Thursday, November 19, 2015

Make the rules or your rivals will: erecting barriers to entry

HT: Sohil


  1. The John Stossel video was very interesting as it showcased the taxi industry in Washington D.C. As an attractive industry with very little regulation, it has become very attractive to those who have the money to push for regulations that could squeeze out the competition. By incorporating a “medallion system” where taxi drivers would have to pay large licensing fees to operate their vehicles, laws and lobbyists have helped create a low-threat of entry, while decreasing supply. By reducing competitive intensity within this industry, they can slow the erosion of profitability that would come with increased supply (Froeb, McCann, Shor, & Ward, 2014, p. 132).
    It does seem unfair, but I can see some real benefit with regulation. In the city of Buffalo, regulations and State laws prohibit their operation, which offers an alternative low-cost taxi service. Taxi companies have long been critical of companies like Uber, arguing they have an unfair advantage because they don't face the same expenses and regulatory hurdles as taxis. Decreasing the supply and blocking entry to an industry may not always be a bad thing when safety is a large concern, whereas Uber would be violating state regulations because their drivers do not carry commercial insurance as regular taxi drivers do (Wooten, 2015).

  2. This video just reminds me about how starting your own business is something that can’t necessarily be started overnight. Why would someone do it 100% legal if it is going to cost more to get started then the profit they are going to make? Another example would be a story I heard about Uber. I know someone that had become an Uber driver to get some extra cash for the holidays. As a benefit to customers, Uber has recently reduced their rates by 20%. The interesting thing was, the drivers still had to pay the same amount for each ride they gave. If a company is going to reduce their fairs, this means that their costs should also reduce right?


  3. I found the John Stossel video, Make the rules or your rivals will: erecting barriers to entry ,  an eye-opener, for people who want to start up a small business. The government has put so many regulations on businesses, that it's impossible for some people (who are less fortunate) to start up a business. Something as simple as a lemonade stand, to follow the regulations in place in NYS it would take a lot of time, food classes and money. I have done catering in the past so it is a process.
    Later in the video it talks about Taxi industry and people who have money, wanting to have regulations in place to keep the poor people from entering the market. Making it impossible to pay for the "medallion system" which have large fees. 
    I know how difficult it is to own a small business in NY. I own a daycare. 
    We have rules and regulations from all different government agencies (Department of Health, Department of Children and Family Services, Labor board to name a few) these are county, state and federal governments. The government wants to make sure it can control as many people as possible. It can be challenging at times.
    I do feel the bigger corporations have more money to push for better or more regulations. Which makes it difficult for smaller businesses to enter the market. 
    I understand that there is a need for government to keep customers safe. However, if you have money you have the power. 
    Here an interesting article about regulations and I couldn't agree more as a small business owner. "Small business in the United States is literally being suffocated by red tape. We like to think that we live in "the land of the free", but the truth is that our lives and our businesses are actually tightly constrained by millions of rules and regulations. Today there is a "license" for just about every business activity. In fact, in some areas of the country today you need a "degree" and multiple "licenses" before you can even submit an application for permission to start certain businesses. And if you want to actually hire some people for your business, the paperwork nightmare gets far worse."