Sunday, November 29, 2020

Customers Pay for the Full Costs of All Products

One important economics principle is that, ultimately, buyers pay all the costs associated with supplying that product, including taxes, fees, import duties and regulatory compliance costs, in addition to the direct costs of manufacturing, marketing and fulfillment you would expect, as well as allowing enough profit to sustain the business long term, while paying all government taxes and fees.


In telecom, customers pay for all support of universal service or support for high-cost networks, for example. One sees similar examples of this rule at work, all the time, in telecom and outside it. 


Delivery app DoorDash, for example, has raised fees for its diners after the city limited what it could charge restaurants, capping DoorDash revenue. The Denver City Council, presumably in an effort to help restaurants, capped the commission that delivery apps can charge restaurants at 15 percent. 


So now DoorDash has added a new Denver fee of about $2 for each delivery, to compensate. As with all products, supply and demand operate. Raising the price of any desired product reduces demand. So higher prices for restaurant meals delivered to homes will likely translate into lower demand for delivered meals. 


The old saw about “no free lunch” applies: any policy--no matter how well-intentioned--that raises the price of a desired product will reduce demand for that product. 


An effort to help restaurants protect revenue by capping delivery charges leads to higher prices for delivered meals, which means fewer sales.


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