Marketing myopia

Levitt, T. 1975. Marketing myopia. Harvard Business Review (September-October). 

Theodore Leavitt, Marketing Myopia , Han ard Business Review July-August 1960. 

Myopia is probably the most threatening and most likely type of market failure. Financially-distressed railroads have been tempted to skimp on safety in the past. This has primarily happened by the deferring of track maintenance, which is a particularly insidious form of cheating. It may take some years for a previously well-maintained right of way to deteriorate, and shippers have difficulties in monitoring any deferment of maintenance. Although the financial condition of the... 

Market Power Imperfect Information Customer Rationality Railroad Myopia External Harm... 

An alternative for customers of small railroads is information on safety inputs. Examples might be the average experience of the staff, the age and condition of equipment, and the level of safety-related expenditures. Information of this type will be especially useful in ameliorating the market failure due to myopia. Myopic railroads will tend to be inexperienced firms who do not have a long safety output track record to report on, or unscrupulous railroads who are cheating by deviating from their past safety performance. 

The market failure caused by myopia does not necessarily imply that safety regulations are necessary. For example, a concern about myopia by inexperienced railroads might suggest that there is a wider role for the insurance industry. Insurance assessors need to make a determination of the precautions taken by a new railroad and charge an appropriate premium to reflect the probability that accident claims will result in the future. Railroad management would be able to trade off the size of the insurance premium against the costs of preventive effort in determining the appropriate level of safety to provide. While there is no requirement for small railroads to hold insurance, most elect to do so. 

Of course, provision of accident data is not a panacea for removing incentives for cheating. Reductions in maintenance can occur long before they are reflected in accident rates. A purely informational response to a market failure due to myopia would therefore need to provide information on safety inputs such as maintenance activities, training and the age and condition of capital equipment. These are much more difflcult metrics to measure and to convey to customers than are accident data. For smaller railroads, information on accidents in a given year is unlikely to provide useful information on whether the safety precautions undertaken by that railroad are deteriorating. Accidents are rare events and it my be difflcult to determine from year to year whether the occurrence of an accident is due to myopic behavior or simply due to statistical chance. 

---