22 ms·

Why companies make their products worse

123 points by RachelF 10y ago

walterbell 10y ago
If there is vendor competition, all tiers of service can be improved, while retaining market segmentation.
- exelius 10y ago
  Unless there's a breaking point of "good enough" that can serve all segments. Typically though, this "making the product worse" thing is used as part of the sales cycle of a patented product. There has to be some "proprietary" piece (whether a large up-front investment in infrastructure or a new technology) or else it's a commodity and this type of segmentation doesn't work.
  - usrusr 10y ago
    "Premium fuel" is a perfect example of price segmentation in a commodities market. Granted, not many customers fall for it, but it seems to be enough to keep up the expensive ruse.
    - gwbas1c 10y ago
      Not really. High compression engines need higher octane in order to achieve full performance.
deleted 10y ago
[deleted]
hatmatrix 10y ago
The author describes how companies cripple their own product to extract "maximum profit from each punter," but does not say why this is good for the customers. Presumably, most of the profits are funnelled to shareholders. > The key test is whether the practice means more goods are sold. Suppose the French had regulated trains so that all carriages had roofs. All those in second class might have switched to third class, potentially rendering both uneconomical to provide. Could not there be a third option where the quality is not crippled so much but priced such that there is an increase in both supply and demand for a reasonable ride? In the current scenario, business chugs along, with lower-tier customers settling for an inferior product and upper-tier customers extorted to the maximum extent.
- vlehto 10y ago
  The valuable thing here is information. You can't have perfect information in such situation, because people say different things than what they actually pay. If you have very little competition, then correct pricing is relatively less important. In high competition enviroment several price points help to reach the "right" quantity and price fast. And in high competition enviroment, shareholders see very little of it.
- gnicholas 10y ago
  You're right—the author doesn't really address this. If a business is unable to price discriminate by adding or removing features, they will end up having to pick either (1) high price or (2) low price. [Stylized example, of course] If they pick High Price, then they will include lots of features, but only people with a high willingness to pay and high ability to pay will end up purchasing the product. This means that people who would have been willing to purchase the low-end version of the product do not have that option and will instead purchase no product. If the company picks Low Price, they will not include as many features because (in many cases) there is not sufficient profit incentive. This means that even customers who would have been willing to pay for these features cannot purchase them. Ultimately, the assumption is that if customers are interested in making a purchase of a "crippled" or "feature-enhanced" product, and the company is willing to make that exchange, then the exchange makes both parties better off. This is what economists call "gains from trade." Does this mean that everyone customer is better off with price discrimination under every circumstance, or that one cannot imagine a way in which a company could operate altruistically in order to make some customers better off? No. But generally they won't, and this is typically tied to the company's duty to their shareholders. (This is why B-Corps are nice—they give more flexibility in this regard.)
  - usrusr 10y ago
    Minor nitpick: if a company is not able to add our remove features, the product would be exactly the same no matter wether they go for volume or for price per unit. What you describe is the scenario where the company would be unable to have more than one price tier, while retaining the ability to add our remove from the set of features. Edit: communism might be such a scenario, because multiple price tiers might be seen as ideologically incompatible, but even that would be a misconception as it misses variability personal preference: one might be willing to make compromises in other areas to have a bigger TV screen, while their neighbor might be more than happy to sacrifice screen size for a more sophisticated bicycle.
lmm 10y ago
> Today Eurostar offers a ticket that uses Dupuit’s logic. It offers ultra-cheap tickets that do not specify the time of travel (this is revealed two days before the trip takes place). Adding uncertainty to a traveller’s itinerary is a reduction in quality. But it is useful because it forces business travellers – who must be in London or Paris at a specific time – away from this bargain option. This doesn't seem like quite the same thing. Eurostar makes a real saving on their "manufacturing" here - they can give the customer a seat on whichever train has space, rather than having to allocate them a seat ahead of time and maybe fill up a train and drive potential customers to fly instead.
