My mother was recently overbilled by her health insurance company. After noticing the inconsistency, she called them, harassed them over the phone for a few hours, and finally they sent her a check for the money they owe her.
If they are not reconciled, overbilling or underpaying are both theft, regardless of who does them. When they are addressed, two general rules seem to apply in contracts between large firms and individual consumers:
[list][*]Consumer underpaying leads to penalties. I bounce a check, I don’t pay my health insurance bill, or I don’t pay my credit card bill, I pay an extra fee on top of what I owe.
[*]Overbilling by the firm generally has no penalty. If money goes missing in my bank, they just put it back. If I’m overbilled, the health insurance companies just give me my money back. If my identity is stolen and my credit card company makes inappropriate charges, it’s my responsibiltiy to prove such charges are illegitimate. What’s owed is simply returned with no extra fees.[/list]
This doesn’t just hold true for heavily regulated institutions, like banks, credit card companies, and health insurance. Nearly every firm which provides services on a subscription basis follow this same model, whether it’s your cell phone company or a subscription to XBOX Live. And this tendency does not seem to exist for informal contracts between individual consumers or contracts between firms.
Assuming Austrian economics is true, how do you expect me to believe that consumers all have a subjective desire to pay such penalties, but not expect firms (which are made up of individuals) to pay the same penalties for the same behavior?
Please read and think very carefully before responding. Read my entire thread in full before responding. Reading it one sentence at a time and quoting it one sentence a time demonstrates that you’re not even considering my arguments before you reject them.
Damn. Now there’s a poor rebuttal I hadn’t predicted.
This doesn’t just apply to corporations, either. Find any company which provides monthly subscription services and you’ll see the same model.
And even if corporations are not “free market” in your opinion, the arrangement above was decided by the market. Government regulation does not require that firms get a free pass for overbilling while consumers have to pay fees for underpaying.
Even if you think corporations are evil, all they do is shield investors from liability and provide firms with a greater source of capital. In the above arrangement, no “civil law” was breached, so corporations’ limited liability is irrelevant.
I can only think of utilitarian reasons dealing with differing costs that customers have in comparison to the industries in question that would provide this arrangement as a mutual compromise between the two agents. What I cannot respond to is the philosophical/moral nature of the arrangement so I am sorry if this only reaches part of the statement. The companies in question do have far more overhead costs (workers, customer fraud, different taxes etc etc). Companies also have very pro customer policies at their personal expense, for instance at various places I worked the customer need very little proof of either overbilling or contract violation so the company in competition with other companies will have large amounts of revenue going out to meet these various claims regardless of how truthfull the overwhelming amount of customer claims are. So I can only imagine that the reason these arrangements prevail is due to the differing needs and desires of the two agents. Companies might not give people interest on their overbilling but will give it back on a much larger more consistent basis (not to mention more liberal basis) then the bills that an individual customer may have who without a doubt has less overhead and therefore different needs and therefore might not be as pressed to argue for bonus payments to put into the contract. But the mutual compromise of the market is very fluid and dynamic so who knows, maybe someday customers will get more out of these contracts or maybe something will happen that will revert in the companies favor. And as far as the moral nature of overbilling vs underpaying as theft I can only say that theft is an involuntary arrangement where you did not agree to have something taken from you and paying bonus to your company is usually something made explicit in a customer’s contract and hence the customer agreed to it. I hope I am at least on track with your statement and feel free to tell me I missed the mark.
Deist, I’m anti-Marxist. I hope I’ve made that clear to you all, by now.
With that said, you ironically seem to have just invoked the labor theory of value and contradicted marginalism.
The individual consumer doesn’t care about the overall costs of the firm in the grand scheme of things. All he cares about is what the firm can do for him, right then and there, which reflects costs but that’s not something the consumer takes into account.
Say you had to pick between two firms with identical monthly subscription services: Firm A provides the service with no underpayment fees. Firm B provides the service either without underpayment fees or the company themselves have to pay an equal fee if they overbill you.
Obviously, firm B satisfies marginal utility more than firm A, so that’s the one you’d pick. You wouldn’t think, “Firm A’s methodology would reduce their costs, so they will probably be able to provide lower prices in the long-run.” Who cares about that? Right here and now, firm B satisfies your marginal utility better than firm A.
Individuals make decisions on the basis of marginal utility, not extraneous factors like costs, such as labor.
In marginalist terms, how is payment “made easier” in the arrangement above?
