The Perils of Free Coffee

http://freakonomics.blogs.nytimes.com/2008/05/16/the-perils-of-free-coffee/

by dbreunig • 18 years ago

21 9 18 years ago

freakonomics.blogs.nytimes.com

mhartl2• 18 years ago

Queueing is a well-known side-effect of mispricing. Think bread lines in Soviet Russia---or 'car lines' at rush hour.

shawndrost• 18 years ago

I once visited Morocco, and one bus company offers passage on either of two identical buses at different prices. The more expensive bus is just less crowded.

DanHulton• 18 years ago

Here in Ottawa, we have express busses that service the exact same route that the regular busses do in some areas. I found it worthwhile to get an express pass ($20 more / month) simply because you'd be guaranteed a seat on the express bus and guaranteed to stand on the regular bus.

ardit33• 18 years ago

Having lived in Albania during the bring of communism, and having been in similiar lines myself, I can tell you that it was not the price that was the problem.

There was no FOOD!! that was the problem. You either bought the bread, or went to bed starving. It was a period of transition (about few months) that no matter how much money you had, food was hard to find.

The rationing was a result of scarcity. If priced the food such that there were no lines, only the rich would afford it, and the rest would just starve.

Well, guess what? Those starving people eventually would have had it enough, and throw your goverment out sooner than later. By rationing during hard times, everybody was guaranteed some kind of minimum level of nutrition, and avoided some people hoarding food, while others went to bed hungry.

mhartl2• 18 years ago

If priced the food such that there were no lines, only the rich would afford it, and the rest would just starve.

Queuing doesn't solve the problem; it just means that the people at the front of the line survive instead of the rich. (Of course, the rich tend to be so well-connected that they can just bribe the officials for food.)

When food is scarce, the equilibrium price rises. If the government imposes a price ceiling, one effect is queueing. Another effect is a catastrophic undermining of incentives. If food is expensive, sellers will transport it even at great cost in order to reap the profits. The result is that supplies will rise over time, alleviating the shortage and lowering the price. A price ceiling undermines this incentive, guaranteeing that the 'shortage' will persist.

Rationing is intuitively appealing, but it doesn't work. The surest way to avoid starvation in times of great shortage is to let the price system do its work. Conveniently, that's also the right answer when there are no shortages. 'Do nothing' is often politically untenable, though, and as a result harmful market interventions lamentably persist.

OneSeventeen• 18 years ago

Also, I don't know how uncommon that perfect storm is. Isn't one of Starbucks' primary products convenience? They're all over the place so that it's always really easy to change your plans to include a "Stop in at Starbucks" step. So, not that they've targeted DD for overflow pick-up, but they've positioned themselves so that whenever someone is thinking they might want some coffee and wherever they're standing doesn't have it, they don't have to go far. DD just needs to keep from being a place like that.

The Perils of Free Coffee

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