It seems that a dominant strategy in the world of advertising is to offer guarantees that you’ll never have to honor. I’m not talking about the extended-warranty that they’ll offer you at BestBuy or Circuit City (which, coincidentally, are their profit centers). No, I’m talking about the “best price” guarantee. Specifically, I’d relate it most frequently to automobile dealership advertisements, although I’m sure it’s also prevalent in other markets, too. Likely candidates include high-end electronics, and consumer appliances for which consumer prices are never advertised – the law understands the advertisement to be an “invitation to make an offer,” so even the printed circular that comes with your Sunday paper doesn’t constitute a price quote.

My “price-match guarantee” example comes from a few years back. I had gone with the girlfriend to the dealership, where we met a nice, middle-aged man who showed us the lot, the vehicles, the test-drive, etc. His quote was competitive – certainly nothing to balk at. But she wanted a second opinion. Now, this salesman made the “If you get a better price somewhere else, just give me the opportunity to beat it” pitch. OK, you’re a nice guy, as far as salesmen go. I’d like to give you that opportunity.

The next dealer was the slick stereotype. I did not like him then, and I don’t like him now. But the price he quoted was maybe $15/month less than the first salesman. We tried to prevent it, calling back the friendlier salesman and telling him of the predicament, at which point he asked us to provide a written offer – something that he was (or would’ve been) unwilling to provide, just as the other salesman was unwilling to provide it. Typically, they’ll “keep your file” in a folder in their desk, so if you come back, it’ll be there. But they never let you take it.

And this is par-for-the-course: they will absolutely refuse to give you any price quote in writing. My theory is that they generally know that they’re ripping you off, and that game theory dictates that someone else will make you an offer that is just slightly less of a rip-off, will underbid their offer, and win the sale. Which is precisely what happened.

I suggest this is the dominant strategy – offering a best-price guarantee, while refusing to actually offer a price quote to any of your prospects – because anyone who deviates from this strategy will be playing into the hands of anyone who doesn’t.

I imagine that this has something to do with the distribution model for automobiles, and the way dealerships are compensated by the manufacturers, etc. It’s my understanding that they get paid per vehicle moved, so as long as they can minimize their selling costs and their carry-costs, they can’t not make a profit. The licensed nature of the dealership game doesn’t help, either. I bet if there were such a thing as “independent” dealers, who sold both Dodge and Nissan products at the same location, it might be easier on the consumer. But I don’t know enough about either to do anything more than speculate wildly.

** “But we know our competitors will never actually make you an offer…”

Scientific theories progress over time – as new knowledge comes to light. See for instance, evolution. Of course, what the headline really means by “evolution theory” is that caricature of what science continues to revise, which we all tacitly understand: “This is not questioning the idea at all of evolution; it is refining some of the specific points, this is a great example of what science does and religion doesn’t do. It’s a continous (em>sic) self-testing process.” Cults, on the other hand, continue to try and hammer the proverbial square peg into the round hole – in a constant (and losing) battle to fit “reality” into their antediluvian ideologies.

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Also, through the competitive miracle of “competition,” it seems that the Whole Foods monopoly fiasco is economically moot. “[The nation’s largest food retailer,] Kroger, Wal-Mart Stores Inc. and other major grocery sellers have been increasing selections of organic and natural foods in response to rising demand and the growth of chains such as Whole Foods Market Inc. and Wild Oats Markets Inc.” Which just goes to show that the “market” for a particular good or service is almost never as narrowly defined as people think. The law, on the other hand, might disagree. With near unanimous ignorance of economics, the entire history of American anti-trust legislation has been an abysmal failure.

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Should the Federal Government offer a bailout to people who are having financial difficulties because of a decline in the housing market? I say “no.” So does W, for whatever that’s worth. There’s no reason to subsidize bad decision making, bad borrowing, bad lending, or bad investing. That is how the market works – bad decisions must be corrected, and resources must be reallocated. Any attempt to delay, or stop an impending correction will only prolong (and generally worsen) the inevitable downturn. Also, it’s a problem of equity: what about the people who have weathered the storm? If you’ve made your mortgage payments on time, shouldn’t you get a little extra help, too? If your investments in RMBS took a nose dive, shouldn’t you get some help? I’d like to buy a house soon – can I count on the Fed to assist me in that endeavor? You shouldn’t, and I don’t.

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I’m having trouble accessing The Wall Street Journal tonight. Hopefully it will be fixed soon – although since they’ve extended my online membership after my subscription lapsed, for free, I can’t really complain. But consider this a complaint.

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I’ve been busy with production at work this week, also house and car shopping. I hope to be back to normal, sooner rather than later.

I’ve always thought it bothersome that I can’t continue to use my Nextel phone if I were to switch carriers. Well – in theory I’ve though this. Because my phone was destroyed years ago, and replaced with a second-hand phone from one of my friends, which is now on its last legs, too. I don’t buy new phones every six months, because frankly, I have better things to do with $300. But I’d like to see, of course, a more competitive market where phones and features are compatible (e.g., if my Nextel direct-connect was compatible with Verizon’s or Cingular’s push-to-talk, etc.) Spectrum stands in the way, though. But the FCC has a not-so-novel “solution” to “open” new spectrum:

The FCC is requiring the winner of about one-third of the spectrum being sold to let consumers buy any cellphone or other wireless device and use it on the broadband network that is eventually built. Cellular companies now sell phones and service as a package, limiting the types of devices customers can use.

But the FCC is basically responsible for establishing and maintaining the quagmire of overlapping and incompatible networks to which we’ve grown attached. One reason why it remains profitable for a company to limit access on its portion of the spectrum to certain devices is because of the licensure requirements, which grant a sort of monopoly privilege to the existing carriers. Here is the non-bureaucratic solution. Drop the presumption that the government owns spectrum as a public good. It’s certainly excludable. With that out of the way, all that’s left is to just open the spectrum and let nature take its course. I don’t know whether an open spectrum would permit me to use my Nextel phone even if I switch carriers to Verizon – but I know that its more likely to happen with an open spectrum than one where the FCC and incumbent licensees act as gatekeepers.