In Defense of Road Tolls

I don't do much driving, but this year, I've made a couple of long-distance trips. The first was a round-trip between Washington and Akron - about 700 total miles. The second was the round-trip between Washington and Virginia Beach I did back in August - about 420 total miles. The first trip cost an extra $30 in tolls. The second trip was "free" as we often think of it. The first trip was generally low-stress and easy to drive. The second trip was high-stress and challenging to drive. Both trips took roughly the same amount of time (6 hours each way).

(from Joming Lau on Flickr)

When I tell people that I paid $30 to drive on the Pennsylvania and Ohio Turnpikes, they usually respond with "oh, what a ripoff" or "that's really expensive" or something of the nature.

I think the price is completely worth it.

See, people want to drive on a road as nice as the Pennsylvania Turnpike, with as little traffic, they just want it to be "free". The problem is that it's counter-factual thinking. It's easy to imagine cruising down the Turnpike at 65 mph with minimal traffic and say "I want to pay less for this," but you can't, because if there were no toll, then a key variable would change, and there's nothing to say it wouldn't be just as packed and congested as any other "free" interstate.

Honestly, I cringe at the thought of ever driving to Virginia Beach again, in slow-moving, stop-and-go traffic. I dread the delays, the red break lights, and the sea of vehicles ahead as far as the eye can see. I hate the complete unpredictability of the drive and not having a good idea of how long it's going to take.

So yes, as a driver, I think tolls can be great. As a consumer, sometimes it makes sense not to always be totally cheap. Often it's better to pay more to get something that's a better value. When it comes to my highway driving experience, I think that's exactly the case.


There's a really interesting article over at GOOD about the power that Yelp has on local businesses. It describes my behavior pretty accurately, and makes me realize just how crucial a tool Yelp has become in my own life; and also for the businesses I patronize.

(from roboppy on Flickr)

Of course, Yelp has been around since 2004, and the idea of rating and reviewing businesses is nothing new. What is new is that a significant number of people now have smart phones, iPads, and other devices that can access to Yelp whenever and wherever they want.

Recently I was thinking about the appeal of Starbucks. It's not a place I go very often for a cup of coffee, but I do visit occasionally. Imagine you're on a road-trip, and it's getting dark, so you decide to pull over at the next rest stop. Inside the food court there's a Starbucks and a place called Carl's Coffee. Which do you pick? This Carl might have the best coffee in America; but he also might serve some truly awful sludge. Starbucks, at least, is consistent and predictable. In other words, it's safe.

When I went to Virginia Beach in August, I was almost entirely unfamiliar with the city. Once at the hotel, I opened up Yelp on my phone and searched for nearby restaurants. I found a pho place within a mile that had great reviews. Once I was on the beach, I used my phone to locate a highly rated coffee shop behind the boardwalk and a seafood restaurant on Lake Rudee. If it weren't for Yelp, I might not have visited any of these places.

The Groupon Effect

Last week this headline caught my attention: "Pizzeria Eschews Groupon, Offers Own Half-Off Deal". The article is about a gourmet pizzeria in Arlington that will offer half-price pies every Monday... all you have to do is walk in and ask for the deal.

(from afagen on Flickr)

There's nothing novel about businesses offering discounts on slow days. These discounts have been around for as long as there's been commerce. Groupon and it's endless copycats have been around for about 2 or so years, and already we've forgotten about what life used to be like before they existed.

When I was in college, I ate 40-cent wings every Monday. That's more than 50% off the menu price, and no coupon required, just come on any Monday after 3pm and order them. This bar also had specials on Tuesday, Wednesday and Thursday. Half-price pizzas, steak dinner for under 10 bucks, and 5-dollar burgers. It was designed to bring people in during the slowest part of the week, and from what I could gather, it seemed to work pretty well.

