Dr Claw and the Lobster Underground

An interesting story about the way regulation is used to protect incumbent businesses and suppress competition.

In New York City, the number of food-cart vending permits is capped by the city’s administrative code:

And you cannot get one. The waiting list is even closed. But it was 10 or 15 years’ wait. It’s impossible to get a food vending permit from the city.…If you want to get a permit for your cart or truck, you cannot do it.

In Washington DC, regulations applicable to food vendors are much more liberal (with “liberal” being used here in the older sense of the term)…local restaurant owners, predictably, are often very resentful of this situation. The article cites a Domino’s Pizza manager who:

..can’t hide his contempt for the lobster truck parked in a metered space in front of his store in September. “Of course it’s hurting, because it’s right in front of your store,” Basha says. He points to a line of about 30 customers waiting to buy lobster rolls. “Most of those customers were ours.

A true free market, in which incumbent businesses must compete with aggressive newcomers, is stressful for the incumbents. A growing thicket of regulations can help shield them from this necessity, while ensuring that individuals without extensive capital or credentials are excluded from economic success.

15 thoughts on “Dr Claw and the Lobster Underground”

  1. I feel for the pizza owner. I’ve never run a business. I complain about academic hospitals and their management class, and yet, I have a job don’t I?

    But my sympaties are with your overall point. The things we might to do protect the pizza owner only make things worse for the customers, other pizza owners, and those wishing to start food carts which seems a good way to get into business with a smaller amount of capital.

    A lot of what I see in my comfortably progressive environments is politics-as-sympathy. People feel for the pizza owner and so “we must do something.” Perhaps, in some situations we should. Perhaps in others we shouldn’t. But it is a very feelings-driven process for some. I speak of myself here, too, because I was a liberal for the bulk of my life. My political ideas were based on a very peculiar mix of feelings. “This is unjust!” I would think, without trying to work out if, indeed, something was unjust and what the outcomes of my preferred solution might be.

    A lot of what I see in my local political environment is rent-seeking, a feeling about how things should be, a feeling about what sort of person believes in progressivism (a good, enlightened person), political arrogance, and lots of ex-hippy wierdos. Some maladjusted sorts who really wouldn’t make it in another environment. There are also good, sensible people thrown into the mix who will have a good conversation with you, but just generally disagree. They read Huffington Post and I read Instapundit and so it is. But we are civil and we listen to one another. These are the people I like. A lot. Because, goodness knows, I’m not perfect. Imagine that, she says wrily….

    – Madhu

  2. “Most of those customers were ours”. I don’t like that statement for a couple of reasons.

    In the video they say that the lobster roll costs $15. You can get two Dominos pizzas for that last time I checked – I don’t think these people were eating Dominos pizza for lunch.

    I would hand out Dominos coupons to the people standing in line to try to get them to stop by perhaps for dinner on the way home or order something for delivery. Present your lobster roll receipt for a discount. Many ways to skin that cat.

    Do people really go to Dominos to pick up pizza? I thought their whole hook was delivery.

    More disturbing is the fact that by making the statement he seems to think that he has a claim on or ownership of the customers, a blatantly dishonest way of looking at things. They are only “your customers” during the last transaction. They are everyone elses until the next one and you have to earn their business all the time.

  3. I saw an interesting case of regulatory policy a couple of years ago when I needed to fill some odd-sized propane tanks (for a boat) on the 4th of July….my normal supplier (which is right at the pipeline terminal) was closed, and it was with considerable difficulty that I located another tank-filling facility, at a rather out-of-the-way gas station. The guy told me that *new* propane facilities were banned, but that he and a couple of other places were grandfathered.

    Over time, of course, the possession of “grandfathered” status (to the extent it transfers title with a business, which it usually does) becomes a sort of “property” which can be quite valuable to the “owner.”

  4. Dan…yes, I also didn’t like the phrase about the customers being “ours”…although just about everybody in business refers to “my customers” or “our customers”, I thought there was an overtone of entitlement & ownership in his usage.

    Business journalists very often say something along the lines of “Universal Entities controls 70% of the Gerbilator market.” In reality, of course (absent strong regulatory barriers), Universal Entities does not “control” 70% or any particular % of the market, as many companies have found out to their sorrow.

    What % of the classified ad market does the typical daily newspaper now “control?”…

  5. They need a level playing field. The lobster truck owner should pay the same dollar amount in property taxes on the spot wher he parks as the pizza store owner pays for the spot where his store is. Both should have to give the same freebies to local cops and inspectors and pay protection to the same wise guys. Both should comply with the same zoning rules – the same limits on signs, building materials and handicapped access and bathrooms. Otherwise, the trucker has an unfair advatage because hiss only costy of sales is labor and food. His costs are 50% less.

    From time to time I park my van next to a gym and sell protein powders, weight loss pills, nutrition bars, energy drinks and prohormones. I buy from the same wholesalers as healthfood stores but I have no overhead. My iPod accepts credit cards.