- Declanomous 10y ago
  That was my thought as well. A better example would be if the third class seats had less padding, despite the expense of a more comfortable level of padding being the same. This article reminds me of an article on Unpleasant Design that has been posted on Hacker News before: https://news.ycombinator.com/item?id=12041639 https://news.ycombinator.com/item?id=12041639
- rtkwe 10y ago
  It does both at the same time. It allows them to service less time sensitive customers or extremely price sensitive customers without losing revenues as they would if the cheaper ticket didn't have the large downside of travel time uncertainty. So it's the same thing with an added bonus of decreasing the potential need to run more trains.
- IshKebab 10y ago
  If their intent was only to distribute passengers evenly they could simply use demand-based pricing like most rail networks. There's no reason to introduce additional randomness other than price differentiation.
lsiq 10y ago
The hypothesis that you would have excess supply is not very well thought out. Take the train example that he mentioned. He is effectively suggesting that higher margin 2nd class tickets subsidize 3rd class tickets. Companies may be afraid to improve 3rd class, thinking it would eat into their 2nd class and lower profits. But they would very likely just sell more tickets, as their 3rd class was now the best in the business. And provided there were an actual differentiated service in 2nd class, those tickets would still sell. And if the was no difference, they could eliminate 3rd class altogether and sell second class only for greater volume and slightly lower price (or make 2nd class improvements). Cannibalization is no problemo for business. Some folks at Apple were afraid the iphone would cannibalize ipod sales. Imagine if they actually went with that thinking and sold iphones that didn't play music. And iPods still sell to this day. Unless the sector has high barrier to entry (e.g. Intel), such practices are very often short sighted. You don't see IBM selling printers anymore.
- smallnamespace 10y ago
  > But they would very likely just sell more tickets, as their 3rd class was now the best in the business. IMO, you're simply begging the question by presuming that 2nd class won't be cannibalized. We're also forgetting that one can't simply increase ticket supply, because trains and airlines are capital constrained once you run out of seats. At best, you can hope to charge more for 3rd-class tickets, at the expense of having cheaper, or empty, or fewer 2nd-class seats. Even if a company manages to raise price of 3rd-class tickets, they face both a 1) lower effective subsidy from 2nd class and 2) the cost of providing 3rd-class amenities. Which effect dominates very well depends on the relative preferences of 2nd and 3rd-class buyers. The sweet spot is to find an inconvenience that only affects 3rd-class ticket-holders a little bit, but annoys 2nd-class ticket-holders a lot. The Eurostar is a good example of that -- most people aren't inconvenienced too much by being told their flight time 2 days in advance (so depresses economy ticket prices only slightly), but deep-pocketed business travelers find it completely unacceptable (which shifts effective demand to the business seats).
  - makomk 10y ago
    If the trains run out of seats in 3rd class, this helps prevent 2nd class from being cannibalized - customers who want a guaranteed seat or less overcrowding then have to buy a 2nd class ticket.
sandworm101 10y ago
Airlines. I seriously believe that market has hit a low-cost saturation point. They are now actively making their most common product worse, more painful and difficult to use, in order to sell upgraded versions.
hatmatrix 10y ago
Is this like multi-licensing[1] or freemium[2] models in open source software? [1] https://en.wikipedia.org/wiki/Multi-licensing https://en.wikipedia.org/wiki/Multi-licensing [2] https://en.wikipedia.org/wiki/Freemium https://en.wikipedia.org/wiki/Freemium
PhantomGremlin 10y ago
I wish I could read an article on why Apple insists on, version by version, making their software worse. E.g. recently released Safari 10 inexplicably removes the Accessibility preference to "Never use font sizes smaller than ...".[1] Unfortunately you won't find anything informative like that in this article. Instead you get examples such as why in 1849 French railways offered three classes of travel, and why the lowest tier was deliberately very bad. That doesn't really help explain current practices (unless Apple inexplicably wants to force me to use Firefox instead of Safari?). [1] fortunately the internets have already discovered a command line workaround, but should that really have been necessary? defaults write com.apple.Safari com.apple.Safari.ContentPageGroupIdentifier.WebKit2MinimumFontSize -int 18
