Where else could this be applicable?

A great question to ask as a student of economics – well, really, a student of anything – is “where else is this applicable?”

Because learning the definition is one thing, understanding its application is another. Understanding the applications, its costs and its benefits, and being able to transfer the idea over on to other domains and sectors – well, that is something else altogether.

Consider MPN, for example. That’s mobile number portability. Something that we take for granted these days. Although Indian readers might be interested to know that we are one of only two countries to use the donor-led system, rather than the recipient led system.

Now, students of microeconomics will (should) know that this encourages competition, because substitutability goes up. I don’t need to be locked up with one service provider for my entire life, in fear of having to update my number among my contacts every time I change service providers. It also therefore ensures that operators will provide better service, because customers have the ability to “vote with their feet”.

So far, so obvious.

But as I said up top, the real challenge as a student is to ask yourself, where else can I use this idea?

Can, say, education be made more competitive? Can and should students be allowed to switch colleges midway through acquiring a degree? Or can we have unbundling of colleges where you can buy courses from a variety of different colleges to make your own degree of choice?

Sucheta Dalal asks the same question in an excellent article on Moneylife – but with the focus being on account portability in banks.

What is the most effective solution to poor service, mis-selling and harassment by banks which are entrusted with your hard-earned savings? Simple. Bank account portability; or the ability to vote with your feet and switch to a better bank. The idea of bank account portability, which will truly force banks to compete for their customers, has been on the cards since 2012, when the Reserve Bank of India (RBI) initiated the process of creating unique customer identification code (UCIC). Since then, almost every hurdle to implementation—technology issues, high costs, absence of unique codes, etc—having been substantially addressed; but account portability is nowhere on the cards.

https://www.moneylife.in/article/bank-account-portability-what-is-preventing-this-game-changing-move-for-customers/62915.html

The rest of the article speaks about why it is an excellent idea (duh!), how most of the groundwork has already been done (awesome!) and how the incumbents think it is a really bad idea (double duh!).

Incumbents will always – always! – find reasons for why “it just can’t be done”. But anything that makes a sector more competitive, and more responsive to its consumers, is by definition A Good Thing.

Or so we teach in micro, at any rate.

Why selling anda bhurji will never make you the next Bill Gates

There’s this anda bhurji wala in Pune who I think makes the best bhurji going around.

 

That’s not true, of course, and I know that. Your run-of-the-mill eggs, same masalas, same dishes, nothing out of the ordinary. But hey, I’ve been eating there for over three years now, and there’s a level of familiarity that’s been built up over time.

 

But if he were to start charging double the rates overnight for his food – then no matter how good he is, and no matter how long I’ve been eating there, I’ll change shops. I’ll get more or less the same food, at almost the same level of quality and hygiene, and for half the price. What’s more, I won’t even have to look very far. Pretty much just stop at the next bhurji shop, and I’m set.

 

Of course, the bhurji wala knows this as well as I do, and therefore doesn’t raise prices at all over his competition, let alone double them. His regular customers love his food, but at that price. Charge more, and we’re going to move, because what have you got that others don’t?

 

And when you sell stuff that others do, and there are many “others”, and finding the “others” isn’t difficult at all, than you have it tough, because you’re selling in a competitive market. And let nobody tell you otherwise, selling in competitive markets is tough.

 

Because you’ve only got to sell what others do as well as you. Because you can’t charge higher, because the minute you do, all you customers switch, the ungrateful so-and-so’s. And because you and everybody else sell stuff that can be easily found by everybody. How do you get out of the game? Well, sell products or services that nobody else can (or will) build – iPhones, for example. Or at least convince people that what you’re buying is fundamentally different [link to product diversification article here].

 

And the reason this is a tough business is two fold: one, since everybody is selling what everybody else is selling, this is a very, very thin margin business. You will make hardly any money on every unit sold. Second, because this is a low margin business, it will likely remain a low margin business – nobody is going to “revolutionize” the anda bhurji business because there ain’t much to revolutionize.

 

So think twice before entering a competitive market as a seller, because it’s a tough old world out there. On the other hand, don’t pay all that much for a product in a competitive market, because hey – why would you?

 

But do try the bhurji at the stall I was speaking about. It’s the Famous Bhurji Center, in the lane opposite E-square multiplex. It’s just, like, the best ever.