  6. The Food Truck phenomenon is itself the result of government restrictions on the market that make it prohibitively expensive for small (and usually young) entrepreneurs to open their own brick and mortar restaurant. The natural economic niche for food trucks is servicing temporary clusterings of customers e.g. sporting events, construction sites etc. When the customers begin having to track the food trucks down via the internet, you know that the truck’s mobility is driven by some external factor. The only reason food trucks move is to escape the cost and restrictions of the government.

    I do have some sympathy with brick and mortar business in this regard: The food trucks are not paying the property taxes that pay for the roads they drive on, the parking spaces they occupy nor the sidewalks that their customers stand on. The brick and mortar businesses do.

    Food trucks can also “creme” customer flows such as those associated with special events without having to pay the year round cost of creating a permanent position to do so. If a brick and mortar restaurant wants to earn money from seasonal events, they have to create a physical, year round presence and pay taxes for the privilege. The Food truck can just drive in when the money is good and drive away when it isn’t.

    I think it’s pretty easy for brick and mortar businesses to see themselves subsidizing their competitors in the Food trucks and pretty easy for them to rationalize that they can use regulation to “level” the playing field. It’s a good example of how government intervention begets more government intervention.

  7. David Foster,

    Dan…yes, I also didn’t like the phrase about the customers being “ours”…although just about everybody in business refers to “my customers” or “our customers”, I thought there was an overtone of entitlement & ownership in his usage.

    You find the same sense of entitlement and ownership in the phrase, “our jobs” as in “shipping our jobs out of state.” A job is a relationship with another human being and you don’t own other human beings.

  8. A couple of years ago I was looking at an interesting book about “property right” derived from regulatory privilege and the effect that the expansion of such “rights” is having on our society. Unfortunately, I didn’t buy it and can’t remember the author or title. Does this ring any bells with anybody?

  9. This is the chain. I really screwed up the links in that comment.

    My point was that restaurants have their advantages, too. If they can figure out what works and keep doing it, customers know where they are. Notice how this chain uses all the social networking stuff.

    The food carts are another business. Pizza delivery is another business, still. How many people go to a restaurant to order pizza ?

    Peter Drucker used to say, “What business are you in ?”

  10. a bucket of red paint would solve domino’s food truck problem. domino’s real problem is their product is of exceedingly poor qality.

  11. There is a somewhat similar phenomenon going on in Santa Monica, one of the most left wing cities on the planet. People are driving RVs into the city and parking along the streets facing the beach. Homeowners across the street (Who paid more than $1 million for a 900 square foot house) have their view of the ocean blocked.

    The LA Times was on the case and I note that Venice was also involved. When I was in college and new to California, Venice was a failed attempt to build a replica of the famous city, canals and all. It was a slum with lots of mosquitoes. Now it is a slum with mosquitoes that costs $1 million for a small house. It is also the home of the person who hanged Sarah Palin in effigy for Halloween.

    I am sympathetic to the restaurants but they also have their own advantages. The customers know they will be there when it is time to eat. The typical restaurant runs split shifts for employees to keep labor costs reasonable. My daughter got a job as a waitress (She began as a hostess and was promoted pretty quickly) in a local restaurant called “Buffalo Wild Wings” or something like that. It is a small chain here. I am told by her mother that it is jammed whenever she goes in there. The chain took over a site that had had two failed restaurants and it is not a good location (Nearly invisible from the rest of the shops). It is in a three story mini-mall with lots of failing businesses that is kept alive by a movie theater. The mini-mall was built there with city subsidies that are long lost in multiple sales of the structure. It was one of the reasons I got involved in local politics.

    The restaurant owners have a good thing and seem to be doing fine. Tough business. My daughter announced last month that she may decide to go into accounting !!! Obvious example of the exposure to business.

    The job has been great for her and she has learned more working there for a year than in three years at U of Arizona. She drives from San Diego, where she is now in college, to Mission Viejo every weekend to work. The gas is more than her income but it's OK because I pay the gas card charges. The education is priceless.

  12. Michael – good story. The real world does indeed open eyes at times. BWW does a great job focusing on their product, which is being a sports bar. They serve wings and beer and always have sports on TV. Thats it. We have a location close by my house and the place is doing great.

  13. I can see a small valid complaint on the part of the Domino’s manager: The city owns that space and they’re allowing it to be used in a way that (he thinks) hurts his business. If another private entity owned it he might legitimately complain to them or offer to buy it, as is, he’s stuck dealing with the city. But that’s a VERY small quibble and doesn’t undermine the general case as far as I can see.

    When I worked for Dominos a couple or three years ago, in addition to 30 minutes or free, we had a couple of RVs with pizza ovens which drove around to sporting events etc. That allowed Dominos to compete very effectively since they had brand recognition the food trucks lacked.

    If I were this store manager I’d simply paint a Dominos logo on a cheap car and park it in front of the store. Send a driver out ever day to move the car a couple of feet, problem solved.

    In Cincinnati this whole food truck thing has gotten so weird that they have designated, reserved, rotating parking spots…

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