vlehto 10y ago
There was recently Onnibus in Finland. They sold cramped two storey bus trips at very limited lanes. First ticked sold at 1e and price going up so that the last goes for 35e or something. Similar to cheap air travel schemes. You extract more accurate info as it's not just two price points but a curve of ticket-price/time. So far the result has been all bus services lowering prices, train tickets going lower too and overall people traveling more. It was needed price cut as some people we're switching to air travel as plane ticket was cheaper than train.
hrxn 10y ago
This article's premise hinges too much on the feasibility that 'good' and 'bad' can be defined objectively. Not good.
brbrodude 10y ago
"Lying is good!" - Economists
- icebraining 10y ago
  How is it lying? You're getting what's advertised.
- sctb 10y ago
  Please don't post unsubstantive comments like this here on Hacker News.
- vorg 10y ago
  Advertising non-existent cheaper but lower-quality alternatives is a by-product of actually having those alternatives in an industry. When a hotel advertises budget hotel rooms in its front window, but tells walk-ins that they're sold out and only the more expensive larger ones are available, that hotel is cashing in on the tiered quality-price phenomenon with a bait-and-switch ploy. Such "lying" is merely a by-product, not the product itself. And in fact such by-products needn't even be based on "lying", such as when a business "withdraws" its cheaper alternative by changing the rules of purchase, e.g. requiring the customer to buy a high-markup item at the same time.
payne92 10y ago
This is an extremely shallow analysis. Price discrimination has always been fundamental aspect of business and economics: companies often offer different "values" different price points. BUT, software businesses have another aspect many physical product & service companies do not: the ongoing cost of maintenance and support for legacy applications, and the (typically) increasing cost to add new features. Consider the opening example: Microsoft Outlook. It's highly likely that Microsoft was motivated by cost issues, and was not executing a deliberate de-feature move.
- tensor 10y ago
  They still have to maintain Outlook whether or not it's in the lower cost option. You could argue that they might save a tiny bit in support, but I'd be surprised if it was a relevant amount.
  - payne92 10y ago
    I'm sure they are very interested in moving users to a newer platform. Legacy support is "all cost" -- you're typically not getting any revenue. Look how motivated Microsoft was to drop XP support.
Theodores 10y ago
The examples could have been better. 486dx/sx anyone? Here the maths coprocessor was not wired up in the budget version. Yield had as much to do this as marketing. Lame Teslas. If you want auto drive and to use all those battery cells then pay extra. The mass production can be extra efficient plus upsells are possible as the customer can pay for the upgrade later. 1000 hour light bulb. The cartel of lightbulbs required bulbs to last a lot less. Worse product, more repeat sales, rigged market. The smaller chocolate bar. To hit a price point, e.g. a dollar/pound/euro the product can be made worse or smaller. The cheap board game. Times have changed, people play a board game once and it goes in the bin. Before TV the product would have been played year round and passed on to the next generation. There is no need to build a product to that standard any more. Patents expire too, this means products get worse. Changing laws. Imagine that you can no longer use bright food colours, the product gets worse. This article didn't address anything I didn't know of and made no mention of what is obvious.
- walshemj 10y ago
  boardgames are not getting cheaper in my experience
- spqr0a1 10y ago
  Light bulbs aren't such a clear example. Incandescent filaments are much more efficient at higher temperature but burn out quicker. In the general case, savings from reduced electricity cost more than offset the increased replacemet rate for bulbs in accessible fixtures.
  - ohnoyoudinnt 10y ago
    > Light bulbs aren't such a clear example. Incandescent filaments are much more efficient at higher temperature but burn out quicker That's a common misperception. Early filaments could last for decades. It took a lot of work to design a filament that burned out after a certain amount of time: https://en.wikipedia.org/wiki/Phoebus_cartel https://en.wikipedia.org/wiki/Phoebus_cartel "The cartel was a convenient way to lower costs and worked to standardise the life expectancy of light bulbs at 1000 hours, while at the same time raising prices without fear of competition. Members' bulbs were regularly tested and fines were levied for bulbs that lasted more than 1000 hours."
