Wednesday, July 21, 2010

Entrepreneurs Serve Customers

One way firms try to cover rising production costs without noticeably raising prices, is to charge the same amount of money for smaller goods. The peanut butter and ice cream industries moved in this direction in 2008.

The airline industry also began charging fees for things that used to be included in the price of the ticket, such as in-flight meals and checked luggage. Although this has begun to cost them some good will, it makes a certain amount of economic sense, because now those of us who don't check luggage are no longer subsidizing the travel of those who do. (By the way, Doug Dyment of OneBag reminds us that there are two kinds of luggage: carry-on and lost.) Consumers have begun to grow weary of baggage fees, however, and UPS has identified this as a potential profit opportunity.

They figure, and I guess rightly, that if people are willing to shell out a large sum of money to the airlines to check their luggage, some might be willing to pay UPS from $30 to $80 less to ship it instead, even if it takes just a little longer for their bags to reach their destination.

One of the beauties of the free market is the rapidity with which entrepreneurs act in an attempt to serve customers. This is another example piercing one of the most persistent myths about that free society: that it is based on greed, necessarily breeding greedy capitalist pigs who make life worse for everyone else while they squeal all the way to the bank.

That UPS is hoping to make a profit, does not keep it from serving other people. In fact, the only way for entrepreneurs to make a profit in a free market is to serve people better than their competitors. The profit motive makes them want to do so all the more.

1 comment:

  1. I've never been comfortable with the view of capitalism as being based on greed, even when Milton Friedman says it. Stewardship and greed are not the same thing. Also, stewardship does not, in my mind, preclude self-interest or charitable & selfless actions whereas greed might.

    I think this ties into the importance of bridging economics with a Christian worldview. Productivity, profit, and investment are all very important and beneficial concepts encouraged in scripture and yet they reside within the larger concept of stewardship and a biblical ethic that reflects the character of God in his holiness, wisdom, justice, mercy, patience, love, etc..