Also, your separation of people into “demanders” and “suppliers” seems to invoke Keynesianism. If demanders and suppliers systematically exhibit certain behavior, then Austrians ought to have no problem with the model of aggregate demand & supply.
Just to clarify I was not saying the consumer cared about the companies costs just that they might have different personal demands then the companies they make contracts with who will (the companies) argue for different things on their end of the bargain. As far as labour theory of value goes I thought I was making an argument more in favor of general equilibrium theory. I was merely trying to get to the source of why a company (which most certainly keep costs in mind) might demand penalty payments in a contract more then the average customer would. And dont worry I know your not a marxist.
P.S
I am not trying to be condescending I am just including a little definition of general equilibrium theory JUST in case you might not know what it is.
General Equilibrium theory believes prices are based on the interaction of preferences, technology and endowments through supply and demand. This is the same theory Menger believed in and other Austrian economists.
Also, your statement just broadly invokes subjective evaluation without basis, which goes back to my original question, then: Do you really expect me to believe that individual consumers subjectively desire the arrangement above?
I must ask where is this idea you are getting that I said the customer cares about what the companies interests are? I was making an example as to what the two different sides bring to the table. If you take the time to read my first entry (as you demand of people in reading your first entry) you will find nothing saying that this arrangement is based onthe costumers desire for the welfare of the company they are contracting with. I said it had everything to do with the different desires and demands of the two parties. Contracts are not all about one side getting EVERYTHING they want. It is about compromise and if I was to make a contract with you there are certain things you simply would not let go just as their would be certain things I would not let go and we would compromise on the issues that were less important to us DEPENDING on what our needs and situations are. You and I, just like the company and the customer, have different needs compelling us to demand and compromise on different issues. Read my first entry and you cannot deny what I said. You are the one that is saying this arrangment is all about the consumer magically getting what he wants and somehow he has the interest of the company’s over his own. I am the one saying they COMPROMISE when they form a contract depending on their subjective desires.
Personally, I knew what you were saying. Even if you said something inconsistent, it wouldn’t be abnormal for us fallible men. I think Nathyn was trying to do a ‘gotcha’ of some sort. Come on Nathyn, are you trying here? [:P]
Okay, if you and I were about to make a contract where you pay a monthly subscription and I provide services.
Explain to me again: Why would you want to be charged for late payment?
The issue isn’t just that one company does this, but that most companies follow this model, suggesting some kind of market forces guiding their behavior. What are those forces?
Appealing to subjective evaluation doesn’t prove your point, because as repeatedly noted, just doing that seems as absurd as Walter Block calling slave contracts “voluntary.”
That part is obvious. But why do consumers all choose to have this arrangement? You’re dodging the question.
Why do consumers repeatedly compromise in the firm’s favor? Isn’t it just as important that firms bill on time and for the right amount?
Yes, actually. It’s not difficult to do, for someone with a basic education in economics, who has read a fair amount of Austrian material.
Alright, I have made my point several times here. I have to ask you a question now in order to better understand where you coming from. What type of contract would you endorse as justified? Since every contract is about give and take and is about making both sides stand up to their end of the bargain how are they all not slavery by your definition of the term? Slavery totally takes all ability of independence away including your contract ability. Other contracts merely cause limited obligations and are not nearly as total in their aspect. Also for the last time the reason the customer always gives in is because they want the product more then other aspects of the contract and the firm views is dependent on the costumer for it’s income and hence demands to allow certain safeguards on it. Also I said this could change or not due to future developments. Keep in mind companies that take in billions of dollars still have profits in the single digits because after they take in the money they then have to dish it out on tons of expenses. For instance if you check out the report on walmart they on average have a three precent profit. This is included so that you can think about the subjective demands of the two agents as having a real world basis. If you still think I am saying it is up to the customer getting everything they want this debate has reached its conclusion. And for the record I may not be an anarcho capitalist. I never stated what I was. I have been arguing on a general basis of economics not the political structure.
You’re saying these big companies have an advantage because it’s not tit-for-tat - “I’m paying a late fee but they’re not paying an overcharge fee.” If this is such a big plus for them then why don’t you go into that business?
Also, why not write up your own contract, telling them they have to pay you a penalty for overcharges. How much success do you think you’d have? If you think you’d have no success, try some alternatives. You can use coercion to make them sign your contract. You can utilize the market advantages they’re utilizing by providing similar services and reaping the benefits of 'no overcharge penalties. You can self-provide said services.
I think Nathyn was trying to do a ‘gotcha’ of some sort. Come on Nathyn, are you trying here? [:P]