lightedman 10y ago
In the case of physical products, the answer is pretty obvious - products that last = fewer sales. So companies try to find the balance between lifetime and turnaround time to typical replacement/repurchase. I refused to do that when I did induction and LED lighting. My products are still in use by the people that bought them. I don't expect them to need a replacement for 20 years. Maybe by then I'll be back in the lighting business.
- npezolano 10y ago
  So where can one buy these superior LED's?
  - brewdad 10y ago
    You can't. The LEDs were so good that the company went out of business.
    - npezolano 10y ago
      Right but they might still be available via resellers.
    - TeMPOraL 10y ago
      I wonder why. Were I making such superior LEDs, I'd market the living shit out of it, including lifetime warranties and public demonstrations of quality and whatever. If you can't ensure recurring sales by making the product shitty (like most companies do), you need to grow very fast to compensate. Once such a brand reaches high enough trust level, it should not die without making you FU money. If anyone here is thinking about starting a company making high-quality, lifetime, user-serviceable stuff with well-defined lifecycle from purchace, through repair until eventual recycling / scrapping for parts, please do so; I'll happily put you next to SpaceX and Tesla on the "list of companies I'm an active fanboy of" list.
      - lightedman 10y ago
        If you wanted the LED tech, you'd need to contact the parent UK company. See if FutureLED is still in operation, they have all my developed IP.
klagermkii 10y ago
I don't agree with the idea that giving companies better and better tools to achieve price discrimination is the win-win that the final quote seems to make it out to be. Yes, I can see how it could allow a company to offer goods to people who otherwise would not be able to access their services, but this comes at the cost of potentially complicated usage restrictions, making it easier for incumbents to squash new competitors, and pushing for more and more of a legal framework to support this kind of business model at the expense of the end user. I can think of examples where the products are barely (if at all) worse and see how heavily it swings things in favour of the powerful incumbent: Trademark restrictions to prevent importing what could be effectively the same textbook or wrist watch. DVD region locking where you can sell practically an identical product but charge vastly different rates in different areas, and it's illegal to work around. License agreements on software not to restrict specific functionality, but rather the usage scenarios. The example in the article of the slower LaserPrinter example morphs from being a physical restriction to modern printer cartridges that block ink refills via DRM. Comcast's battle with Google Fibre where the price will heavily drop in just the areas where Google Fibre operates. Makes it much harder for Google Fibre to make any gains, but the vast majority of Comcast customers see no decrease in their bills. Even the recent EpiPen drama, where they want to be able to milk as much as possible out of the pockets of insurance companies, but end users don't want to play the real price, so they introduce the co-pay discount to try and offset that cost. It makes the "rich" organisation pay, but reduces the amount paid by an individual.
- Retric 10y ago
  The devils advocate is something like: If a game cost say 50$ they sell approximately zero of them in India. Dropping that to 5$ does not mean they sell 10x as many worldwide thus company keeps the higher price. If they can sell them for 5$ just in India they may sell 10x as many in India which is good for people in India and the Company. But, people in US are never getting 5$ disks either way. Making this a net win. The counter argument is price discrimination often operates inside a country. Coupons are the classic example, but clearly Coupons are a net economic loss. Which IMO suggests we should have limits on the kind of acceptable price discrimination.
sickbeard 10y ago
"Product Managers". If you have ever had the pleasure of dealing with one you would know
oli5679 10y ago
There is a result in microeconomics that if you ban price discrimination from a previously discriminating firm, there was a always an alternative policy (specifying a maximum profit margin the firm can achieve but placing no restrictions on price discriminations) that would have lead to strictly greater welfare gains. http://www.sciencedirect.com/science/article/pii/S0165176597001900 http://www.sciencedirect.com/science/article/pii/S0165176597... This is ignoring competitive and redistributive effects, but the competitive implications should be positive (higher profits encourage competition) and this tool is sufficiently blunt for it to be unlikely to be the optimal feasible redistributive mechanism.
