Chocolate and Gold Coins

Wednesday, February 01, 2006

Missing Markets

My post last week on restaurants had one interesting aspect: the market for restaurants was missing for centuries not because of some missing technology but because the culture did not accept it. People are sometimes unwilling to pay for services that they benefit from if they feel that these things should be not be sold in the marketplace.

What markets are missing today because people just won’t pay for these things even though they might benefit from having them? I can think of a few examples:

1. Pay toilets. This is a business plan that has been floated and failed a few times. It seems obvious that if there were money in maintaining the toilets, we could all benefit from having clean ones on demand for a fee. But people think: “Why should I have to pay to go to use a toilet?” Also, people fear that they will pay the coin and still get a dirty toilet. I did see this system work (on a small scale) in Zurich, Switzerland in the 1980’s.
2. Toll roads. Yes, they exist, but the model is not popular. People want free roads. The inconvenience associated with paying to toll is a great factor here: I hate to stop and wait at a booth just to pay a 50 cent toll and then I need to fish around form some loose change. A more efficient payment method might make this a workable business plan.
3. Medical care in the U.S. People have money to buy medical insurance but wish that some employer would just give it as a “gift” instead. Tax incentives partially explain this situation but not entirely.
4. Middle-class private secular schools. The local government in each district in the U.S. taxes the local residents and provides schooling for no charge to everyone. Some of these schools are not that good. It would seem that many people would be better off forgoing this “free” education for their children and simply sending their kids to good private schools. However, this market has never really gotten off the ground.
5. Career guidance. There are people you can hire to help guide your investments but there is no market for people who can help you choose your biggest investment: your career choice. I think that there could be a service for people who look at your abilities and try to guide you to a good choice of profession for a fee. But this business plan has never gotten to the runway.

Can you think of other business plans that have failed because people just won’t pay for that sort of thing even though maybe they would benefit if they could and did pay for it?

10 Comments:

  • Michael, do you mean pay toilets in India? The Sulabh chain of pay toilets is very widespread, low-cost, and a great alternative for slum-dwellers who have no toilets of their own. Also, it has attendants rather than an automated coin-operated system.

    By Anonymous Aadisht Khanna, at 12:51 PM  

  • Hi Aadisht
    I did not know about these pay toilets in India. I think that India would be one place where this kind of service could take off because 1) there is a lack of free toilets 2) labor (for cleaning the toilets) is not very expensive.

    The Swiss system had (and maybe still has) attendant that regularly clean the toilets.

    One reason why this market hasn't taken off in the U.S. is the rise of McDonald's (the ubiquitous hamburger restaurant). They figured out that there was a need for clean toilets and by providing them in convenient locations along highways, they guaranteed a steady stream of customers as well. You don't have to buy anything to use the toilets at McDonald's but, of course, people felt obliged.

    By Blogger Michael Higgins, at 1:02 PM  

  • Michael, you'd also be interested to know that career guidance counsellers flourish in urban India, catering largely to the vast student population that desires to study abroad.

    By Anonymous Ash, at 10:30 PM  

  • Yeah, except for #3, all of them are developing pretty well in India. I postulate an "abundance paradox" to explain it.

    When you have so much that some things can be given away for free, there is actually a disincentive against developing good quality for-pay alternatives. So while for-pay toilets are flourishing in India which has a dire shortage of toilets, in the US, someone has enough money to give away basic stuff like toilets for free. That someone very often is the government, but often it is some private entity who has other business (like running a shopping mall) than running for-pay toilets.

    By Anonymous Ravikiran, at 5:24 AM  

  • Hi Ash and Ravikiran
    Ash: That is interesting. American high schools have guidance councellers but they are largely useless.

    Ravikiran: Yes, you are right. It is interesting how different economies develop in different ways.

    By Blogger Michael Higgins, at 9:16 AM  

  • Michael,

    In your post you speak about the lack of efficient/convenient payment methods as being an impediment to the adoption of toll roads.

    I live in a country where this barrier has been successfully overcome, with a concept called Electronic Road Pricing (ERP). The system is hugely successful, with most vehicles paying road toll electronically, some multiple times in a day, all without stopping, slowing down or looking for spare change.

    The country: Singapore.

    An explanatory link: http://www.imprint-eu.org/public/Papers/IMPRINT3_chin.pdf

    I think this model is probably the most advanced in the world. I know Melbourne has something similar, though simpler, based on the concept of day and monthly passes. Thought you might be interested to read about it.

    Cheers,
    Shreyan

    By Blogger Shreyan, at 9:49 PM  

  • Here in Mumbai, the best way for a corporator to retain his seat is to build public toilets.

    Trivia: Almost 54% of Mumbai's people live in slums.

    By Anonymous SloganMurugan, at 2:35 AM  

  • Hi Shreyan and Murugan
    Shreyan: That sounds like the way to go. There are some kinds of systems in place at some toll roads here but you have to buy something and unless you use it everyday, why bother.

    Murugan: Public toilets are great but someone needs to clean them regularly or else they get to be not so great.

    By Blogger Michael Higgins, at 7:48 AM  

  • Apologies for the slowness of the comment, but since Melbourne was mentioned I thought I'd chime in. We have an ERP system as described, charged for the use of road segments on certain roads. If you don't have the transponder then you have three days to buy a day pass for your travel, by calling or visiting the operators. Otherwise there is a fine issued.

    My opinion on paying toilets was galvanised at the sight of someone peeing on the platform at Amsterdam railway station, 20m from a toilet charging about 20c for use. The free toilets aren't for the people using them, but for the benefit of people who like clean streets (a worthy tax I think). You might also find this interesting, albeit a little bit strange.

    By Blogger russ, at 10:17 PM  

  • Just appending something to that too. the missing market is therefore not the toilets themselves, but urban public spaces. Witold Rybczynski made some interesting comments in City Life to the effect that the popularity of shopping malls over streets is largely due to their cleanliness and the control of an owner. Do any shopping malls charge for using a toilet?

    By Blogger russ, at 10:28 PM  

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