longusername
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Greetings Redtreble,
I would like to deal with the points you raise one by one and explain why, on my view, in each case, either the point fails to hit its mark, or it is something upon which we can generally agree.
To begin with, you express surprise that anyone would make an issue of such a trivial matter. Why waste time on something so small when there are much bigger fish to fry. In return, I am surprised you would make an issue of something so trivial as people complaining about something so trivial. Whatever triviality is possessed by the content of the original complaint, i.e. 0870 numbers, must surely be possessed to the next order of magnitude by the complaint itself. What value beyond a mere microscopic smidgeon could then possibly remain in complaining about the already doubly trivial complaint, I cannot imagine. Still, you are entitled to complain, as are we. We may simply have to regard each other across a wide divide of mutual surprise and disbelief.
Your next point is that 0870 services may offer good value. Here I find common ground upon which we can readily agree. Any 0870 service may be good value. I’m not sure whether you understood the nature of the general objection to the use of these numbers. Let’s proceed.
Your next point is that the consumer surplus which pays for the 0870 numbers will, if returned to the consumer, have to be made up for by a rise in prices which will result in an aggregate revenue increase for the firms involved equal to the decrease in consumer surplus in the first place and thus, in the long run, the consumer surplus will remain unchanged. I hope that puts your point fairly, albeit in perhaps rather technical jargon. It is a pressing and, on the face of it, plausible claim. Let’s pause for a few moments to look at it more closely. Please bear with me. This will require some unavoidable, but I hope, very easy, economics.
Let’s suppose a farmer happens to rent very rich agricultural land? He will make what we call supernormal profit from that land. He might work no harder then his hill-farming colleague, but, for all that, his profits would be the greater in proportion as his land was richer. But you can see how, in the long run, the forces of the market would push up the price of renting such superior land. How much would the farmer be making then? Well, his profits would return to normal and what were his supernormal profits would now become rent. Our hardworking colleague farmers would wind up on a par.
Imagine now the scenario in which something happens to make farming the rich low-lying terrain less productive than it had previously been? Naturally, our lowland farmer will protest in horror. “This will drive me out of business”, he will complain. “I am already just about breaking even because of these huge rents I am paying on this superior land. Now I will have to lay-off hands, and may not be able to survive in the long run.”
But what will happen in fact is that the farmer, so long as he is efficient, equally with all the others, will remain in business. Rather, the rent will fall. It will fall because the diminished productivity of the low-lying agricultural land is reflected in the diminished demand, which, as anyone knows, will result in a falling price.
Nothing changes in our model if the farmer owns the land he farms, by the way. He can then simply be regarded as a two-headed beast, namely, an amalgum of landowner and farmer and indeed, if he is an inefficient farmer, he would be better to retire to landowning alone, but I digress.
In just the same way, the supernormal profit of those firms which provide services through 0870 numbers, is likely to already have been converted into the various forms of rent which apply in their respective industries. In short, the fixed assets of these firms will, now that they are marginally more productive, find themselves correspondingly increased in demand. And once again, by that iron law of economics, the fundamental one of supply and demand, an increased demand is an increased price. But likewise, if the opportunity to make these extra profits through 0870 services is removed, the demand for the fixed assets will diminish, and their rent will fall. Prices to consumers, however, will in the long run remain unchanged.
So I hope you can see, after that brief detour through the foothills of the terrain of economics, that removing charging on 0870 services need not result in price rises in the long run. Rather, it could well result in reduced rents for the various fixed assets in the industries involved. What will be the effect of the latter on the general welfare? As I see it, it may be none, overall, because the marginal cost to the owners of the fixed assets may be simply redistributed in the form of benefit to the consumer. It does not do to blithely assume that diminished profits will result in increased prices. Indeed, if the consumers are unaware that they are paying for these services, as is the contention, and its very core, then the price paid does not reflect consumer preference, but rather is sneaked in without the consumer’s realizing it, and, once removed, need not correspond to a genuine industry-wide demand increase which would support your proposed industry-wide price increase. It seems all the more likely to me, given the absence of a genuine consumer preference for these services at these prices, that rents would, instead, fall, and prices remain the same.
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Abolish 0870? What a load of nonsense! (Read 42,211 times)
