A reader writes: “Am I wrong to believe that businesses and consumers are natural enemies in that their economic interests are diametrically opposed?”
Yes, you’re wrong. Transactions don’t occur unless both parties are better off. Businesses thus only profit if they can create consumer surplus—the ability to sell a product at a price that is less than what a consumer values the good or service. Businesses’ interests are thus aligned with consumers who seek consumer surplus. Businesses more often prosper by creating satisfied consumers who become repeat customers who promote the business’s reputation rather than trying to extract every last ounce of wealth from them in a single transaction. This is why brand names and advertising are so important, because they are market signals of long-term commitment to customer satisfaction. It’s not profitable to invest in creating a brand name if one intends on having a bad reputation. (Note the key word “intends” there; no doubt one can intend to have good customer service and fail to achieve it, and I’m looking at you, Comcast.) And one will note that businesses that tend not to have repeat customers or rely on word of mouth are more likely businesses that have reputations of indifference about customer satisfaction: tourist traps, traveling carnivals, etc.
This is why it’s frequently a mistake to characterize pro-plaintiff actions as “pro-consumer” actions. This is not a zero-sum game, and making businesses worse off can quite often also make consumers worse off. Even if consumers come out ahead retroactively in one particular transaction because they got a coupon in a class action that they wouldn’t have otherwise, or because one consumer realized a jackpot award for their misuse of a product, consumers can be losers in the long term in litigation because of higher prices and fewer choices, and this is true even if corporations don’t entirely pass the higher costs on to consumers and force the widows and orphans who are their shareholders to suffer reduced profits as well.
I support reforms that make consumers better off. I oppose the ones that don’t.
22 Comments
What makes you think that Comcast wants to have good customer service but fails to do so? I believe that many companies want us to believe that they strive for good service, but since it’s much cheaper to have mediocre or poor service, they just advertise that service is important to them. I willing to bet that in the vast majority of cases where a company intends to have good service, it succeeds.
Insurance companies have a real financial incentive to provide poor service. As long as the labor costs to delay payments is less than their cost of money, they benefit. And with outsourcing to India and other third world locations, they can afford lots of calls intended to stall processing.
I read several blogs about consumer law and consumer credit, and I have attended national consumer law seminars. Invariably, the commenters and participants hold the belief that businesses – the suppliers of consumer goods and services – are evil, or at least corrupt, by nature.
To all of those people I say – Stop don’t stop at the grocery on the way home from work tonight; stopping would allow a business to profit. Sell your car to escape the insidious motives of “big oil.” Turn off your televisions, and stop using toothpaste and deodorant. Forego cell phones and high-speed internet access. Make your own shoes and grow your own coffee. Vote with your wallet and stop your incessant, ignorant, oxygen-consuming whining.
Billb,
In some cases, it’s probably true that companies’ service is trash because they don’t make the effort. If you want to help capitalism along (and help other consumers) you have an easy weapon in your arsenal: get ticked and don’t go back. Of course, the system’s not perfect, but other things equal, the fact that you get to choose companies will tend to eliminate the ones with bad service.
If you can just sue any company with whose service you’re not happy out of business, it’s much more likely that a single unintended incident of poor customer service on the part of the company will have a greater effect than a general tendency in the company’s behavior, thus eliminating a relatively good choice of companies and leaving behind worse choices.
1) Comcast spent money to send a human being to my door to poll me on the status of their customer service. Someone there thinks it matters, perhaps because they recognize that Comcast will lose monopoly power sometime this decade.
2) Dick is incorrect. Insurance companies compete with other insurance companies, and reputational effects are huge. And that’s before one gets to the fact that many insurance companies are mutual insurers that are owned by policyholders.
Perhaps this post could have been enhanced had you included the following:
Read Adam Smith’s The Wealth of Nations and when you get a full understanding of The Invisible Hand, all of this will be forgotten.
Might I also submit that a dash or two of Ayn Rand would help clarify any points missed.
Great write up. It’s great to hear someone talk about how businesses and consumers are united as oppose to the big, evil corporations trying to get one over on the little guys.
Customer service is key. I personally had a bad experience with Circuit City’s CS and will never shop there again because of it. Not the local stores CS, but the national company’s.
