Re: Privatisation

In article <1183726785.088568.136510@xxxxxxxxxxxxxxxxxxxxxxxxxxxx>,
Canaldrifter <canaldrifter@xxxxxxxxxxxx> writes

Adrian Stott wrote:
On Fri, 6 Jul 2007 09:27:07 +0100, "Uncle Marvo"
<paul.r@xxxxxxxxxxxxxxxxxxxxxxxxxxxxx> wrote:

I am given to understand that the marinas are charged a connection charge,
which is the biggest part of the "rent".

This seems to be a part of the topic that is widely misunderstood
here, and may be leading to quite a few faulty conclusions.

<lecture mode on>

The rent a (commercial) property can command in the market is
determined by how much profit can be made from operating a business on
it. Assuming both landlord and tenant are competent negotiators, that
is the total rent that will be agreed by them.

Assume the property is on a canal, and is to be used for moorings.

If it already has unrestricted access to a navigation, all of the rent
will go to the landlord.

If it doesn't have access, then part of the rent (perhaps about 2/3)
goes to the landlord, and the rest goes to BW to pay for access
("connection"). However, the total rent does *not* change, but only
how it is divided, because that total is set by the market.

If BW ups the access charge, then what will happen is the landlord
will get less, *not* that the tenant/operator will pay more.

If the operator owns the land, an increase in the access charge will
result in a decrease in the market value of the property (assuming no
business other than mooring provision is viable there). The market
value of the property is (roughly) the capitalised rent the owner
receives.

As a result, BW's access charge does not affect the viability of
creating moorings, or their prices.

<lecture mode off>

On Fri, 06 Jul 2007 10:59:36 +0100, Will Chapman
<nbQuidditch@xxxxxxxxxxxxx> wrote:

Some of us maintain that by having the ability to impose
this charge on marinas while, at the same time, being in the
mooring business themselves, have an unfair competitive advantage
leaning towards a near monopolist status.

Will, I'm afraid the analysis of those "some" is mistaken (see above).
When BWML was created, several other moorings operators got very
excited because it was not at arms length from BW and thus might be
getting away without charges levied on those operators. As a result,
arrangements were introduced to ensure that BWML is strictly at arms
length from BW, and *does* pay exactly the same charges. You might
argue about whether those arrangements actually do the job they
purport to, but I think they aren't too bad.

The idea was to put the BWML moorings and all others on the same
financial footing.

However, the auction trial was to apply only to on-line (towpath)
moorings. The comparison for them is to other (e.g. non-towpath-side)
on-line moorings. For these, BW charges the owner 50% of the amount
it is charging for similar moorings nearby. This charge represents
rent for the canal bed over which the moored vessel floats, which in
this belongs to BW not to the mooring provider. Does BW charge itself
this for this rent? Not specifically, but it gets all the money from
them (which is made up of 50% to BW because BW owns the bed, and 50%
because BW is the mooring provider) which comes to the same thing.

There really isn't any unfair competition IMHO.

Coupled with the fact that BW also hold a large share of the
moorings market, they influence pricing each time they raise
their mooring charges.

If BW raises its prices above market, there will be excessive
vacancies among BW moorings. The other providers, if rational, will
not raise their prices above market, because to do so would reduce
their income (as they too would have excessive numbers of vacancies).
They will raise them to market, but not above.

If BW keeps prices below market (as now, in most places, it appears),
there will be almost no vacancies. Other providers will tend to price
between the BW price and the market price. At present, it appears
that they are in general keeping near the BW price, as discussed in a
recent posting.

BW's 'justification' for holding auctions is:

RATIONALE FOR THE TRIAL
1.1 Government policy tasks BW with setting market prices

2.6 British Waterways should maximise, as far as practicable, revenue from
its activities by
charging a market rate for its services. Whenever practical it
should directly charge its customers for benefits received consistent with
prevailing market
rates

Note the phrases 'charging a market rate' and 'consistent with
prevailing market rates'. Also note that in para 1.1 BW claim
that BW 'Government policy tasks BW with SETTING market prices'
(my emphasis).

First, I don't read in para 2.6 of the Framework Doc that BW are
tasked with SETTING market rates; in fact the two phrases I refer
to imply to me that they should NOT be setting rates but followng
the prevailing market.

I think you have misinterpreted here. I believe what the rationale
means is that BW should set *its* prices at those of the market. BW
cannot set the market price - only the market can.

Second, many people maintain that the process of an auction at
least risks resulting in a mooring being above the prevailing
market rate, which clearly 2.6 above implies BW shouldn't accept.

I'm afraid those "many people" have confused the market price with the
current prices being charged in the market. These two things are
different. The market is price is that at which supply is in balance
with demand. The current price is whatever is being charged at the
moment.

BW has been told to charge market prices.

Auctioning a mooring will reveal what the market price is for that
mooring, and the idea is that BW should charge that price for that
mooring. It would be possible for BW to charge more than that price,
but that would create excessive vacancies among BW moorings and reduce
BW's total income, so it has no incentive to do that (and it would
contravene the policy direction it has received from the government).
An auction cannot result in an above-market price. By definition, the
auction price *is* the market price.

It could also be that the auction will result in a price below
'prevailing market values'. BW's opertaing terms specifically
forbid them from charging BELOW the market rate, so how do they
handle that?

BW would charge the market price, i.e. that resulting from the
auction. If that is less than what the mooring was rented for before,
that means either that the mooring was previously overpriced or that
the market price for it has dropped since it was last rented. Again,
be careful not to confuse the market price with the price currently
being charged!

