companies. It is the responsibility of the FTC and to some extent the FCC, and they’ve chosen to take action further action to regulate the use.

4. How is this possibly regulating a market failure? Telemarketing is hugely profitable, which is why it has proliferated so much in the last 10 years. Technology advances such as predictive dialers have made it much more efficient, while at the same time increasing its intrusiveness. There is no marketing failure here. What there is may be a failure of individual companies to regulate their actions to be “customer friendly.”

Discuss.

[erislover]

3. Can someone please clarify for me how the telephone company is in any way responsible for regulating telemarketing?

It is their phone lines, but I never suggested they were responsible, just that they could have offered a solution to the problem. Many times people accept responsibility for things that they aren’t actually responsible for in order to affect a solution. Like, possibly, the government creating a DNC list when the government never created telemarketing.

The cost to the economy from the enforcement of a national do not call list will not be felt mainly by the cutbacks on telemarketing jobs.

I don’t believe anyone suggested they would. Some solutions to telemarketing, like removing it completely rather than having a DNC list, would. When I mentioned considering the utility of telemarketing employees as well as people who would be happy to have telemarketing gone, I was simply referring to the general case of all solutions to telemarketing, and how we would compare them to each other. In all cases we would be measuring the general well-being of all people.

In this case specifically, unemployment is not an issue at all, I agree. The people that sign up for a DNC list are likely not those that would ever buy anyway.

[erislover]

Well, I did imply that it could have been the phone company’s failure to provide a service, yes. That wasn’t supposed to mean that they were in fact responsible, though, sorry about that. It is McDonald’s responsiblity to dispose of their grease, but there are oil collecting companies that in fact provide that solution. So whether or not it was supposed to be telemarketers, from a moral or ethical view, providing the solution, anyone could in fact take up the ball if it made them a profit in doing so.

[Ms2001]

*Originally posted by Morgainelf *
4. How is this possibly regulating a market failure? Telemarketing is hugely profitable, which is why it has proliferated so much in the last 10 years. Technology advances such as predictive dialers have made it much more efficient, while at the same time increasing its intrusiveness. There is no marketing failure here. What there is may be a failure of individual companies to regulate their actions to be "customer friendly."

The failure is in the market for spam-free phone service, not the market for telemarketing.

Consumers want a system to block phone solicitations. It’s technologically feasible–just match the origin phone number against a database of all telemarketers’ numbers before connecting the call–but AFAIK it’s never been offered at any price.