David R. Henderson  

The Wonder of Competition

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I make myself one large strong cup of coffee early every morning. I use 2 tbsp. of Peet's Major Dickason's Blend. But that's a little too bitter. So I add almost 1 tbsp. of Gevalia Chocolate Mocha. The result is almost perfect.

The problem is that lately I've had trouble finding the Gevalia. I haven't found it in a Safeway in months and the last two times I checked, Target didn't have it. My supply will last until about Wednesday. I went on line and even Wal-Mart, which used to have it, didn't have it available on line or at the local Marina store.

So Saturday morning, I went to Amazon.com and, sure enough, I found that I could get 2 12-oz. bags for $19.90. That will last me until next summer. There was no shipping charge because I'm an Amazon Prime member. So I ordered. Amazon promised that I would get it by Tuesday.

Late this afternoon, I was sitting in the front room of my house on the phone. I saw a U.S. Postal Service truck pull up in front. Out jumped an energetic young man and he started down my walk. So I went to the door to make his job easier. I couldn't guess what the U.S. Postal Service--the U.S. Postal Service!--would be delivering on a Sunday afternoon.

I'm sure, though, that you've guessed by now: My Gevalia coffee, one day after I ordered and two days before it was due. Would the USPS be doing this if FedEx and UPS weren't doing what they're doing? I doubt it. Competition works--in coffee and in shipping.

I wonder where else competition works.


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CATEGORIES: Competition




COMMENTS (21 to date)
MikeP writes:

This is indeed evidence of competition. But I suspect it is also evidence of something even more profound: cooperation!

If you look at the Amazon shipping history, you'll probably see that the package started with FedEx or UPS and then was transferred to USPS at your local post office.

This shows competition, cooperation, and -- most of all -- comparative advantage as the private sector shippers handle the long distance routing they specialize in and the post office handles the last mile they deal with every day.

But Sunday delivery is striking! Maybe a holiday tactic?

Bedarz Iliaci writes:

Competition does not work in providing justice, unfortunately, despite all the work of David Friedman and others.
I wonder if you think private provision of justice theoretically possible.

Pajser writes:

" Would the USPS be doing this if FedEx and UPS weren't doing what they're doing? "

It depends - or it least it should - on cost-benefit analysis. If benefits for society as whole are greater than costs, why not? On free market, you may have tragedy of the commons. Sunday shipping may be a form of marketing, negative sum game.

Philo writes:

@Bedarz Iliaci:
Of course private probision of justice is possible, though it would have serious defects. But the (mostly) public--governmental--provision we have now also has serious defects. The question is: which set of defects would be worse?

Roger writes:

Bedarz,

I would suggest that competition is exactly the reason we have the justice we have today. In this case, states competed among each other. Some were more just than others, and those that have been more just have all else equal tended over the past few centuries to outperform and out produce those that have been less just. The just states and their citizens have thrived relative to the less just. This has put pressure on states to learn from the leaders.

Society is at the core a network of reciprocity and cooperation. Justice is an important factor in forming and maintaining this network. But the discovery and choice process which feeds this evolutionary-like process is based in great part upon the constructive competition between states.

Bill writes:

Slightly off topic, but I hope someone has information. I ordered an expensive camera through Amazon (Prime) for my son's Christmas. The camera comes from a firm on Long Island, NY which cooperates with Amazon, so there in a shipping charge. When I filled out information to have the camera delivered to my son's address in Manhattan, NYC, in addition to the shipping charge there is sales tax at the NY rate. When I changed the delivery address to my home here in Utah, the same shipping charge applied, but the sales tax is only about a tenth of what it would be if the package were delivered to my son's apartment in NYC. (The statutory sales tax rate in NY is about twice that in Utah) I can save money (about $50) by having the camera delivered to my home in Utah, and then re-shipping it to my son in NYC. Previously, I've ordered items through Amazon Prime, and no sales tax was charged. How does this work?

Art Carden writes:

A piece of advice I took from David once: in some cases, it's actually cheaper to buy a book from Amazon than to go hunt for it in the library--it's often easier even than sending a student worker to fetch it. Browsing is great for serendipitous discovery, but when you know exactly what you need and don't need it RIGHT NOW, Amazon is great.

Greg G writes:

>---"I wonder where else competition works."

Democratic systems of government work better than authoritarian ones precisely because elections are a competition.

David writes:

Bill, I believe the answer to your sales tax question is this. Amazon charges the sales tax of the state to which a package is shipped if Amazon has a physical presence in that state. I believe Amazon is transitioning to collecting local taxes for all shipments.
Why the difference in taxes for the camera would not be the difference in rates times the purchase price is puzzling. Did you take into account both state and local taxes?

Ramon writes:

Compare with the alternative command and control aoutcome:

http://www.theguardian.com/world/2011/may/06/cuba-coffee-peas

mulp writes:

Yeah, the US Post Office began RFD Parcel Post deliveries 102 years ago January 2, 1913 because they feared the competition from UPS and FedEx decades in the future...

