The Royal Mail, Britain’s national postal service, was recently privatized. The government argued that its IPO was necessary to modernize the service, a company which has seen profits cut drastically, as lettermail volumes continue to fall, and competitive private couriers pick up the new parcel business spawned by the growth of ecommerce, leaving the public system with little room to manoeuvre.

In Canada, Canada Post, a crown corporation, posts regular losses while continuing to provide service to all Canadian addresses. However, an IPO for Canada Post, which is currently burdened by expansive service obligations, but possesses great physical assets and a wide delivery network, could be framed very attractively for investors. Proceeds from a sale could be invested in improvements in service speed and reliability to better compete with UPS and FedEx.

However, would privatization serve the interests of Canada’s overall economy? Canada Post, mandated to serve all of Canada, subsidizes the cost of doing business with remote communities by delivering to those areas at unprofitable rates, while daily bill and cheque delivery will continue to be fundamental to many businesses for the near future. Pulling out such services, in the name of profitability, with no immediate replacement, could drastically impact rural life and fundamentally damage many business models. This critical role of the postal service must be considered before attempting to see mail as a responsibility of the free market. Could regulations protect essential mail service while still making Canada Post an attractive investment?

http://www.cbc.ca/news/world/u-k-royal-mail-service-to-be-privatized-in-coming-weeks-1.1704324

Complaints against Air Canada continue to rack up over their policy of overbooking flights. In this recent CBC story (http://www.cbc.ca/news/canada/british-columbia/couple-incensed-as-air-canada-overbooking-continues-1.1894951), this couple had family waiting for them at home assuming they would arrive on time, and so they experienced significant personal distress.

It seems the public is generally displeased with overbooking, and regard the practice as unfair. But is overbooking unethical?

Airlines are in the business of providing fixed-route scheduled travel. Though the fine print states that travel is not guaranteed, it seems reasonable to see planning to be unable to provide the promised transporation asdeceptive. But not all airlines overbook so often (for example, Westjet), so consumers can choose how much overbooking risk to take on. We should also note that, with compensation of $300 per passenger for the bump in the news story, some might even want to get bumped.

When MIT “overbooked” its MBA program (http://online.wsj.com/news/articles/SB10000872396390444083304578018610327120942), they asked for volunteers to defer and offered ‘scholarships,’ increasing in value when not enough students responded. If Air Canada asked each passenger to name their own bump compensation, and bumped those who bid the lowest, then only those who would be happy to be bumped at their price would be forced to wait. Airlines could maximize passenger loads and bumped passengers could benefit by receiving a sum determined by supply-and-demand economics.

A recent blog post from Northwestern University (http://operationsroom.wordpress.com/2013/10/03/speed-variety-tradeoffs-in-fast-food/) analyzed data on average service times at U.S. fast food chains. Reports indicated increasing times industry-wide, as restaurants trade time for an increase in variety, to differentiate their products with competitors’. When considering new labour-intensive products, the question is, at what point is the tradeoff not worth the slowdown?

At UBC, many outlets provide made-to-order service. The SUB’s Pasta Bar and Vanier’s omlette station both cook food in small frying pans, order-by-order. These outlets charge greater prices, and lines are long and slow-moving.

On the other hand, the SUB’s Pho station has cut waiting by gutting their menu into a single option: identical servings at an every-day price. The Tim Horton’s at Sauder serves the bakery and beverage line, but omits entirely the hot foods available at other locations. These operational choices cut costs and service times, growing the total customer count.

While made-to-order outlets can offer greater quality, cost and convenience matter greatly to students eating between classes. As well, customizability requires expensive training to ensure quality. If every outlet served a single selection from one super-sized pot, quantities could increase and prices might go down. The lack of variety could be compensated for by rotating menus daily. The bulk of the student population would benefit, while the university might increase profits by serving more food, given the lowered price maintains original margins. Would such a change in food service be supported by the student population?

My colleague Scott Henry (https://blogs.ubc.ca/scotthenry/2013/09/30/price-gouging/) recently posted a defense of retailers increasing prices in times of natural disasters, arguing that increased profit potential would drive increased supply of necessities to help with recovery.

Although I agree with his point of increased supply, and allocating resources to those who value it most, I would hazard against the presumption that anti-price-gouging laws are inherently wrong. While price ceilings would create economic shortages, and thus inefficiency, it would be important to remember that remarkably large price increases, even if consistent with the equilibrium, would make it impossible for many people to purchase all the goods that they need in the short term. And whereas the argument made refers to a competitive market, is a disaster zone truly a free market? Are the barriers to entry too great to call it free?

Although an increased supply would come in time, as entrepreneurs outside that geographic market realize the new opportunity, this reaction would not be immediate. For that time period before imports arrive, a oligopoly  could form, hoarding supply, and pricing goods at the profit-maximizing point, higher than equilibrium. Private profit is gained at the expense of consumers, while extra supplies sit warehoused, out of reach to the needy.

In this situation of extraordinary demand, economic actors can become poised to act not in the freely-competitive fashion, but in one that maximizes their own benefit, overstepping the guide of the invisible hand. Government intervention could be necessary.