Why aren't there more private roads?

[IsaacW]

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Side note: how many ACers on this board are in college?

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All of them. Even the ones who teach there.

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This is wrong. I'll let others elaborate.

[jogger08152]

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He's claiming that my legitimate comment/question about buying and selling of roads is "a bullet of pure nonsense fired to kill serious debate". Re-read the thread and see if you find support for this claim. (Obviously, he didn't provide it in the above snip.) If not, it's a troll.

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He dismissed your argument because he (probably not just him) thinks it's nonsense. That's not what trolling is. Trolling involves posting something inflammatory just to provoke a response from people. For example, if I made a post in SMP about whether God exists saying "atheists are [censored] stupid" and left it at that.

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Please explain how one can think "discussing existing houses and roads" in a thread about "houses and roads" is nonsense intended to destroy legitimate debate. Perhaps you think he is stupid? I do not, which is one of the reasons I believe he was trolling, rather than merely expressing an ignorant viewpoint.

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He made a pretty good point, imo, that you quickly dismissed. And you have the gall to demand that your arguments be addressed just so? Why do you deserve any better treatment than what you've given?

I think I'm done with this hijack. I just wanted to needle you the same way you've been trying to do to others here.

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So you agree that he was trolling?

[tolbiny]

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The problem is when there is a demand for driving on that exact road

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The cost of getting to point B is a part of what drives the demand for going to point B. If Airline tickets to Florida were $10,000 each then Disneyworld would go out of business.

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The problem is when there is a demand for driving on that exact road. The natural monopoly will lead to that people who are willing to pay more than their share of the production cost on the road will be barred from driving.


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This is confusingly written, but I think I know what you wanted to get at. It is false to assume that costs of use reflect costs of productions- more to the point costs of use are related to supply and demand. "A persons fair share" is not related to a how much it costs to put the road down but how much they are willing to pay to use it (ie its value to them).

[Arnfinn Madsen]

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The problem is when there is a demand for driving on that exact road

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The cost of getting to point B is a part of what drives the demand for going to point B. If Airline tickets to Florida were $10,000 each then Disneyworld would go out of business.

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The problem is when there is a demand for driving on that exact road. The natural monopoly will lead to that people who are willing to pay more than their share of the production cost on the road will be barred from driving.


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This is confusingly written, but I think I know what you wanted to get at. It is false to assume that costs of use reflect costs of productions- more to the point costs of use are related to supply and demand. "A persons fair share" is not related to a how much it costs to put the road down but how much they are willing to pay to use it (ie its value to them).

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The problem is that Disneyland is built and then somebody buys the only road to Disneyland, not if somebody does it before Disneyland is built.

Clarifications wrt to the 2nd paragraph: The problems of natural monopolies are not connected to demand, but the incentive for the supplier to cut supply (which for other products would lead to new entries and thus be solved). Nobody ends up paying more than the value of using the road is to them, the problem is that a lot of people for whom the value of using the road is high will end up not being offered a service at that price. You could have a situation where there is a road with a $100 toll charge and there is demand for 1,000,000 additional drives/year at $70, which is way sufficient to finance a 2nd competing road, but this road will still not be built, since the toll charge in a situation with 2 roads competing with the sunk costs already taken may drop to $5.

[pvn]

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Are you going to answer the question?

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Not in this thread,

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Fine, please STFU then.

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That's the second time you've said that to me, PVN, and it's no more appropriate here than it was last time.

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You've just admitted you have no intention of actually engaging the discussion, that you're doing nothing more than derailing. What, exactly, would be the "appropriate" response here?

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since your question is a distraction from (and less interesting than) the OP. Also, you haven't answered this question yet:

"If I have understood correctly AC'ists don't really offer any solution to natural monopolies, just claim that statists don't solve them neither?"

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My question is part of the process of doing that. I can't answer that question until I figure out what a "natural monopoly" is. And I can't do that until I figure out what a "monopoly" is.

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Hope this helps: monopoly, natural monopoly.

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OK, let's go with these.

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A monopoly (from the Greek language monos, one + polein, to sell) is defined as a persistent market situation where there is only one provider of a product or service, in other words a firm that has no competitors in its industry. Monopolies are characterized by a lack of economic competition for the good or service that they provide and a lack of viable substitute goods.

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So what's inherently bad here?

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In economics, the term natural monopoly is used to refer to two different things.

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Uh oh. Which one are we talking about?

[pvn]

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The problem is that Disneyland is built and then somebody buys the only road to Disneyland, not if somebody does it before Disneyland is built.

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What's the problem here? Wait, first of all, *who* is this a "problem" for?