What Groupon effectively changed was a few things.
  1. Removed blackout dates from discounts
  2. Applied discounts to the entire menu
  3. Offered a one-time email blast advertisement to a huge mailing list of people
The first two benefits don't necessarily help businesses. A restaurant that's expecting a full house on Saturday night doesn't want a bunch of people coming in and redeeming Groupons. They want them in on a Wednesday evening when there are seats to fill. Similarly, bars sell half-price wings and burgers as a loss leader, knowing that people will still order drinks, the real money-maker. When Groupons apply to drinks, it really distorts that logic.

I'm not sure how anyone can be surprised that businesses are going back and doing what they've always done. Groupon seemed like a good idea, and like I've written before, is probably dying a slow death. Everybody wanted to try it at least once. And those businesses that didn't like it will probably never do it again.

That said, I do find the "Instant Deal" technology that LivingSocial rolled out a few months ago to be pretty interesting. Unlike the daily deals, the instant deals can be used as a sort of "revenue management" tool for businesses. If a restaurant has empty seats to fill, the manager can log into an account and run an instant deal. If the place is packed, they don't need to offer anything. If there's a reason to think these websites will continue to thrive, I expect it to be the result of these instant deals.

Talking Coffee

Kojo Namdi did a very good show on coffee last Wednesday. Click through and listen to the segment, it's about a half-hour long and it's very good. They even produced this little video up at Qualia Coffee (hands down the best coffee shop in DC).

The show covers a number of coffee-related topics that I've written about here, including home roasting and culture around good coffee. Coffee is an interesting drink because the quality can vary so wildly depending on how it's roasted, ground and ultimately brewed. And unlike wine or beer, coffee is always made to-order. Someone can appreciate good wine, but wine is fermented and then stored in glass bottles. Beer is brewed and then canned or bottled. Someone who appreciates good coffee has to also appreciate the process by which its brewed in the moments immediately before it's enjoyed.

Also, for what it's worth, if you're in DC, check out the new website DistrictBean. It's not 100% there yet (I find some boilerplate template filler on some pages), but when it's complete it will serve as a great guide to coffee and coffee shops in DC. One thing that's been on my to-do list for months is to write a "comprehensive guide to DC coffee" but I think DistrictBean already beat me to the punch.
Streaming video is the wave of the future? Right? That's what Netflix seems to believe, and what a lot of people are really wishing will be true. I'm not quite as optimistic.

(from craig1black on Flickr)

I actually see a future where streaming video is more like premium cable than like a high-tech video rental store.

With cable, if you want to watch an HBO series, you have to pay for HBO. If you want to watch a Showtime series, you have to pay even more for Showtime. On the other hand, the old "video store" concept ensures that, no matter which movie you want to rent, you can go to any rental store and find it there. We have the first sale doctrine to thank for that; and it's the reason why you can find virtually anything on Netflix. Unfortunately, no such thing exists when it comes to streaming video.

Already, streaming video providers are starting to sign contracts with content producers, some of them exclusive deals. Fox recently signed a deal with Amazon. Dreamworks will have an exclusive agreement with Netflix. Microsoft is going to enter the market and offer streaming service through its XBox gaming system. There are even more potential start-ups to come.

The result could be a slew of competitors, all of whom offer different content libraries. So, if you want to watch a Sony movie, you've got to go to one service, if you want to see a movie distributed by Warner Brothers, you've got to look elsewhere. This is very similar to premium cable stations, all of whom have agreements with different studios. A movie playing on Starz won't be available to watch on HBO.

When everyone was upset with Netflix last month, many of them opted to keep the streaming service and drop movies-by-mail (or at least the most vocal among them did). I went ahead and did exactly the opposite. While the streaming service is very convenient, it lacks content. So I concluded access to a much bigger content library is more valuable than access to some content instantly.

Even many of those who stuck with Netflix streaming service gripe about the limited amount of good content. Perhaps they're hoping that over time the Netflix library will go. I'm not sure it's going to grow enough to satisfy a lot of people.

On Monopolies

Lydia DePillis wonders if competition will really improve car sharing in the District. I'm not too certain it will, as I wrote over the summer. In any case, plenty of people are happy that there's competition coming, because they love the idea of competition. Monopolies, on the other hand, have a pretty bad reputation.

