The Tragedy of the Commons

In my January "The Fifth Element" column, I discussed the concept of value in the context of audio component manufacture. This month's "Letters" includes a response to that column from Austrian distributor Hans Hirner. In his letter, Herr Hirner writes about some of his Web-surfing non-customers: "If that weren't enough, they also call me or my dealers to tell them how proud they are, after having taken all from me that is possible in system matching and trial—and even denoising their systems—to have been able to find 'our' products cheaper out there."

The phenomenon Hans Hirner describes is a variant of what some historians and economists call "The Tragedy of the Commons." In most communities (other than gift-economy-based religious communities), a natural resource that is held in common, such as grazing land, will tend over time to wither and perish, either from unsustainable overuse or from neglect. (Home-schooling parents: have your kids diagram that sentence!)

This is because the willingness to donate labor to, and the willingness to refrain from taking as much as possible, right away, from a shared resource, in the interest of the common (as opposed to the exclusively private) good, are stronger in some people, weaker in most, and nonexistent in many. Over time, the number of all-take/no-give free riders increases to the point where those who are doing the upkeep work justifiably feel taken advantage of, mutter the Latin or Old English equivalent of "Screw this," and, by the time everyone else has figured it out, the village green is dust (footnote 1).

Readers of John Marks Recommends, my e-mail newsletter know that one of my favorite catchphrases is a response to the Tragedy of the Commons: "Libraries will get you through times of no money better than money will get you through times of no libraries." This is not to equate Herr Hirner's business operation with a village green or a lending library, but there are important similarities. Demonstration facilities, the lending of equipment for home audition, in-country repair facilities, and onsite troubleshooting are all business costs that a full-service importer or dealer has to pay for out of his gross margin—in my view, it isn't a profit until it is spendable at discretion—all of which a no-service drop-shipper can avoid in one of two ways. Either way, when the no-service drop-shipper avoids these costs, he can sell at a lower price. For a while, at least.

The two ways of cost avoidance are true cost avoidance and free riding. True cost avoidance is almost impossible. In a competitive marketplace, most consumers are not willing to buy a product with no warranty, no service support, and no opportunity to try before buying. So the no-service drop-shipper "rides free" on the existing sales channels' investments and expenditures. (There are examples in which these costs are borne by the manufacturer, the Bose Wave Radio being one.)

A good example of free riding comes from the home-furnishings industry. Wallpaper sample books and carpet samples are a substantial cost of doing business for a bricks-and-mortar store. But one sees in the home magazines advertisements urging consumers to make use of their local store's resources to determine what they want, then buy by phone to get a better price. In my opinion, this is an invitation to steal.

Society has a word for driving off in someone's car without their permission: stealing. Society has a term for going door to door collecting money for charity, but then spending it on Britney Spears videos: obtaining money under false pretenses. Somewhere between those two lies my considered judgment of an audio consumer who takes advantage of a local dealer's having paid rent, having paid salespeople, and having paid to put inventory on display, who derives genuine benefit from those expenditures, and who then buys from a no-service channel on the basis of lower price—or who uses a dealer's time and money to decide what it is he wants to buy used, off the Web (footnote 2).

The problem of free riding is that, eventually, the dealers whose infrastructure has made the sales possible go out of business. Hey presto! The manufacturer finds that nobody, anywhere, is buying. Then the no-service drop-shipper finds some other product to exploit.

(The necessity of widespread infrastructure in high-end audio sales is underscored by the sad demise of Waveform Loudspeakers. Waveforms were—by far—the least expensive speakers ever to earn a Class A: Full Range listing in Stereophile's "Recommended Components." But their low price was a result of a factory-only sales policy. Not enough potential buyers were exposed to the product, and the business ended. But had Waveform set its prices high enough to allow a representative's commission and dealer markup, its loudspeakers would have cost about twice as much.)

The self-defeating shortsightedness of free riding is the reason that United States antitrust law allows a manufacturer's imposition of geographical restrictions, and the requiring of investments in showrooms and service facilities, to be analyzed under the "rule of reason" standard rather than forbidden outright as "per se" anticompetitive restraints. When I see a manufacturer stand tough on territorial restrictions and other investment-protecting policies, my reaction is to applaud, in the expectation that the dealers and the company may be around for a while to service their customers' needs (footnote 3).

Rabbi Hillel advised, "That which is hateful to you, do not do unto others." That's a place to start. Don't use other peoples' business resources in bad faith. Beyond that, consumers should pass the word about dealers who provide excellent service, and ponder the Tragedy of the Commons.

Footnote 1: And not just the village green, not just back then. The commons tragedy is most apparent today in the overfishing of Northern Atlantic waters off the US and Canadian coasts.—John Marks

Footnote 2: Stereophile has covered this subject before. Visit the magazine's Web archives and click on my "The High-End Review" from September 1993 and Barry Willis' "Invaded by the Grays" from June 1996.—John Atkinson

Footnote 3: I know that some high-end stores are labors of love, while other stores just push the boxes. It isn't somebody's investment in a bricks-and-mortar store that obligates you, it is using that person's time and money to make up your mind about what you want. If you visit a store and nothing sounds good to you, that's fine. But if you ask a store to reconfigure their display system to more closely approximate your system, spend hours listening to various new components, make up your mind, then go home, log on, and surf for used gear...well, to quote Procol Harum's lyricist Keith Reid: "Look to your soul." Honesty is the best policy. If you explain that you're looking for used gear, the dealer can probably network with other dealers to get you what you want, and will be more likely to stand behind it than someone you've never met.—John Marks