- makomk 10y ago
  It is, of course, rather difficult to cap the profit margin of a company in the real world, both for political reasons and due to the difficulty of actually defining profit.
  - oli5679 10y ago
    You can just use the gross margin accounting definition, this isn't too difficult and firms should be roughly compliant. Also, firm profits should be higher than if you ban price-discrimination, so I don't see where the political resistance would come from? There are issues with: 1) Estimating the demand system and so picking the optimal gross margin. However, banning price discrimination is also relatively blunt and leads to a somewhat arbitrary outcomes from a welfare perspective. 2) Effects on firm incentives to reduce costs. If a firm knows that it will be subject to maximum gross margin restrictions in the future, it will have a weaker incentive to innovate possibly?
eth0up 10y ago
I fear many economists have the mentality of child prodigies; brilliant, extremely clever and very unwise. On a planet (<-- maybe note this) with limited surface-space and resources, and with growing populations with growing standards and demands, the paradigm of Planned Obsolescence(PO) is going to be exceedingly difficult to sustain. Aside from the physical limitations (see: Pacific Ocean plastic island, wars for resources, ocean acidification, climate change, etc., etc.) facing this paradigm of PO, the social costs generally go overlooked. Whether it is a reluctantly accepted 'necessary evil', or something merely conveniently ignored, there is something dishonest at the root of PO, which may have the collective effect of promoting a dishonest society. Perhaps some here can laud the virtues of the Phoebus Cartel[1], or any number of other such rackets - there are clear short-term benefits. But it seems terribly unlikely that a strong and trusting society will ever be more than ephemerally forged from this material. The PO paradigm also seems to lend itself generously to the Hegelian Dialectic while contributing ineffectuality to the masses, demarcating Consumers from Providers. I'd like to see economists explore the advantages of local economy more often. It's a complex world that's unraveled, one where our popular methods of survival can be perfectly legal, unethical, hypocritical and irrational simultaneously, and the ensuing conflicts arising therefrom, conveniently viewed and treated as isolated. I think Adam Curtis's The Century of the Self[2] offers a bit of insight on where things starting going silly, and some of the mechanisms involved. While the article may not be directly supporting PO as a paradigm, it gets uncomfortably close. Planned Obsolescence is great fun and games for a while, but I think the final results are predictably grim. There are definitely great challenges in maintaining a thriving economy without enslaving ourselves to endless consumerism, but these challenges must be faced. PO isn't the way. 1. https://en.wikipedia.org/wiki/Phoebus_cartel https://en.wikipedia.org/wiki/Phoebus_cartel 2. https://en.wikipedia.org/wiki/The_Century_of_the_Self https://en.wikipedia.org/wiki/The_Century_of_the_Self
- ryuker16 10y ago
  Planned Obsolence is also beneficial in some cases. Many products are significantly more energy efficient although they function the same(fridge and cars come to mind). In the software realm, plenty of software that should have been replaced or constantly updated chugs along managing critical infrastructure. Old hardware compatible with such systems get rarer thus raising operating costs and difficulty in servicing. THe Phoebus Cartel was some major bullshit hence laws against price fixing were passed. These days trade is global so smuggling products from other countries is easy...unlike in 1939 where you only had a few stores/vendors to choose from who sold lightbulbs. The modern version is vendor lock-in(see microsoft, sony, and apple which love this): hopefully this philosophy dies in the long run.
jokoon 10y ago
I fail to understand how it becomes economically viable to sabotage a product like this. A third class is a form of subsidy, it will be sold at a loss. I don't think having a train company decide for the date of your trip a choice. It's just that train management is expensive, so if you remove the date constraint, everything is simpler, because you can fill an entire train that will travel a certain week, instead of having to deal with the uncertainty of a train which is not entirely full. Ouigo do that in France.
fyhhvvfddhv 10y ago
Bahumbug. Another lame attempt to justify greed at the expense of others. Not to mention the added resource use and pollution. The Profit motive isnt always right, correct or optimal.

