How would a market solve this problem?

[Sebastian Lundh]

First of all, let me clarify: I'm not saying that this supposed problem proves that the state in anyway is superior or better than the free market, but I do think that this might be a problem, and I wonder how a market would solve it. If I have thought about this the wrong way, and if it is really a non-problem, I'd like to know that too, of course. 
 

Let's say that we have a free market world. Let's also say that there is a taxi service, that is very iconic; it as associated with the city as much as the Eiffel Tower is associated with Paris. The look of the taxi cabs attracts a lot of people to the city where the taxi service operates, and all the businesses there thrive because of the presence of the taxis. There is however a problem; no one actually travel by taxi, everyone just like the looks of the taxis (kind of like the phone booths in London), so the taxi company wants to apply for bankruptcy, unless the businesses of the city choose to finance the operations of the taxi company. It is in the interest of every single business in town that the taxi company survives, but no one is willing to finance the company. Why? Because in order to survive, at least 50 000 out of 100 000 businesses have to invest 50 dollars in the company (let's, for the sake of simplicity say that no company would profit if it invested more than that), but every company thinks "well, if 49 999 can invest in the company without me help, then 50 000 can invest in the company without my help, and if less than 49 999 invest in the company, there's no point of me investing in the company", so no one invests, and everyone is worse off as a consequence. 

 

Am I thinking about this in the right way? What could a market do to solve this problem?

/Sebastian

[Agalloch]

If people aren't willing to finance the taxi company, they obviously don't think it is in their best interests. Hopefully the useless taxi company nobody uses will disapear, problem solved.

[Sebastian Lundh]

If people aren't willing to finance the taxi company, they obviously don't think it is in their best interests. Hopefully the useless taxi company nobody uses will disapear, problem solved.

I think you missed my point; the point is that a lot of people DO benefit from the existence of the company, and a lot of people WOULD benefit by investing in it, assuming that enough other people invested too, but the problem is that everyone basically thinks "my action doesn't matter". 

[dayna j.]

If people love the appearance of the taxis so much that they are willing to incur great costs in order to either travel to or move to a new state/country to be close to them, then revenues based on tourism should be able to sustain them.  If people aren't willing to pay for a tour of the taxi factory, or a ride on a "historic" taxi, then it is ridiculous to assume that they would be willing to travel/move to be closer to them. 

 

It's like saying that people would travel to New York because they like the statue of liberty, but then would refuse to pay for a tour of it after they arrive.  This is illogical.

[PGP]

I know it's a hypothethical, but this seems to have a characteristic of many such hypo's I see for a free society. If the owner is filing for bankruptcy just now, where did he get the finances from, up til now? Why is the revenue failing just now if it is so popular? 

The hypo's nearly always pick a snapshot in time and say: "well, what now, eh?", when it is by it's very nature a continuum. 

What would happen if the "iconic" black cabs of London became obsolete, out-competed or unwanted? They'd be toast.

Or the "iconic" steam engines? Toast, except for pleasure rides that people pay to maintain and utilise, or they'd, you guessed it, be toast.

Or politicians..........wishful thinking.

[ribuck]

It is in the interest of every single business in town that the taxi company survives, but no one is willing to finance the company.

 

The market takes care of this situation very easily.

 

An entrepreneur approaches every business, and says to them: "Pay me $50. If at least 55,000 people do this, I'll pass on 95% of the money to the taxi company, and keep the rest as profit. If fewer than 55,000 people do this, I'll pay you back $100."

 

This works every time. It's in every business's interest to pay the $50 to keep the taxi company going, and they can't lose by making the payment. Either the taxi company keeps going, or their $50 turns into $100.

 

The entrepreneur takes a theoretical risk. If he can't get at least 55,000 people to pay, he will make a loss. But of course he understands the incentives, and knows that they will pay, and that he will make a good profit, and that the taxis will keep operating so that the businesses continue to be profitable.

 

The market is very, very cool. Notice how only one person (the entrepreneur) needs to understand the big picture. Everyone else can just operate according to simple self interest on a very basic proposition: pay some money, and either double it or gain the benefit of the taxi company continuing to operate.

 

This scheme is called an assurance market, and can be applied to any kind of public goods. For example, towards clean air through pollution reduction, or towards flood control by building a dam above a riverside city.

[MarcAnthony]

If no one uses the cab but is still drawn to the area to look at them then it may be economically viable for businesses to pool funds to purchase the cab company or to allow them to go bankrupt and then fashion your own cab that looks similar.

 

There are a million market solutions to this problem other than use guns to make uninvolved parties pay to keep the cab company going.

[TheRobin]

The situation you describe is impossible, which is why I think you don't see how the solution would work.
It's impossible, because on the one hand you say that the businesses only thrive because of the taxis, but then you say that investing more than 50 bucks would not lead to any profits.

And they can't both be true, because if the existence of the taxi company is only leading to around 50 bucks worth of increased profits then they're not the reason why businesses thrive there. On the other hand, if the existence of those taxis does lead to the thriving then they're certainly worth a lot more than 50 bucks to each entrepreneur.

[12baird12]

Unfortunately if it continues its current path it will fail.  If you'd like a business like this to succeed you need to make it an "art" as Seth Godin says. (highly recommend his books)   Find ways to make this business unique.  Just like in all good marketing tell a story that people will pay for.  Do something like offer tours with the taxi,  Try to get businesses to partner with you to shuttle people from airports, restaurants, or malls.  Sell it as the authentic city taxi.  Put ads up that say There's only one true way to travel in this city and that's with the Yellow Taxi.  On top of it all, provide a good service that will get people talking.  It's free marketing.  Try to find problems that a taxi service will solve.  If you're unwilling to try new things, especially in today's business world you will fail.

