Fighting the Confusopolies

Time for a quick quiz.  Tell me what cell phone company will charge the least amount to use their services.  You have one minute…and go!

*Waits patiently for one minute*

Time’s up!  What did you come up with?  Assuming you gave this some serious thought, you probably realized that coming up with an answer depends on a lot of information I didn’t share with you.  How many people on the plan, how often they talk, when they make most of their calls (during business hours or outside normal business times), and where in the world the other people you usually call are located; any or all of these things could impact which plan would be the cheapest.

Even knowing all those factors, however, is no guarantee that you will find the most cost effective choice for cell phone service.  That’s because cell phone companies, realizing that few people, if any, can tell the difference in cell phone service well enough to make a choice based on the service provided, have taken the tactic of trying to confuse costumers on the price in order to stay in business.  If they didn’t, the price of cell phone service would drop to the cost of providing it, and all but the biggest company (perhaps two or three) would be forced out of the market (that’s economies of scale at work).

Sadly, this is the most accurate book about the future I've ever read
Sadly, this is the most accurate book about the future I've ever read

Instead, cell phone companies have effectively created their own ‘confusopolies‘.  I wish I could claim credit for creating that term, but it was first coined by Scott Adams, the creator of Dilbert, in the 1998 book The Dilbert Future.  Here’s how he described the confusopoly of the future:

“A group of companies with similar products who intentionally confuse costumers instead of competing on price.”

Basically, any group of companies that produce a product indistinguishable to the average user (because it has no taste, odor, texture, or other easily measurable attributes) could form a confusopoly.  Cell phone service is one obvious example; unless your company is constantly dropping your calls or otherwise making the service unusable, it’s hard to distinguish between the average, the good, and the great.

Other companies that provide near identical service, particularly information and financial companies, can also form confusopolies.  Internet service, online banking, and investing firms are all services that are hard to distinguish based purely on the quality of service; you can execute stock purchases just as easily with eTrade, Sharebuilder, or Charles Schwab.  Rather than competing to the ‘best’, they instead focus on confusing the consumer, or taking a divide and conquer approach by focusing primarily on different segments of the market.  (So Sharebuilder focuses on mutual fund-style investing, eTrade touts themselves to active traders, and Charles Schwab provides access to a stock broker, for example)

Defend Yourself From the Confusopolies

With confusion becoming a more popular method of gaining and keeping costumers and more types of types of businesses that form natural confusopolies coming into existence, how can you protect yourself?  Here’s a few hints to get the most out of the companies you use:

1) Know yourself and your needs: As mentioned, one common tactic for confusopolies is to focus on subsets of the population, and competing on one or two issues that appeal most to that group (as opposed to everyone who needs the service in some form).  When choosing a cell phone company, for example, try to take advantage of plans that will benefit you the most.  If you (or someone in your family) texts constantly, a plan that allows unlimited texts could be the best option for you, while if you only talk on your phone (a novel idea, I know) a completely different plan would be the least expensive.

2) Take Advantage of the Competition: Many companies in fields where confusopolies are rampant provide bonuses to encourage people to use their services.  (Frequently the goal is to get you to sign on due to the low rates and keep paying when the rate eventually shoots up due to mental initial.)  As a result, if you keep on top of your plans and switch when your rates are about to shoot up (or when you are about to run out of free stock trades, or whatever introductory specials are being offered), you can take advantage of their generosity and keep your costs low.  (Provided, of course, that the transaction costs of switching are low; swapping mortgage providers every few years is unlikely to save you any money unless the differences in rates offered is substantial.)

3) Don’t Panic: It’s good advice in general, but in this case it’s especially appropriate.  While you shouldn’t just rest on your laurels, the endless pursuit of the absolute lowest priced service is only going to eat up time and possibly drive you insane.  If you have a cell phone provider, stock broker, and internet company that provide good service for a reasonable rate, you don’t need to switch constantly to save a few dollars.  Just relax, enjoy the service, and keep an eye out for better offers, but don’t feel the need to spend every weekend combing through offers for the services you need.

There you have it, three simple steps to keep confusopolies from taking advantage of you (and allowing you to take advantage instead).  Keep an eye out, as they’re only going to increase in number as a result of ever lowering barriers to entry.  Have fun trying to out confuse the confusopolies!

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