123 points by RachelF 10y ago

walterbell 10y ago

If there is vendor competition, all tiers of service can be improved, while retaining market segmentation.

exelius 10y ago
Unless there's a breaking point of "good enough" that can serve all segments. Typically though, this "making the product worse" thing is used as part of the sales cycle of a patented product. There has to be some "proprietary" piece (whether a large up-front investment in infrastructure or a new technology) or else it's a commodity and this type of segmentation doesn't work.
- usrusr 10y ago
  "Premium fuel" is a perfect example of price segmentation in a commodities market. Granted, not many customers fall for it, but it seems to be enough to keep up the expensive ruse.
  - gwbas1c 10y ago
    Not really. High compression engines need higher octane in order to achieve full performance.

deleted 10y ago

[deleted]

hatmatrix 10y ago

The author describes how companies cripple their own product to extract "maximum profit from each punter," but does not say why this is good for the customers. Presumably, most of the profits are funnelled to shareholders. > The key test is whether the practice means more goods are sold. Suppose the French had regulated trains so that all carriages had roofs. All those in second class might have switched to third class, potentially rendering both uneconomical to provide. Could not there be a third option where the quality is not crippled so much but priced such that there is an increase in both supply and demand for a reasonable ride? In the current scenario, business chugs along, with lower-tier customers settling for an inferior product and upper-tier customers extorted to the maximum extent.

vlehto 10y ago
The valuable thing here is information. You can't have perfect information in such situation, because people say different things than what they actually pay. If you have very little competition, then correct pricing is relatively less important. In high competition enviroment several price points help to reach the "right" quantity and price fast. And in high competition enviroment, shareholders see very little of it.
gnicholas 10y ago
You're right—the author doesn't really address this. If a business is unable to price discriminate by adding or removing features, they will end up having to pick either (1) high price or (2) low price. [Stylized example, of course] If they pick High Price, then they will include lots of features, but only people with a high willingness to pay and high ability to pay will end up purchasing the product. This means that people who would have been willing to purchase the low-end version of the product do not have that option and will instead purchase no product. If the company picks Low Price, they will not include as many features because (in many cases) there is not sufficient profit incentive. This means that even customers who would have been willing to pay for these features cannot purchase them. Ultimately, the assumption is that if customers are interested in making a purchase of a "crippled" or "feature-enhanced" product, and the company is willing to make that exchange, then the exchange makes both parties better off. This is what economists call "gains from trade." Does this mean that everyone customer is better off with price discrimination under every circumstance, or that one cannot imagine a way in which a company could operate altruistically in order to make some customers better off? No. But generally they won't, and this is typically tied to the company's duty to their shareholders. (This is why B-Corps are nice—they give more flexibility in this regard.)
- usrusr 10y ago
  Minor nitpick: if a company is not able to add our remove features, the product would be exactly the same no matter wether they go for volume or for price per unit. What you describe is the scenario where the company would be unable to have more than one price tier, while retaining the ability to add our remove from the set of features. Edit: communism might be such a scenario, because multiple price tiers might be seen as ideologically incompatible, but even that would be a misconception as it misses variability personal preference: one might be willing to make compromises in other areas to have a bigger TV screen, while their neighbor might be more than happy to sacrifice screen size for a more sophisticated bicycle.

lmm 10y ago

> Today Eurostar offers a ticket that uses Dupuit’s logic. It offers ultra-cheap tickets that do not specify the time of travel (this is revealed two days before the trip takes place). Adding uncertainty to a traveller’s itinerary is a reduction in quality. But it is useful because it forces business travellers – who must be in London or Paris at a specific time – away from this bargain option. This doesn't seem like quite the same thing. Eurostar makes a real saving on their "manufacturing" here - they can give the customer a seat on whichever train has space, rather than having to allocate them a seat ahead of time and maybe fill up a train and drive potential customers to fly instead.

