Understanding market forces

The other day, my kids got an object lesson in the how the market works.  As I was picking them up from camp, two ice cream trucks were lined up outside the camp.  The flashier truck had a long line of children in front of it; the lower key truck was abandoned.  Suddenly, the driver of the lower key truck leaned out the window and hollered “All ice creams are 75 cents.”  Within about two minutes, he suddenly had the longer line as the kids all shifted to the truck offering a serious (25 cent to $1.25 per product) discount.  My kids, who had been haggling in the first line about how to split a single ice cream for the $1.50 they had left to them, were amongst the kids who instantly, and rationally, peeled off to the cheaper product.

As we walked away, I pointed out to my kids that the driver offering the discount had made a smart decision, but only if (a) he could still make money selling at the lower price or (b) he hoped to get kids to switch trucks permanently.  We didn’t know about the first factor, and my kids weren’t so sure about the second.  They explained that the flashy truck has a much broader selection to go with its higher prices.  However, the driver of the flashy truck is apparently quite impatient, while the other driver, the one who offered the discount, is more pleasant to deal with.  Over the long run, they weren’t quite sure which would draw them the most.  We then talked about the fact that anyone offering a product, whether that product is goods or services, has to make decisions about market positioning:  best price?  best product?  best service?  Two out of three?  Three out of three?  My kids were fascinated, and show every sign of becoming budding capitalists, God bless ’em.

Market forces are working at the home front, too.  I’ve had a cheap swimming pool service that, in theory, should fulfill all my needs.  The business, however, seems to be unclear on the “service” part of its swimming pool service and hasn’t been showing up at all.  Today, I’m switching over to a more expensive enterprise, but one that also involves a broader range of services.  Even at that, though, I’m not paying top dollar, because the new guy is a solo.  It’s smart positioning.  The big pool service companies in this area charge a little for chemical only service, and a lot for everything else.  I’d gone with the former, and gotten nothing.  With this new guy, because he has almost no overhead, I’ll get “everything else,” but for less money.  Sounds like a deal to me.

Incidentally, these obvious, on-the-ground market forces seem either to elude or to frighten more sophisticated people.  On the one hand, Thomas Lifson has another in his series of articles chronicling the almost pathetic decline of the New York Times.   On the other hand, inspired by a probably righteous fear of talk radio, Hillary and Nancy may well be busy plotting its demise, and are apparently planning to use government forces to shut down the marketplace.