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Ice Cream, Politics, and Spatial Competition

Here’s a riddle: Why does Burger King always build a new restaurant right across the street from a McDonalds? Anyone who drives past that particular street corner craving a cheeseburger can only choose to eat at one or the other. At first glance it seems like Burger King will only attract half the customers, sell half the cheeseburgers, and make half the profit. Why doesn’t Burger King  build the new restaurant as far away from the Golden Arches as possible?  This business practice seems like a poor management decision to many of us living in American suburbia, and I had to take upper-level microeconomics in college to finally figure out Burger King’s logic: Spatial Competition.

This blog entry is about politics in general and healthcare policy specifically ( and I’m getting to that), but let me start with an analogy. Imagine a one-mile-long, white-sand beach with hundreds of people enjoying the sun and surf. Now suppose there are two ice cream vendors (Alex and Bob) that plan to sell refreshing treats to the patrons throughout the day. If our original logic was correct, they would set their stands somewhere far from each other, maybe at point A and point B along the mile of beach. Presumably the beach-goers want to minimize their walk to the ice-cream stands, so if the two sellers are distributed equally, the first half of the beach will go to stand A and the second half of the beach will go to stand B.

 

If Alex is a shrewd businessman, he will quickly realize that he can steal some of Bob’s customers if he cheats into the middle a little bit. Some of the people in the middle will still go to Bob, but now Alex has successfully captured more than half of the beach-goers.

Bob is not a fool either, and he recognizes Alex is stealing his customer base. Therefore, he quickly moves his stand closer to Alex. This game continues until both sellers end up right next to each other in the very center of the beach. Each can service their respective half of the beach without the threat of losing their business to a competitor.

Ice cream vendors and burger joints play this game all the time, and politicians have been playing the same game since the beginning. Think of their beach as the political spectrum. You have voters on the left and the right, and you have a huge portion of society that sits somewhere in the middle. In our democracy, one party only needs a little more than 50% of the country to support their policies in order to maintain control. Therefore, the only important political battles are played over a handful of voters in the exact ideological center. This is of course why politicians are notorious for moving to the middle as soon as they have wrapped up their party nomination.

This theory begs the question, are Democrats and Republicans really as different as we make them out to be? Let’s examine health care reform. The far left would advocate for a single-payer health system where we all enroll in a government-funded plan. The far right would remove the government from all aspects of the health market and leave patients, insurers, and doctors to fend for themselves. Has Obama advocated a single-payer plan to achieve universal coverage? No. Has John Boehner moved to abolish Medicare, Medicaid, and the FDA? No. The American political system is fought for and won in the ideological center. These seemingly small differences on the size of tax credits, the design of an exchange market, and the percent of poverty one needs to qualify for Medicaid are not the politically polarizing issues that they are made out to be. We’re actually not that far from compromise. We’re actually selling ice cream right next to each other on the same beach.

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