[LovePrevails]

crowdfunding paired with free bonuses for donators

[dsayers]

Bankruptcy is the State forcibly altering 3rd party contracts. There would be no such thing in a FREE market. Similarly, city/state/province/county/country are currently ways of denoting specific tax/legislation farms. I think these terms will have benefit in a Stateless society for geographical reference's sake. It won't be an entity that has the power to steal from people to fund things those people don't want in a FREE market.

 

Finally, I don't see a problem. If people want X, they will pay for X. If X doesn't make money, it doesn't serve human desire well enough. We NEED flawed business models to fail to free up resources for those who can better serve our desires.

[Josh F]

Firstly, there is no bankruptcy in a free market as far as I know.  Secondly, let the business close down so that another business with a better structure can fill its place.  If there exists at all a market demand, another entity will fulfill it.  If this company is in demand but its owners can't properly motivate the required donations or sales, then new owners are in order.  

[McBeer]

If nobody is riding the taxis anyway, then you could pay me to paint my car like a taxi and the tourists could point and cheer as I drive to work.

[Agalloch]

I think you missed my point; the point is that a lot of people DO benefit from the existence of the company, and a lot of people WOULD benefit by investing in it, assuming that enough other people invested too, but the problem is that everyone basically thinks "my action doesn't matter". 

If they do benefit in it, then they will invest in/pay for/support it. There's no such thing as "would benefit", that's the pretense of knowledge. I know people here have provided some great solutions, including assurance markets (which I love the sound of), and seemingly missing the the obvious idea that the tourists who love these cabs so much pay; but it's more important that you understand that, 1) You can't know, it's impossible, and the solutions are numerous and likely more than one will take place, 2) You shouldn't want to know, every little detail isn't important, and when you focus on the imaginary, you're not focusing on the real issues, and 3) It doesn't matter. Even if we find the "correct" answer we won't know it. Nothing changes, the moral argument is no more convincing and time is simply wasted.

[QueechoFeecho]

McBeer...they dont point and cheer already as you drive to work?

[yagami]

The problem with the question is that you have assumed that people like the taxi cap enough to justify it's existence. I prefer the my grocery store to be designed with the theme of my favorite video game in mind but if im not willing to pay for it then it wont exist. So you cant just say people like the look of the taxi cab therefore the taxi's exist.That doesn't logically follow because if they really liked the look of taxis they would pay for it.

[JeanPaul]

The problem with the question is that you have assumed that people like the taxi cap enough to justify it's existence. I prefer the my grocery store to be designed with the theme of my favorite video game in mind but if im not willing to pay for it then it wont exist. So you cant just say people like the look of the taxi cab therefore the taxi's exist.That doesn't logically follow because if they really liked the look of taxis they would pay for it.

I like the look of the London phone booths, but I would not pay for it.

[ribuck]

I like the look of the London phone booths, but I would not pay for it.

 

OK, so you only like the look of the London phone booths a very tiny bit.

 

Anyway, have you understood the market mechanism that I described earlier in this thread? If it's not clear, just ask and I'll put it into different words. I presume you post these questions in good faith, seeking edification.

[doodydota]

[delete]

[JeanPaul]

Ribuck, if the entrepreneur fails to find 55,000 people, then, he might have to reimburse as much as 55,000*(100-50)=2,750,000. No thanks.

 

And suppose he gets to convince these people to donate, how do you know that they will keep donating the following year, and every year, forever. To me, this is the weirdest business model I have seen.

 

I do like the London taxis or the phone booths, but I am certainly not willing to pay £50 a year to see them.

[dsayers]

I do like the London taxis or the phone booths, but I am certainly not willing to pay £50 a year to see them.

 

In the world of voluntary exchange, this is an indication that you'd rather have your 50 than the vision of these things. Therefore, if those things were to go away, you might not like it, but you'd like it even less if your 50 went away. No problem.

[ribuck]

Ribuck, if the entrepreneur fails to find 55,000 people, then, he might have to reimburse as much as 55,000*(100-50)=2,750,000. No thanks.

 

The premise of the original post was that there were 100,000 businesses who each benefit from the presence of taxis. If half of them paid $50, the taxis would be saved. The implication is that the value of the taxis is at least $50 per business. The practical question was: "What's the market mechanism to collect $50 from at least half of the businesses?". I showed you that market mechanism.

 

Yes, the entrepreneur could lose money if he didn't sign up 55,000 people. But he will sign them up. He is offering each of them a deal they won't refuse: pay $50 and either (a) receive $100, or (b) keep the taxi service going which is worth at least $50 to them. Who would not take such a deal?

 

You say "No thanks", you wouldn't want to be that entrepreneur, but that's no problem. It only requires ONE person to be the entrepreneur who makes it happen, and everyone else benefits.

 

You can learn more about Assurance Contracts at Wikipedia:

http://en.wikipedia.org/wiki/Assurance_contract

[JeanPaul]

Yes, the entrepreneur could lose money if he didn't sign up 55,000 people. But he will sign them up. He is offering each of them a deal they won't refuse: pay $50 and either (a) receive $100, or (b) keep the taxi service going which is worth at least $50 to them. Who would not take such a deal?

Anyone who is familiar with Madoff. If the guy has to reimburse people, he will never get the $100. So this is a fraudulent claim.

[ribuck]

Anyone who is familiar with Madoff. If the guy has to reimburse people, he will never get the $100. So this is a fraudulent claim.

 

You seem to be saying "because Madoff was a fraudster, everyone is a fraudster", which makes no sense

 

If the townspeople don't trust the facilitator, then the facilitator can use an additional market mechanism such as escrow (putting up the potential refund money in advance, under the control of a trusted third party). Escrow isn't just some theoretical concept; it's used every day to smooth big transactions between parties who don't trust each other.