Why Bethlehem Residents Would Pay Less With Single Trash Hauler

I’ve been waiting for somebody to make this point so I could knock it down, and it finally showed up in the comments:

Mr Marshall did not “poll” me. When was that conducted. I am so satisfied with my private trash hauler, I can’t believe it is an issue AGAIN, AND AGAIN, AND AGAIN, AND AGAIN. The expense for hauling my trash would most certainly go up. The point of recycling was to “reduce trash” deposited on the landfill. The City encouraged recycling, is proud of it (at taxpayer expense). Callan is leaving…he does not care about the privage sector jobs that will be lost. One last thing, no matter what the price of the single hauler system….the VERY NEXT DAY

To understand why this is mistaken, we need to consider two concepts from economics.

One concept is the Winner’s Curse. In an auction, the person who wins is the person whose bid overshoots the market value. Unless the auction is especially uncompetitive, the winner is the person most willing to overpay. It’s called the Winner’s Curse because the winner of an auction tends to get a bad deal. The bidding process for a public contract is like an auction. Service providers compete to offer the best package of services for the lowest price. Politicians want to pick the cheapest option, so the way to win is to accept a lower profit margin than the other companies. The winner ends up in a Winner’s Curse situation where they accepted kind of a bad deal to get the contract. But on the flip side, it means Bethlehem residents are getting a really good deal.

The other concept is monopsony. Monopsony is the opposite of monopoly – a single buyer, rather than a single seller. Just like a monopoly uses its market power to push up prices for buyers, a monopsony uses its market power to push down prices for suppliers.

Amazon is a pretty good example of a monopsony. Everybody shops on Amazon, so companies can’t afford not to be selling their products on Amazon. But for that same reason – the huge market of potential customers – Amazon has a lot of power over supplies to force them to sell their stuff at lower prices. The suppliers don’t have anywhere else to turn to reach that many customers, so they have little choice but to accept very low profit margins.

It’s the same idea with a single trash hauler. Haulers want access to the large market, and will accept low margins to get the contract. By pooling purchasing power and buying trash services together, Bethlehem residents will get a lower price and a better value.

The term “single hauler” might be confusing people about what is happening here, since it sounds like there’s no competition. In reality, the competition happens in the contract bidding process. Contrary to what the commenter is arguing, the price is locked in for the duration of the contract. The contract winner cannot raise prices until the contract is up.

Another argument I keep hearing is that the city shouldn’t go with a single hauler because seniors currently get discounted rates. Now it may be the case that the single hauler ends up being even cheaper than with the senior discount, but if it’s not then that needs to be addressed in the Mayor’s political strategy. Find out what the seniors are paying now, and if the single hauler would be more expensive then buy off the seniors. The way to kneecap the private haulers’ political coalition is by promising the seniors the same price. Take some of the savings and give it to seniors as cash for their trash bills . There’s no reason for everybody to keep paying more just because some people are getting discounts now.

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