I can cite multiple instances involving litigation against evil insurance companies on behalf aggrieved consumers that ultimately had the effect of harming consumers financially.
Texas and Mold – Insurers took the position that the homeowner’s policies issued at the time did not cover the cost of remediating mold. During the media frenzy blasting insurers for having the audacity to assert that the mold exclusions on the policies exclude coverage for mold, I warned those in our community that regardless of whether you believe mold is simply a nuisance dealt with by using a little bleach, or whether you believe only hucksters in moonsuits could safely remove every last mold spore from your home, forcing insurers to pay those costs for the remediation would only lead to higher premiums for all. Insurers were forced to pay rather than risk the outcome of lawsuits accusing them of endangering the health of policyholders. Years later, the Texas Supreme Court ultimately ruled the policies did not cover these expenses. Few, if any plaintiffs were able to prove a causal connection to household mold and the types of catastrophic injuries being alleged at the time. In the interim, my premuims doubled. Too little too late.
As for customer service – my experience has been that too many claimants mistakenly believe that the insurer for the party against whom they are making claims owe them “customer service”. My liabilty insurer is contractually required to defend me against baseless claims. I want my insurer to defeat those claims, not provide “customer service”.
Re: Insurance companies compete via reputation.
This is true. However, the government has come up with great ways to subvert this market mechanism. For example, price controls like we enjoy here in Florida, by decreasing the profitability of attracting more customers and maintaining current ones, increases the relative advantage of ripping off claimants (or even of simply spending more time legitimately questioning claims). Whether or how often that happens is another question; I’m just saying that the state has, in this case, made it more feasible.
It’s a lot like how under rent control, apartments get more run-down. Under insurance price controls, it may be harder to get them to pay up. My point is that even if insurance companies are uniquely likely in some cases to under-emphasize customer service, this is probably because they are uniquely likely to be subject to artificially low price ceilings. In any case, it makes no sense to blame the insurance companies for trying to operate profitably under a foolish regime.
If Overlawyered were a corporation, there would be a way for me to edit grammatical mistakes in my posts after the fact…
Alas, we are a sole proprietorship, and David and I are unpaid labor because Walter controls the means of production.
But I thought the tort system existed to prevent that kind of exploitation?!? Walter must have tricked you into signing one of those evil binding arbitration agreements.
(http://www.tortdeform.com/archives/2007/05/mandatory_binding_arbitration.html#comments because I’m not sure my link will show up.)
“…David and I are unpaid labor because Walter controls the means of production.”
Bloggers of the world, unite and break your chains!
A spectre is haunting America: the spectre of exploited-blogger class-action…
No longer will we generate free ad revenues for the bourgeoise!
(full disclosure: yes, I looked up the spelling of “bourgeoise.”)
Except it’s “bourgeoisie” in this context.
Yes, “the bourgeoise” means “the bourgeois lady” which even my more severe critics will concede I am not.
If I paid Ted and David anything, they would soon find a way to nail me for overtime, family-leave and meal-break infractions. They are very talented lawyers and I am not a lawyer at all.
D’oh!
I’m pretty sure WO’s comment is a “smoking gun” proving that he knew he owed DN and TF overtime, family-leave, and meal-break, and denied them even the barest income as a way of ducking those responsibilities.
Big, big mistake.
Treating the costumer right is required by firms that desire permanence. Fly-by-night insurance companies, for example, can undercut good firms, take out profits, and then go belly up when their business matures. Thus the state regulates insurance companies. But it is not to protect consumers, it is to protect good companies from unscrupulous competition and, to some extent, gaming by the public.
Of course you can not regulate both price and quantity, and lowery insurance prices will lower total payouts, or speed of payouts.
Joe–“Smoking Gun” is a different website, I think! đŸ™‚
“Am I wrong to believe that businesses and consumers are natural enemies in that their economic interests are diametrically opposed?”
Yes, you are quite wrong. And very much deluded. You obviously a product of, and a victim of, Government Schools.
You should sue!
What people really don’t get in the United States is that an economy is a system, not a way for Big Evil Corporations to exploit people. I would go so far as to say that there aren’t “sides” to be enemies or otherwise–there shouldn’t even be a distinction drawn between consumers and businesses, as it’s almost impossible to be one and not the other at the same time.