Heritage Foundation Vice President David Addington, who first reported on the rule on his blog Tuesday evening, said there are two problems with the new fee. First, he said it’s likely the 15 percent fee will be passed on to consumers. Second, he said it’s inappropriate for the government to be putting its “thumb on the scale,” helping out the fresh-tree sellers and not the artificial-tree sellers.
“If it’s one thing I think the free market could handle, it’s letting people decide what kind of tree they want to buy for Christmas,” Addington told FoxNews.com.
Source: Fox News.
While it sounds ominous and like a (hide the children!) tax increase, this is simply a marketing program, like the Milk Board, producers of the ‘Got Milk?’ commercials, or any one of a number of other marketing boards. While Addington above is correct, in that tree producers could promote purchasing live trees by themselves, there is a strong incentive not to do so because of free-riding.
Imagine that there are two producers of live trees, Dasher’s and Dancer’s. Both firms believe that such a marketing campaign is beneficial, and therefore agree to start running commercials that promote live vs. synthetic trees. But Dancer realizes that he benefits from not only his own commercials, but Dasher’s as well. Therefore, if Dancer reduces spending by 10% on his own campaign, but the loss in sales is shared, Dancer is better off in reducing spending on the campaign, assuming that Dasher continues his campaign. Soon, Dasher will make the same realization, and probably also be quite angry at Dancer’s shirking, causing Dasher to reduce his marketing spending. The result is a spiral to zero.
Now, imagine that instead of only two firms, there are thousands, and the incentive to free-ride off the campaigns of others is even greater. That is why such marketing boards are created, they are a mechanism to force all firms to participate in activities with broad benefits.