Tragedy of the Commons

Oct 26th, 2012 | By | Category: Nick Kemper's Blog

Sadly, we did not have a booth at the Western States Tow Show this year. Many of our customers have called to ask about our show specials. They come to the show, stock up on straps and ratchets and lockout tools and then try to carry them home on a plane. We feel a little sorry for these folks who went to San Diego this year — hoping to chat with my beautiful wife — and we weren’t there.

Speaking of tow shows, I was listening to a podcast with Malcolm Gladwell and Bill Simmons this week that brought up a statistical phenomenon called the “tragedy of the commons” which has widespread economic and ecological applications. I know those two don’t sound related, but let’s throw in motor clubs and the presidential election as well. Gladwell was talking about its application to the 5,000-meter run in the Olympics. It’s funny how seemingly unrelated events are linked by conditions.

One definition of the tragedy of the commons is “the depletion of a shared resource by individuals, acting independently and rationally according to each one’s self-interest, despite their understanding that depleting the common resource is contrary to their long-term best interests.” Let’s see how it plays out in different arenas, so to speak.

In the men’s Olympic 5,000-meter run, there were something like six runners who had consistently better times than Mo Farah, the British runner who ended up winning. What Farah had going for him was the best finish, the best “kick” of the group. All of the runners knew that Farah had the best kick, and that all they needed to do to prevent him from winning was to start fast and maintain a fast pace, then Farah wouldn’t have time at the end to catch everyone. However, starting out fast and maintaining a fast pace means that one individual needs to be the early leader and by doing so, that runner likely would expend too much energy to win. So it required a sacrifice of some sort. Often in competitions like this, teams with multiple runners will pick the weakest of their group to sacrifice himself for the other team members. In this race, however, each of the runners felt he had a chance to win, so none of them was willing to make the sacrifice that would open up the potential for winning to the entire group, rather than giving Farah a preponderance of a chance. So they all just basically jogged for the first few laps. So there were six top runners with a basically equal chance to win, but because none of them would do what each of them knew was necessary for one of them to win, they all did what would lead to Farah winning.

Now let’s move to a more controversial subject, the presidential election. The U.S. political system is basically a two-party system. That’s what the two parties tell you, that’s what the media tells you and that’s what most of us believe. However, there are many political parties and the entire basis of the U.S. system — “freedom” — makes it possible for any group to form a party and offer candidates for office. Did you know there are 12 other party candidates for president beyond President Obama and Governor Romney? These parties typically garner less than one percent of the popular vote and the conventional wisdom is that you waste your vote if you vote for one of these candidates because they can’t win. The reality is, however, that none of these candidates can ever win — in this election or in any future election — if voters don’t start voting for them in increasing numbers. One of the biggest complaints about our system is the dominance of the two parties and how we always have to choose the lesser of two evils. All it takes to move away from this dilemma is for each of us to thoughtfully consider all 14 candidates and to vote for the one that we think will do best, not the one we think will win, or the one we think will keep the other from winning. Compared to the sacrifice of losing a chance at an Olympic gold medal, the sacrifice of voting now for a candidate that won’t win pales in comparison. Can we think long-term instead of short-term?

 

We did not go to any tow shows this year, and we won’t. The Western States show worked well for us when it was in Reno because we could drive there with parts to sell, the accommodations were reasonable and our track record there was good. We have also had booths in Baltimore, Orlando and San Antonio and none of those worked out as well for us primarily because we had more competition at those shows. With the move to San Diego this year, combined with a move from June to October, combined with the unknown factors of attendance when moving a show, we decided it was too much of a risk for us to go. Many vendors have booths at shows for one reason — their competition is there and they are worried about what they will lose by not going. They have given up on gaining profitably by going. They know from previous experience that the expense is not recouped with new business, but they feel compelled to try to minimize additional loss.

 

Think about it. You have two or three or four vendors all with similar products/services. All lose money by attending a trade show. If any one of them took the money they invested in a show and put it into a different form of marketing, they would likely create more new business, probably even offsetting the loss created by not attending the show while their competitors continue to do so (and try to capitalize by pointing out their absence to customers).

 

This may be a surprise to some of you, but trade shows exist to feed the trade show industry. We enjoy them, and you probably enjoy them, but the real profit is made by the convention center and their service companies.

 

Finally, let’s take a look at motor clubs. I have heard many opinions about motor clubs over the years, and I would have to say that most of them are negative. I believe motor clubs are generally good for their members, and they must be profitable to some extent or they wouldn’t continue to exist. If you have an automotive and/or body shop, using motor club calls to feed those businesses is probably a sound way to operate. It probably minimizes the loss created by running calls for so little return. Running motor club calls also increases market presence. It also broadcasts, to those who know how the system works, that you will work for very little money. If you employ basic laborers and your method of recruitment is to gather together more laborers than you need and offer the open positions to whoever will work for the least amount of money, your methods will be frowned upon, especially if the work being done requires skill and quality. I think most tow truck owners would argue that their work requires skill and quality. So why join in the low-bid competition? Would you really run calls that you know are not profitable just to keep your competitor from getting the work? If you’re losing money on each call, increasing volume does not help. If each of the service providers in a particular market refuse to work for an unfair wage, the motor club has to change how it operates, which would lead to a fairer arrangement for whichever company ends up doing the work. Who knows, maybe it ends up being multiple companies. But the reality is that as long as each company in that market is unwilling to do what is best for everyone, all will suffer.

 

It’s a tough one, I agree, or there wouldn’t be so many examples of it across the spectrum, and it wouldn’t have been going on for so long.

 

Have a safe and profitable week.

Nick Kemper

www.TowPartsNow.com