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Clarifications wrt to the 2nd paragraph: The problems of natural monopolies are not connected to demand, but the incentive for the supplier to cut supply (which for other products would lead to new entries and thus be solved). Nobody ends up paying more than the value of using the road is to them, the problem is that a lot of people for whom the value of using the road is high will end up not being offered a service at that price. You could have a situation where there is a road with a $100 toll charge and there is demand for 1,000,000 additional drives/year at $70, which is way sufficient to finance a 2nd competing road, but this road will still not be built, since the toll charge in a situation with 2 roads competing with the sunk costs already taken may drop to $5.

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Wow, this is a lot of hypothetical numbers-pulled-out-of-asses.

How is this different than any other situation in economics where the cost to do something is greater than the amount that will be recovered in the market?

Perhaps it would help if you explained *what* the problem is (i.e. which action is "bad" and who is performing it), and what can be done about it.

[Arnfinn Madsen]

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The problem is that Disneyland is built and then somebody buys the only road to Disneyland, not if somebody does it before Disneyland is built.

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What's the problem here? Wait, first of all, *who* is this a "problem" for?

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It causes a productivity loss compared to if the monopoly is abolished.



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Clarifications wrt to the 2nd paragraph: The problems of natural monopolies are not connected to demand, but the incentive for the supplier to cut supply (which for other products would lead to new entries and thus be solved). Nobody ends up paying more than the value of using the road is to them, the problem is that a lot of people for whom the value of using the road is high will end up not being offered a service at that price. You could have a situation where there is a road with a $100 toll charge and there is demand for 1,000,000 additional drives/year at $70, which is way sufficient to finance a 2nd competing road, but this road will still not be built, since the toll charge in a situation with 2 roads competing with the sunk costs already taken may drop to $5.

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Wow, this is a lot of hypothetical numbers-pulled-out-of-asses.

How is this different than any other situation in economics where the cost to do something is greater than the amount that will be recovered in the market?

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If you don't understand the difference I don't understand how you considered yourself qualified to take part in this discussion in the first place. If the price of sugar is $5/kilo and the production cost is $4/kilo new entrants will start producing sugar and increase the volume that is offered to the market. However, in the example above that will not happen. But if you make a rule in the example above that no road is allowed to have more than 500,000 drives/year, additional roads will be built and the market price will drop and total economic output will increase. An even higher GNP will be achieved if an efficient government nationalises the road or build a competing road and put the price/drive at cost level (an inefficient government will waste too much resources that has an opportunity cost thus making this option counter productive)

(numbers out of ass ok, but it is not like it is a constructed hypothetical, it happens a lot in reality)

EDIT: Forgot to mention that if a production limit is set pr road it is needed to not allow anybody to own/control more than 1 road from A to B.

[tolbiny]

1850s water supply in Britain is interesting, but not because its a natural monopoly. One thought about the economic conditions of the time period would be enough to dismiss that brief description as being adequate, as something very interesting was occurring during those years beginning with the letter I and ending with ndustrial revolution. There were large shifts in population demographics, shifts in major ports, new industries popping up and dying out, in other words constant change. In addition to this utilities like water supply underwent pretty radical changes as well, all in all what is really being described in that paragraph

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Competition amongst the companies in larger industrial towns lowered profit margins, as companies were less able to charge a sufficient price for installation of networks in new areas. In areas with direct competition (with two sets of mains), usually at the edge of companies' territories, profit margins were lowest of all. Such situations resulted in higher costs and lower efficiency, as two networks, neither used to capacity, were used.

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is what is also described during ANY emerging market. It takes time for businesses to take in information, process it and then implement changes, process that information, ect ect. If you had looked at the personal computer market in the late 1980s you would have seen the same thing, competing companies- many of whom failed to profit for long periods, lowest profits in areas where competitors products overlapped, factories with greater capacity than was being fully used (this, BTW, is common in many industries where growth is expected, you don't build for present need only you build for future expected needs as well).

[tolbiny]

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Clarifications wrt to the 2nd paragraph: The problems of natural monopolies are not connected to demand, but the incentive for the supplier to cut supply (which for other products would lead to new entries and thus be solved). Nobody ends up paying more than the value of using the road is to them, the problem is that a lot of people for whom the value of using the road is high will end up not being offered a service at that price. You could have a situation where there is a road with a $100 toll charge and there is demand for 1,000,000 additional drives/year at $70, which is way sufficient to finance a 2nd competing road, but this road will still not be built, since the toll charge in a situation with 2 roads competing with the sunk costs already taken may drop to $5.

