Thursday, August 14, 2008

Rent Seeking and Baby Strollers

On July 1, a new law went into effect in Australia mandating certain mandatory consumer safety standards on perambulators and strollers in Australia. Here is the writeup in The Age, and the full ACCC writeup can be found here.

In a nutshell, the new law states that any stroller or pram sold in Australia must have a safety label warning against not using the brake and of leaving strollers unattended, a red parking brake (many companies had been using other colors, and the goal is to make them more noticeable), and a safety tether (aka jogging strap). This is ostensibly in response to a pair of accidents in recent years where parents failed to apply the parking brake while the stroller was on a hill, leading to the stroller rolling away uncontrollably into a body of water and resulting in the drowning death of the babies in the strollers.

These deaths are tragic, no doubt, and are certainly avoidable. And the new requirements are likely trivial in cost. If the stroller design is already one of a molded plastic brake, changing the color of the molded plastic is probably costless. For those that use a metal bar braking mechanism, the cost of painting, powder coating, or anodizing (depending on the metal involved) what is essentially a 2 foot long tube is likely to be trivial. And a safety tether is simply a 2 to 3 foot long nylon strap. All in all, these new features are likely to amount to little more than a couple dollars in additional costs for any given stroller. In spite of this, these regulations are misguided for a number of reasons.

The first point to be made is that the mere presence of these safety features does not necessarily mandate their use. I have a stroller with a safety tether, I rarely use it. Indeed, I'm fairly certain that an "after-market" tether can be bought at most baby stores for just a few dollars, and I doubt that most people buy them at that trivial price. I have had strollers with red brakes, blue brakes, and silver metallic brakes, and have been knowledgeable of where each of them are and how to use them (aside--if the goal is to make the brakes noticeable, shouldn't the regulation be for yellow brakes, which is after all is the color in the visible spectrum that is most noticeable to the human eye?). The upshot of all this is that one would not expect to see any significant improvement in how people operate with their strollers.

More importantly, however, are the relatively hidden costs that arise when one considers the application of this standard. Hidden in the 16 page product safety guide is the following statement:
All suppliers of children’s prams and strollers (including second hand prams and strollers) are responsible for ensuring their prams and strollers meet the mandatory safety standard.
This has two very big, very inefficient effects. The first is that any stroller not meeting these standards cannot be resold and must be discarded once a family's children can no longer use them. Strollers, however, are durable goods and are quite likely to still be of considerable value once a child grows out of it. All of this value is being discarded by the new law. The second big effect is of restricting competition in the stroller market. Because strollers are consumer durables, the ability of retailers to charge extremely high prices for strollers is limited by the competition of not only other retailers (of which there are only a few in most areas of Australia), but also of the second hand market. This law has the effect of almost completely destroying, at least for the next few years, the second hand market, eliminating a huge part of their competition.

Is it any wonder, then, that the Infant and Nursery Product Association of Australia is saying that "the industry supports this initiative?" Imagine if a law was passed that said that it was illegal to sell a car built before 2008. How do you suppose Holden and Ford would feel? It's sad that the ACCC, the Australian Competition and Consumer Commission, has such little grasp of the notion of competition.

Sunday, August 10, 2008

Bootleggers and Baptists

This BBC News article reminded me of Bruce Yandle's "Bootleggers and Baptists" theory, which is basically about the use of high-minded rhetoric to push an agenda to simply increase one's economic clout. Unless, of course, you really believe that a research institute funded by the Australian government showing that eating kangaroo instead of beef is truly only looking out for the environment.