(from masck on Flickr)

Not every market is perfectly competitive. Sometimes monopolies can and do provide goods and services more efficiently than several competing companies. This is usually the case in industries with high start-up and capital costs, which is very much the case with car sharing. The monopoly chapter of any intro to microeconomics textbook lays this out pretty clearly.

When people say they don't like monopolies, I think what they're really saying is that they don't like taking on the risk that the monopolist is going to fail to provide good customer service or reasonable prices.

Comcast is a great example of this. In much of the DC area, if you want cable TV or cable broadband, Comcast is your only option. They also happen to have dreadful customer service, so when your blood is boiling after spending hours on the phone trying to get your service to work, the thought of switching to somebody else is highly appealing.

Ticketmaster is another example. They're virtually the only game in town when it comes to concert tickets, and the "fees" they charge have upset plenty of folks. There is a legitimate fear that once a company becomes a monopolist that they'll jack up prices and screw customers who no longer have anywhere else to turn.

Zipcar, for what it's worth, has gone above and beyond for me on more than one occasion. I've found their service to be excellent, and even when new competitors enter the market, I'll keep my Zipcar membership. The truth is that they do have competition, it's just from different modes of transportation, not from other car sharing companies. When I need to go somewhere, it's not necessarily a question of which car sharing service to use, but what mode of transportation to use.

Housing Markets 101

Stephen Smith has a post about housing and gentrification that I think hits on some good points, but it only tells one piece of a bigger story about how housing markets works. He opens with this:
When libertarians (and liberals) argue that increasing the supply of urban housing will lower the price of urban housing, they’re drawing on some pretty basic and well-established economic concepts. And yet, the coexistence of gentrification and housing supply growth seem to put a lie to that theory – in cities across America, we see neighborhoods adding housing while still seeing rapid increases in the price of housing. From the point of view of the poor and often non-white residents who are being pushed out, the market remedy of increasing supply just doesn’t seem to be working.
Count the number of times the word "supply" appears. Now count the number of times "demand" is in the above paragraph. Herein lies a major problem with this discussion: it focuses way too heavily on the supply side of the equation. After all, the price of housing is measured as the equilibrium of supply and demand. If you ignore the demand-side, of course you're going to be perplexed when you see a boost in supply accompanied by a rise in price levels. It doesn't put a lie to the theory. In fact, it proves the theory.

(from M.V. Jantzen on Flickr)

I tackled this issue recently, arguing that we can't really talk about the "housing market" because housing isn't homogeneous. People are willing to pay more for high-quality housing than they are for low-quality housing. So if you change the type and quality of housing in a neighborhood, you alter the underlying structure of the market itself, and the price at which people are willing to pay to live there, all else equal.

But let's set that aside for a moment and assume, for argument's sake, that housing is a commodity. From a theoretical perspective, we can draw the housing market as a series of simple charts, similar to what you might remember from an intro to microeconomics course.

A Tale of Two Coffee Shops

I've got a new post over at Greater Greater Washington about two coffee shops in my neighborhood. A block apart from each other, one opened just a few months before the other closed. In a twisted way, the situation shows that 14th Street is both a desirable place where businesses want to be, and a place where it's nonetheless difficult to run a business.

(from NCinDC on Flickr)

When I lived in Cleveland, it was painful to watch businesses fail. Usually, it happened because there weren't enough customers, and the businesses couldn't generate sufficient sales. It happened because businesses just couldn't get people in the door and at the end of the day that was hardly any money in the till.

In DC, it's like the polar opposite. On 14th Street, businesses are closing because they can't afford the rent. They need affordable retail space in order to survive, and they simply can't get it in a neighborhood that's becoming popular.

Both situations demonstrate problems; but in DC, when a business closes, it's usually replaced by a different, more upscale, more expensive business. In Cleveland, when a business fails, it often becomes a vacant storefront. So while yes, it's frustrating to see 14th Street losing its unique character as its long-time businesses close for another upscale restaurant I can't afford, I like to think that I haven't lost touch with the reality that the situation could be so much worse.