Declanomous 10y ago
That was my thought as well. A better example would be if the third class seats had less padding, despite the expense of a more comfortable level of padding being the same. This article reminds me of an article on Unpleasant Design that has been posted on Hacker News before: https://news.ycombinator.com/item?id=12041639 https://news.ycombinator.com/item?id=12041639
rtkwe 10y ago
It does both at the same time. It allows them to service less time sensitive customers or extremely price sensitive customers without losing revenues as they would if the cheaper ticket didn't have the large downside of travel time uncertainty. So it's the same thing with an added bonus of decreasing the potential need to run more trains.
IshKebab 10y ago
If their intent was only to distribute passengers evenly they could simply use demand-based pricing like most rail networks. There's no reason to introduce additional randomness other than price differentiation.

lsiq 10y ago

The hypothesis that you would have excess supply is not very well thought out. Take the train example that he mentioned. He is effectively suggesting that higher margin 2nd class tickets subsidize 3rd class tickets. Companies may be afraid to improve 3rd class, thinking it would eat into their 2nd class and lower profits. But they would very likely just sell more tickets, as their 3rd class was now the best in the business. And provided there were an actual differentiated service in 2nd class, those tickets would still sell. And if the was no difference, they could eliminate 3rd class altogether and sell second class only for greater volume and slightly lower price (or make 2nd class improvements). Cannibalization is no problemo for business. Some folks at Apple were afraid the iphone would cannibalize ipod sales. Imagine if they actually went with that thinking and sold iphones that didn't play music. And iPods still sell to this day. Unless the sector has high barrier to entry (e.g. Intel), such practices are very often short sighted. You don't see IBM selling printers anymore.

smallnamespace 10y ago
> But they would very likely just sell more tickets, as their 3rd class was now the best in the business. IMO, you're simply begging the question by presuming that 2nd class won't be cannibalized. We're also forgetting that one can't simply increase ticket supply, because trains and airlines are capital constrained once you run out of seats. At best, you can hope to charge more for 3rd-class tickets, at the expense of having cheaper, or empty, or fewer 2nd-class seats. Even if a company manages to raise price of 3rd-class tickets, they face both a 1) lower effective subsidy from 2nd class and 2) the cost of providing 3rd-class amenities. Which effect dominates very well depends on the relative preferences of 2nd and 3rd-class buyers. The sweet spot is to find an inconvenience that only affects 3rd-class ticket-holders a little bit, but annoys 2nd-class ticket-holders a lot. The Eurostar is a good example of that -- most people aren't inconvenienced too much by being told their flight time 2 days in advance (so depresses economy ticket prices only slightly), but deep-pocketed business travelers find it completely unacceptable (which shifts effective demand to the business seats).
- makomk 10y ago
  If the trains run out of seats in 3rd class, this helps prevent 2nd class from being cannibalized - customers who want a guaranteed seat or less overcrowding then have to buy a 2nd class ticket.

sandworm101 10y ago

Airlines. I seriously believe that market has hit a low-cost saturation point. They are now actively making their most common product worse, more painful and difficult to use, in order to sell upgraded versions.

hatmatrix 10y ago

Is this like multi-licensing[1] or freemium[2] models in open source software? [1] https://en.wikipedia.org/wiki/Multi-licensing https://en.wikipedia.org/wiki/Multi-licensing [2] https://en.wikipedia.org/wiki/Freemium https://en.wikipedia.org/wiki/Freemium

PhantomGremlin 10y ago

I wish I could read an article on why Apple insists on, version by version, making their software worse. E.g. recently released Safari 10 inexplicably removes the Accessibility preference to "Never use font sizes smaller than ...".[1] Unfortunately you won't find anything informative like that in this article. Instead you get examples such as why in 1849 French railways offered three classes of travel, and why the lowest tier was deliberately very bad. That doesn't really help explain current practices (unless Apple inexplicably wants to force me to use Firefox instead of Safari?). [1] fortunately the internets have already discovered a command line workaround, but should that really have been necessary? defaults write com.apple.Safari com.apple.Safari.ContentPageGroupIdentifier.WebKit2MinimumFontSize -int 18

vlehto 10y ago

There was recently Onnibus in Finland. They sold cramped two storey bus trips at very limited lanes. First ticked sold at 1e and price going up so that the last goes for 35e or something. Similar to cheap air travel schemes. You extract more accurate info as it's not just two price points but a curve of ticket-price/time. So far the result has been all bus services lowering prices, train tickets going lower too and overall people traveling more. It was needed price cut as some people we're switching to air travel as plane ticket was cheaper than train.