There was never any restriction on parcel delivery.

There was never any restriction on parcel delivery to every address in the nation.

There was never any restriction on charging postage to the sender of parcels.

There was never any restriction on delivering parcels on Sunday as well as every other day of the week until religious leaders pressured the politicians in Congress and in the Post Office department to close the Post Offices on Sunday so people would gather at church instead of the Post Office on Sunday waiting for the mail delivery.

For well over a century, the Post Office department required funding from Congress to operate because Congress never allowed rates high enough to support mail deliver. While the Post Office allowed messengers to pick up mail from the Post Office and deliver it for a fee, no delivery services found that sufficiently rewarding to provide universal service, so everyone had to go to the Post Office to get their mail and printed news and books and then to the freight office to pick up any packages and parcels, which by mid-1800s was the railway station in most areas.

Farmers found this situation unacceptable and lobbied their Republican representatives to solve the problems they had, being exploited by the rail roads and not being able to get their mail without the long trip to town. Thus the ICC was established, followed by RFD. RFD required major improvements in roads everywhere to speed the mails.

Especially after the Post Office began Parcel Post deliveries to rural addresses in 1913. The number of parcels mailed was so large, the Post Office had to go on a major expansion, hiring workers, contracting with many more private shippers to carry an exploding volume of mail. And the Post Office had to innovate handling huge volumes of packages per day. While European Post Offices carried parcel long before the US Post Office, the volume handled by the US Post Office was far higher.

And the revenue from Parcel Post was so high that the Post Office was running a "profit" even after investing heavily because of economies of scale, so the rates were cut for Parcel Post which only further increased volume. Parcel Post now paid for RFD and home delivery in cities and towns, so the cost of delivering all classes of mail and catalogs fell, so those prices were reduced, leading to even more mail volume, and more catalogs and more Parcel Post business.

The result was a revolution in shopping; you were no longer limited to the goods that your local stores would be willing to offer you. You were no longer limited to the monopoly pricing of the local businesses.

And the USPS has provided Sunday delivery for at least a decade for Priority Mail and has been delivering on Sundays when 6 day delivery can not keep up.

Btw, FedEx and UPS probably would never have been able to expand nationally without first getting contracts with the Post Office and then USPS to fund nationwide trucking before they had offices in all States and then in many other nations. Regularly scheduled air service for passengers was heavily subsidized by the Post Office Air Mail contracts.

And I note that the EU mandate to privatize the postal service has not resulted in better service or lower prices. In the UK, the government post office does 90% of last mile delivery with the private sector only doing the pickup and bulk mail operations and then dumping the universal service requirement on the government.

The German Post Office has done all the kinds of "innovation" desired, with home delivery being phased out with delivery to community kiosks often in shopping centers, coffee shops, or in residential development central boxes. Both of those have been supported in the US by the USPS, but not mandated on communities. Maybe you see needing to walk to a central location to get your mail instead of getting it at your door to be "improved service", but my guess many conservatives would oppose that kind of change in mail delivery.

And the private postal service still has the protection of all competitors being required to provide universal delivery for any class of mail, with the result that it has no competitors. It has integrated all sorts of lines of businesses, and then separated them into separate subsidiaries. They compete in other nations, like the US, but eliminate such service if its not profitable, like DHL shutting down on just a few months notice most of its US operations, though retaining international operations, probably based on USPS business.

And USPS rates are lower than its competitors except for the prices Amazon forces on them due to its huge volume - Amazon can divert deliveries to UPS if FedEx won't deal, or the reverse. But few businesses can get the same deals Amazon does. For the USPS, everyone gets the same deals - if you run a business out your garage, you can get the volume discounts Amazon gets.

michael writes:

Hi David

only slightly off-topic, but have you tried a different brew method to reduce the unwanted bitterness?

The different flavor compounds steep into the water at different rates, so generally you can get less bitterness by brewing for less time (and at a slightly lower temperature, no more than 205°F.)

You can't control different variables so well with a drip coffee maker, so if you want to play around, I recommend alternative brewing methods:
— French Press: no more than four minutes with coarse ground coffee; slightly gritty, but delicious
— OR AeroPress: no more than ten seconds with extra-fine grind in an Aeropress. Fast and easy, and quite inexpensive.
— OR.. Chemex. It's difficult to over-brew in a Chemex, but it takes a little longer and more attention. Their filter paper seems to help remove off-flavors for a fine cup. Medium grind.


all equipment available via amazon ;)

Doug writes:

David,

I've used that blend in the past, and as a reformed drinker I can say there are many coffees out there, much less bitter than Peet's Major Dickenson. It's a very dark roasted coffee (if you have the whole beans you can see the oils on the surface, a tell tale sign of heavy roasting). In the past ten years there have been a magnificent well-spring of high-quality coffees with an emphasis on light roasting.

