The following exchange, from the film Horse Feathers (1930), takes place between triumphant African explorer Captain Spaulding (Groucho Marx), and the musician and maestro Signor Emanuel Ravelli (Chico Marx), hired to play a society party honoring Spaulding and his achievements on the occasion of his return:
Spaulding: What do you fellas get an hour?
Ravelli: For playing, we get-a ten dollars an hour.
Spaulding: I see. What do you get for not playing?
Ravelli: Twelve dollars an hour.
Spaulding: Well, clip me off a piece of that.
Ravelli: Now for rehearsing, we make special rate. That’s-a fifteen dollars an hour…That’s-a for rehearsing.
Spaulding: And what do you get for not rehearsing?
Ravelli: You couldn’t afford it…. You see, if we don’t rehearse, we a-don’t play, and if we don’t play (he snaps his finger) – that runs into money.
Why would you pay someone more for a service that you don’t use, than for one that you do? Ordinarily, it doesn’t happen that way. When customers choose not to engage the services of a musician, handyman, or babysitter, they don’t expect to pay a premium above what it would cost to actually have them work. Exactly so when I retain a housekeeping firm at a basic monthly fee. I don’t expect to pay additional charges if they do not clean. And I certainly won’t pay them more not to cut my grass, even though they offer the service—for a price—if I so desire it. In my case, I know that there are lots of housekeepers to choose from in the market. If my current firm refused to ‘untie’ the grass cutting option, and tried to charge me a higher price to include it, I’d just hire elsewhere. Since the availability of grass cutting on their menu of services has no value to me, I would (quite reasonably) refuse to pay extra to keep that option open.
As a consumer I am confident that I can usually take advantage of rivalry between vendors to give me the best selection of services and prices. No one has a gun to my head in an open market. Ultimately, I don’t pay for anything, or pay a price, that I don’t choose to accept. Within the parameters of ‘no free lunch,’ I can weigh my alternatives and make my best choice. Usually.
So how is it that local providers of basic wired telephone service can collect an extra fee from their customers for access to long distance service that basic customers neither use nor want?
Not content to let consumers make their long distance choices competitively, local phone service providers are legal monopolies that can ‘tie’ basic service to long distance access, and are now charging these customers a new fee for not making long-distance calls. While perfectly legal, it’s also evidence that only legally protected monopolies can exclude competitors, and may take advantage of customers without necessarily suffering the market consequences. The longtime existence of these local monopolies has had a tremendous impact on the widespread use of non-wired communication, though phone customers in rural areas without cell towers and other alternatives are still captive to local telephone monopolies and their pricing structure.
Of course, the premise behind making a purchase in the market is that something actually gets exchanged. Customers who buy basic telephone service from the local land line provider can opt not to choose a long-distance carrier on that land line. Phone customers in this category either never use long distance service, use long distance service exclusively on a cell phone or other server, or simply pay the highest rates when they call long distance from their wired phone. Whichever it is, given prices and choices, customers themselves are pretty good at figuring out what combination of land, wireless, internet, or other services suit their needs and budget best. Cellular providers, who are compelled by competition to give the consumer what he wants, routinely offer access to features—like text messaging or Web browsing, for example—at an additional charge. If consumers don’t want the access, they can find a lower-price deal with no problem. While bundled, or ‘tied’ goods don’t always represent a less-desirable market situation, for some consumers they clearly do.
To be fair, there are reasons why people would pay—voluntarily—for services or products they don’t ever intend to use. These are typically precautionary purchases. Common examples include emergency fire escape ladders, fire extinguishers, burglar alarms and other safety products—protection against potentially dangerous and unwanted contingencies. Other precautionary demands include things we likely will use, but at a point in the future that we cannot predict. Who doesn’t buy band-aids, extra batteries, or stocks of canned goods for this reason? Even sitting idle they offer services. They give us peace of mind, and allow us to avoid or reduce some hardship we might otherwise suffer. Even the price of a Broadway ticket includes the salary of understudies, guaranteeing that the ‘show will go on’ in the event of a key player’s illness.
In the face of competition for long distance service from all kinds of non-wired providers, the argument that the local monopolist must provide access to long distance calling at a non-optional additional fee is insupportable. That contingency is amply covered by alternative servers in most cases. Where alternatives are not readily available, long distance demand could certainly be covered by ’emergency access’ pricing (much like the premium your plumber charges on Thanksgiving weekend to service your hot water tank—sadly, been there).
How much long distance telephone access is needed, and where? If customers are to be served with the right products, in the right locations and in the right quantities, customer preferences and not public utilities commissions should be allowed to guide the choice of communications services.