Comment Running A Quick Numbers Check (Score 1) 253
the larger point is that there's no reason to think that the free market necessarily arrives at the most cost-effective solution in situations like this. Companies compete on cost-effectiveness in arenas that are highly visible to the consumer and likely to factor into their purchasing decisions
That is an important point; one that is worthwhile to highlight regularly. There are many who believe that the theoretical ideal free market can be closely approximated by a laissez-faire real world market. It cannot, and until we deeply internalize that reality as a society, it is good to continue repeating the lesson.
As such, we're lucky that the insurance provider sends out the replacement phone by overnight mail at all, when they could presumably mail it out by 3- or 4-day mail instead, and no free market forces or government truth-in-labeling enforcers would probably penalize them for that.
While I tend to agree with your previous point that lack of perfect information about insurance coverage implementation at time of purchase leads to a distortion favoring poor insurance service, I think your 3- or 4-day hypothesis proves that the free market is, in fact, having a regulatory effect on cell phone coverage. And it doesn't really surprise me, either -- every time I've had a bad cell phone replacement experience, I have told everyone I know that boned me. That kind of negative publicity does have an effect, as evidenced by the overnight service.
But an in-store-replacement rule (or a replacement-from-some-store-within-a-20-minute-drive rule) would benefit customers more and, with the savings on the mailing speed for the replacements, possibly cost the carrier less. (Even if it did cost the carrier more to carry a small box of in-store replacements in the back room
You may be right, but you may be underestimating the inventory size involved and the cost of keeping so many phones in stock. If it is common for phones to remain under coverage for two years (probably an underestimate), then each store or region would have to stock every phone that is currently for sale and all those that have been out of distribution for up to two years. I live in Phoenix, figure it takes 15 regions to cover the Valley of The Sun, four providers, 20 current models and another 20 out-of-distribution. That's 2400 cell phones, or something like a quarter million dollars. Multiply that by something like 100 to cover the US (rough population multiplier), and we're up to $25m, or an annual cost of $2.5m at 10% cost of capital.
Now, how about the other side of the equation: What we'd be saving is 24 hours of cell-phone-lessness, maybe once every couple years per cell-reliant person. Call that 50m people (140m taxpayers, 3/4ths have little cost to being without a phone for a day, and some non-taxpayers have a significant cost). At once every two years, that's 25m days of high-value cell-phone-lessness per year. $2.5m annual cost over 25m saved high-value days equals $0.10 per saved day of high value cell-phone-lessness.
(obviously the math is more complicated, but there are additional factors in both directions)
Hmm, not what I was expecting. The back-of-the-envelope numbers actually make your proposal look like it is within the limits of credibility, and worthy of further investigation.
I was expecting to find your idea to be impractically expensive, but that's the great thing about science; casting doubt on my preconception is just as good as confirming it.