I'd recommend ordering a bag online from Heart, Counter Culture, or Blue Bottle. In fact if you're ever in neighboring Santa Cruz you could pick up a bag from Verve, another fantastic roaster (also available online). I think you'll really find all of these coffees not only palatable but even tasty on their own. They're also not that much more expensive than what you're paying for Peet's.

(In addition, I'd definitely recommend Michael's comment above for some very good ways to brew).

Matt B writes:

Bill,

The law is, that if the company has a physical location in a state, they are required to collect sales tax. What you are seeing is the fact that Amazon itself does not have a physical location in NY state, but the amazon reseller who is selling you the camera does. That is why sales tax is being collected.

By the way, you can figure out when Amazon is the seller by checking to see if the product is "sold by and fulfilled by Amazon" or just "fulfilled by Amazon".

I do a small bit of selling on Amazon myself as a reseller. In my case my business is located in VA. When I set up my selling account I told Amazon to collect sales tax only from customers that I sell to in VA and not the other 49 states. If I opened another office in NY state, then I would change my options on Amazon to collect tax in NY and VA, but not the other 48 states.

Dennis writes:

I don't think competition between USPS and UPS and Fedex has much to do with it in this case. Amazon contracts directly with USPS to make Sunday delivery happen. Google "amazon sunday delivery" or see, e.g. http://www.geekwire.com/2014/amazon-getting-packages-sunday-via-u-s-postal-service/

Bill writes:

David and Matt B, thanks for your responses. My earlier description of the details turns out not to be accurate. The invoice shows no sales tax being collected by the camera firm located on Long Island in NY (not Amazon, but a firm that uses Amazon) for the camera being shipped to Utah. (I based my earlier account, not on the invoice, but on the statement that appeared just before I clicked "check out." I don't know why this statement was at odds with the invoice regarding sales tax.) Had I requested the camera be shipped to my son's NYC address, sales tax would have been charged, according to the statement that appeared before "check out."

David R. Henderson writes:

@mulp,
Assuming that what you say is true, thank you for these facts.
@michael and Doug,
Thanks for posting on coffee grounds. :-)
@Dennis,
I don't think competition between USPS and UPS and Fedex has much to do with it in this case. Amazon contracts directly with USPS to make Sunday delivery happen.
So, Dennis, you really think that if there were no UPS and no Fedex, the USPS would have been willing to make this deal? Count me doubtful.

ZC writes:

Bill,

And of course, while out of state sellers aren't required to collect sales tax when shipping to buyers in a state where they don't have a physical presence, said buyer is 'supposed' to pay the sales tax in the form of a 'use tax' when they file their state income taxes. Of course, virtually nobody does, hence the various legal fights between states and Amazon over the years.

So, you could save on the sales tax by ordering it to Utah then shipping it to your son in NYC, but in doing so, you're technically breaking the law. Of course, it's a law that's not enforced because it's not cost-effective to enforce, and you'd make 'criminals' out of pretty much all of the tens of millions of people who make internet purchases annually.

The who matter is a very entertaining microcosm of the craziness of our tax laws, both the complexity of the code and in the case of sales taxes, the thousands of jurisdictions with varied rules.

Bill writes:

zc, your mentioning the use tax brings up an issued I've wondered about. Washington State has a sales tax; neighboring Oregon does not. Portland, Oregon and Vancouver, Washington are adjacent cities, connected by a bridge over the Willamette River. There are sizable shopping opportunities on both sides of the bridge. Are Washington residents who make purchases on the Oregon side legally obligated to pay a use tax on these purchases?

Then there is the economics question of whether, given the small distance involved, there is any advantage to Vancouver residents in making tax-free purchases in Portland. Will market forces tend to make prices in Portland the same as prices in Vancouver, even though purchases are taxed in one jurisdiction and not the other? And all this is complicated by the policy in Washington of not applying sales tax to purchases made by residents of other states that have no sales tax (including Oregon.) So, Washington state residents pay a higher price for the same item purchased in Washington than do residents of states that do not have sales taxes.

ZC writes:

Bill,

The State of Washington maintains that Washingtonians buying stuff in Oregon should pay tax to WA state ().

It'd be amusing to know how much (how little, most likely) they collect in use taxes annually.

Border jurisdictions like that are an interesting case study in 'The Wonders of Competition - government edition'.

Dave Tufte writes:

My own story ...

This was six years ago. We were driving to the airport early the next afternoon. I needed more RAM for my PC. The last thing I did before shutting it down to start packing was order the RAM through Amazon.

Eighteen hours later the RAM arrived ... before we left for the airport.

I had not paid for non-normal delivery. But it was the Christmas season, I had gotten my order in early enough in the evening for it to be boxed right away, and I was only about 400 miles from the supplier. Even so, it came from Boise, and I'm on the interstate, but all our delivery traffic goes through St. George (50 miles away).

That what the USPS has to compete with.

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