Living Economics

Mistaken Identity
A mistaken identity can confer temporary competitive advantage to a business because of insufficient information on the part of na´ve customers.

Herndon Florist, a flower shop in Virginia, began getting calls last year from customers complaining about the quality of its service. They finally figured out that these orders were taken by a company that is listed in the telephone directory as both "Florist in Herndon" and "Florist of Herndon." When customers dialed the local number, the calls were forwarded using a common telephone-company service called remote call forwarding. Finally at the other end, it is the company located in Bernardsville, New Jersey, called Nightmares Inc. Nightmares Inc. has listings in 17 states with more than 1,000 listings in New Jersey alone. It takes all the orders and then distribute to the affiliated local florists, keeping a commission plus a service charge (Wall Street Journal, 11/11/96).

Generally, customers remember a company by the quality of its service, but they don't always remember the exact name of the company. When they see similar names in the listings, they easily assume they are the same store. Nightmares Inc. took advantage of that. By using similar names, Nightmares Inc. are benefiting from the loyalty and confidence that the customers have in those local flower shops. As a result, it successfully took business away from them.

Other businesses are also using remote call forwarding to expand their service territory, such as plumbing shops and law firms (Wall Street Journal, 11/11/96). Another related practice is for a business to buy the yellow-pages ads and phone numbers of nearby competitors who have gone out of business to channel their loyal customers (Fortune, 2/17/97).

These deceptive practices would not have been possible with the willing cooperation of the phone company and excess capacity of local stores. Remote call forwarding and call diversion are lucrative business for the phone companies. Local stores who may not be getting enough business on their own would not object to some extra business wherever it might have originated.

These are all examples of deceptive market signaling that are intended to confuse customers with insufficient information. Since a business identity conveys certain attributes on which na´ve customers often base their purchase decision, identity is a valuable property much like other tangible property. In so far as a mistaken identity can confer temporary competitive advantage to the perpetrators, using a mistaken identity is tantamount to property theft.

References:
  • Ho, R. "When Local Numbers Dial Distant Shops," Wall Street Journal. 11/11/96.
  • Lieber, R. "Hey, It's a Tough Business," Fortune. 2/17/97.
Access Tools
• Advanced Search
• Browse Micro
Comparative advantage (14) Competitive strategy (27) Costs and opportunities (53) Entrepreneurship (3) Externality (28) Free Market Solutions (17) Free Ridership (3) Game Theory (22) Incentives (13) Income Distribution (25) Information (19) Labor Market (24) Marginal optimization (33) Market Demand (17) Market Entry (9) Market Exit (2) Market Intervention (12) Market Structure (29) Market supply (4) Material Flow (2) Miscellaneous (3) Price Discrimination (17) Pricing Strategy (46) Profit maximization (48) Property Rights (42) Regulation (16) Rent Seeking (2) Risk Taking (12) Scarcity (10) Tastes & Preferences (27) Taxes (7) Technology (9) Type of goods (31) What Price Means (27)
• Browse Macro
Boom and Bust (9) Budget Balance (12) Comparative advantage (13) Economic Development (1) Economic Indicators (6) Fiscal Policy (12) Incentives (1) Income and output (25) Income Distribution (5) Labor Market (6) Money and Credit (20) Regulation (5) Rent Seeking (1) Saving (6) Taxes (4) Technology (1) Trade and Foreign Exchange (30)
• Glossary
List All
Search

• Microeconomics Lectures • Macroeconomics Lectures
Instructor
• Instructor Log in • Sample TOC • Demo/Register • Video Tour
Student
• Student Log in
Close
Instructor Log in

Class
Close
Student Log in


Open Menu
Term
Definition