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The problem with this is that point B (where the road is traveling to) has to be a monopoly of some sort in and of its self. The fact that X people don't want to pay Y toll to get to point B is not sufficient for the road to point B being a natural monopoly, point B must not have any competition from points C D and E either (otherwise roads will be provided for those unable to afford the toll to the other points, then making points C D and E relatively more desirable compared to B than they previously were).

[pvn]

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The problem is that Disneyland is built and then somebody buys the only road to Disneyland, not if somebody does it before Disneyland is built.

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What's the problem here? Wait, first of all, *who* is this a "problem" for?

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It causes a productivity loss compared to if the monopoly is abolished.

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Wait. First of all, it's usually the ACists who are being accused of "worshipping efficiency" or something along the lines of "everything comes down to money with you guys."

And again, *who* is this a problem for? If the monopoly is "abolished" by forcing someone to build a road, then *by definition* someone is doing something *less productive* than he would have otherwise been doing. If I have the land that you want to use to build a road, I may value it *more* as a farm than I would value whatever amount of money you're offering me. If I valued the money more, then I would sell the land. But if you have to force me to sell the land, then I'm in a decidedly *less productive* situation.

It's a "problem" for "me" if you don't give me a new Ford Explorer for $20. Does anyone else care? Should some coercive action be taken to "solve" this "problem"?

I own a house that sits between a big neighborhood and a major thoroughfare. A lot of people would be "more productive" if they could bulldoze my house and connect to the thoroughfare here instead of driving an extra mile around. Is this a problem that needs to be abolished? Do you see where this leads?

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How is this different than any other situation in economics where the cost to do something is greater than the amount that will be recovered in the market?

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If you don't understand the difference I don't understand how you considered yourself qualified to take part in this discussion in the first place. If the price of sugar is $5/kilo and the production cost is $4/kilo new entrants will start producing sugar and increase the volume that is offered to the market. However, in the example above that will not happen.

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Really? Let's look at your numbers.

Road A currently has some unknown number of drivers, at $100 each. We're not sure how many it *can* handle at a maximum, either.

Road B could service 1,000,000 *additional* drivers, at $70 each ($70,000,000). We don't know if that's a maximum.

But Road A owners will cut the price to $5 if Road B is built.

Road A will be giving up $95 per driver in order to drive out Road B, or Road A could charge $70 and get 1/2 of the X+1,000,000 drivers out there.

For what values of X does this make sense?

If X is 1, then A currently has income of $100, and could have income of $35,000,000 at $70.

If X is 538,461, then A currently has income of $53,846,100 and could have income of $53,846,135 at $70.

If X is 1,000,000, then A currently has income of $100,000,000, and could have income of $70,000,000.

If he charges $5, how many people will want to use the road? More importantly, how many can he handle?

But in this case, why isn't Road A building the new road? Then he could have $140,000,000 instead of $100,000,000.

We can further pick this apart by noting that your example assumes that all costs are sunk, that Road B needs that $70 to recoup those fixed costs. We're totally ignoring maintenace, liability, security, etc. To think all of that can be profitablly handled at $5 when the costs of the construction itself are eating $65 seems, well, unreasonable, doesn't it?

Since we're just making numbers up, we'll say he only has 1 buyer at $100, and his road can handle 500,000. In this case, he makes more money by charging $5 NOW, whether the other road gets built or not. Wow.

Do you see why these type of arguments are nothing but huge tar-pits that show nothing of any real consequence? We can plug all sorts of numbers in and get all sorts of results.

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But if you make a rule in the example above that no road is allowed to have more than 500,000 drives/year, additional roads will be built and the market price will drop and total economic output will increase.

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Wait, how is the road going to be built here? Road B needed 1,000,000 drivers at $70 each. Now you're limiting them to half that number. Presumably, then, they'll need twice as much money to recoup the fixed costs. Now they'll be charging MORE than road A.

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]An even higher GNP will be achieved if an efficient government nationalises the road or build a competing road and put the price/drive at cost level (an inefficient government will waste too much resources that has an opportunity cost thus making this option counter productive)

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How do you find this "efficient government"?

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(numbers out of ass ok, but it is not like it is a constructed hypothetical, it happens a lot in reality)

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* You're assuming a business model that doesn't even necessarily make sense (why isn't disneyland building their own road (which THEY DO in the "real world")?

* You haven't provided enough information to conclusively prove that what you say "won't happen" actually won't (you could probably make up a few more numbers, though).

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EDIT: Forgot to mention that if a production limit is set pr road it is needed to not allow anybody to own/control more than 1 road from A to B.

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Piling more restrictions upon more restrictions. This gets better and better. Efficency, people! Don't worry about the gun at your head, JUST WORK HARDER!