Monday, July 31, 2017

If I Do Not Buy a Tesla, Is that a Supply Problem?

If a particular product is widely available, and yet consumers do not want to buy it, is that a market failure, or simply a reflection of consumer choice? That is among the potential issues report on U.K. internet access might raise when it is released.

Initial reports suggest the report will show a wider availability gap than prior reports have suggested. That might be a methodological issue, many argue, as the report conflates availability with take rates. In other words, it mixes demand and supply metrics when it ought to measure either supply or demand, but not both, as a single measure.

That is important. To use a common example, I might choose not to buy a Tesla, even when Tesla availability is not an issue. That is not a market failure. That is a consumer choice.

In other markets, such as the United States, there is likely to be continuing gap between locations that can buy a gigabit internet access service, and accounts or locations that choose to buy.

When gigabit internet access service becomes widely available, it is possible, perhaps certain, that most consumers will choose to buy some other tier of service, where it is available, on entirely reasonable grounds. They might simply conclude that some other lower-speed option satisfies all their needs, at lower price.

Some observers will use more-stringent criteria for evaluating adoption, such as including retail price (“affordability”) in addition to availability as a measure of “success.” There is logic to that approach, as well. Perhaps a more-refined way of making such measurements is to compare internet access price to household income, stipulating that access should not be more than X percent of such income.

Yet others might add the additional criteria of multiple providers in a market as a criteria for success.

The point is that there are many potential criteria for assessing the success providers have had at getting fast internet access to market. Availability matters.

But once supply is in place, demand takes over. The actual percentage buying a particular offer is less important.

In coming years that is likely to be more important, as mobile internet access increasingly becomes a full substitute for fixed internet access.

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