It is generally not possible to determine the correctness of a
statement by voting.

What has that to do with the point I was making....?

In effect, you were saying "Lots of people think Will is correct,
therefore Will must be correct". Lots of people thought that the sun
goes round the earth. Only Galileo didn't. He was outvoted, but
correct.

OED definition: "SUBSIDY - Sum of money given to an industry or
business from public funds to help keep the price of a product or
service low".

Government is not directly giving money to subsidise moorings.

I agree. But that *is* what BW is doing with some of the money the
government gives it.

The grant-in-aid is provided to BW as a contribution towards the
cost maintaining the waterways for all users, whether they pay
for services or not.

If BW charged market prices, it could put more money from the grant
into running the waterways.

There go you go again. Trying to convince us that the current
rate for moorings is below the true market value.

Surely you aren't suggesting that it isn't true? I thought you were
one of the people opposing moving to market prices because it would
result in an increase in mooring rents.

No I am not opposing moving to market prices. I am suggesting
that market prices are what they are and they don't need an
auction to give BW an excuse to raise them.

Market prices are indeed what they are. Trouble is, BW is not
charging market prices. It does not need an excuse to move to them,
as government has already told it to do so.

But it isn't holding its prices. In my area they went up and, as
a result the owner of my mooring put up his prices (he is already
making a very nice profit with no rising costs and has no other
justification to raise prices so he follows BW).

See above. If BW is currently pricing below market, and its raises
its prices, then other providers (whose prices have been held down by
BW's pricing) will do the same.

A provider has a permanent justification. He always wants to
maximise his profits from his moorings. That's the only one he needs.
Despite what several people on this ng seem to think, his costs have
*nothing* to do with his pricing.

Now that he has
raised prices, we now have a situation where BW is again 'out of
line' by your argument; is that justification in your mind for BW
to increase their prices again?

Yes. Clearly BW's prices are still below market.

One conclusion from that is that SOW should be supporting mooring
auctions. Welcome aboard?

Would you seriously like me to put it to the steering group? ;>)

Of course. I want SOW to be effective. If that group is rational, it
will agree, and SOW's campaign will become more effective as a result.
On Fri, 06 Jul 2007 09:19:47 GMT, David Long <David@xxxxxxxx> wrote:

In message <qdvr83h0jn8hsgn9sa02vm1ahqrs0thd4l@xxxxxxx>, Adrian Stott
<adrian@xxxxxxxx> writes

Of the possible methods, I believe that price is the best as it is the
fairest and the most efficient, and that auctions are the best way of
implementing it as they can reveal the actual (not estimated) market
price for each mooring.

Is that true? On practically every "Antiques Roadshow" one expert or
another says "It should fetch £x at auction, but you should insure it
for £x+y for insurance purposes.

That's just prudent. It is impossible to be certain what anything
will fetch at auction, so you should insure it for a value above the
auction estimate.

As I boat, and moor, usually free, in France, I've no axe to grind in
this debate, but it seems evident to me that if a mooring is compulsory
over here, some kind of regulation on prices is necessary.

Food is a necessity (i.e. compulsory). Should food prices be
regulated? Definitely not, because there are many providers of food
and continued assurance of supply relies on their being incentivised
to respond (through pricing) to market conditions. The only time
price regulation is merited is in a natural monopoly (e.g. water
supply) market.

Moorings fees are akin to Licence fees, and BW

No, they aren't. For licence fees, the navigation authority is a
natural monopoly. For moorings, it isn't.

Prices will vary because costs vary

No (see above). That is a very commonly believed fallacy, but a
fallacy nonetheless.

the quality of the facilities

That will cause the price to vary, because it is a variation in what
is being sold.

it should be possible to limit the variations by capping the profit element.

It is certainly possible, but very undesirable as it will tend to
limit supply.

This may seem anarchic to Adrian, but he benefits from such regulation in the
supply of other services he receives, such as gas, water, electricity.

Actually, it is the opposite of anarchic.

Your examples are natural monpolies. Moorings are not. The
comparison is false.

Boating is a luxury, but so are many of the things we run off our
price-regulated electricity, but we suffer such anomalies because of the
greater good.

How does subsidising boating contribute to the greater good? If I
were not a boater, I would certainly think it is against my interest,
and since most people are not boaters that it reduces the greater
good.

<phew>



Do you really think I'm gonna read all that?

Tony H



Who is paying him to write this dribble?
--
Nicholas David Richards -

"Où sont les neiges d'antan?"
.

Relevant Pages

  • Re: Privatisation
    ... The rent a property can command in the market is ... If the operator owns the land, an increase in the access charge will ... business other than mooring provision is viable there). ... If BW raises its prices above market, ...
    (uk.rec.waterways)
  • Re: Privatisation
    ... The rent a property can command in the market is ... If the operator owns the land, an increase in the access charge will ... business other than mooring provision is viable there). ... If BW raises its prices above market, ...
    (uk.rec.waterways)
  • Re: OT -- A Car Wreck Made in Washington - Can Democrats afford to let Detroit succeed?
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    ... ie. charge what the market will bear. ... if the prices are as much higher as Larry and I are ... Our doctors here charge ...
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  • Re: Privatisation
    ... What is the value of a mooring ?. ... this can only be done by having some form of visible market. ... a picture built of the prices paid, which is by definition a market value. ... is being fed by substantial numbers of new boats entering the system. ...
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