hrxn 10y ago

This article's premise hinges too much on the feasibility that 'good' and 'bad' can be defined objectively. Not good.

brbrodude 10y ago

"Lying is good!" - Economists

icebraining 10y ago
How is it lying? You're getting what's advertised.
sctb 10y ago
Please don't post unsubstantive comments like this here on Hacker News.
vorg 10y ago
Advertising non-existent cheaper but lower-quality alternatives is a by-product of actually having those alternatives in an industry. When a hotel advertises budget hotel rooms in its front window, but tells walk-ins that they're sold out and only the more expensive larger ones are available, that hotel is cashing in on the tiered quality-price phenomenon with a bait-and-switch ploy. Such "lying" is merely a by-product, not the product itself. And in fact such by-products needn't even be based on "lying", such as when a business "withdraws" its cheaper alternative by changing the rules of purchase, e.g. requiring the customer to buy a high-markup item at the same time.

payne92 10y ago

This is an extremely shallow analysis. Price discrimination has always been fundamental aspect of business and economics: companies often offer different "values" different price points. BUT, software businesses have another aspect many physical product & service companies do not: the ongoing cost of maintenance and support for legacy applications, and the (typically) increasing cost to add new features. Consider the opening example: Microsoft Outlook. It's highly likely that Microsoft was motivated by cost issues, and was not executing a deliberate de-feature move.

tensor 10y ago
They still have to maintain Outlook whether or not it's in the lower cost option. You could argue that they might save a tiny bit in support, but I'd be surprised if it was a relevant amount.
- payne92 10y ago
  I'm sure they are very interested in moving users to a newer platform. Legacy support is "all cost" -- you're typically not getting any revenue. Look how motivated Microsoft was to drop XP support.

Theodores 10y ago

The examples could have been better. 486dx/sx anyone? Here the maths coprocessor was not wired up in the budget version. Yield had as much to do this as marketing. Lame Teslas. If you want auto drive and to use all those battery cells then pay extra. The mass production can be extra efficient plus upsells are possible as the customer can pay for the upgrade later. 1000 hour light bulb. The cartel of lightbulbs required bulbs to last a lot less. Worse product, more repeat sales, rigged market. The smaller chocolate bar. To hit a price point, e.g. a dollar/pound/euro the product can be made worse or smaller. The cheap board game. Times have changed, people play a board game once and it goes in the bin. Before TV the product would have been played year round and passed on to the next generation. There is no need to build a product to that standard any more. Patents expire too, this means products get worse. Changing laws. Imagine that you can no longer use bright food colours, the product gets worse. This article didn't address anything I didn't know of and made no mention of what is obvious.

walshemj 10y ago
boardgames are not getting cheaper in my experience
spqr0a1 10y ago
Light bulbs aren't such a clear example. Incandescent filaments are much more efficient at higher temperature but burn out quicker. In the general case, savings from reduced electricity cost more than offset the increased replacemet rate for bulbs in accessible fixtures.
- ohnoyoudinnt 10y ago
  > Light bulbs aren't such a clear example. Incandescent filaments are much more efficient at higher temperature but burn out quicker That's a common misperception. Early filaments could last for decades. It took a lot of work to design a filament that burned out after a certain amount of time: https://en.wikipedia.org/wiki/Phoebus_cartel https://en.wikipedia.org/wiki/Phoebus_cartel "The cartel was a convenient way to lower costs and worked to standardise the life expectancy of light bulbs at 1000 hours, while at the same time raising prices without fear of competition. Members' bulbs were regularly tested and fines were levied for bulbs that lasted more than 1000 hours."

lightedman 10y ago

In the case of physical products, the answer is pretty obvious - products that last = fewer sales. So companies try to find the balance between lifetime and turnaround time to typical replacement/repurchase. I refused to do that when I did induction and LED lighting. My products are still in use by the people that bought them. I don't expect them to need a replacement for 20 years. Maybe by then I'll be back in the lighting business.

npezolano 10y ago
So where can one buy these superior LED's?
- brewdad 10y ago
  You can't. The LEDs were so good that the company went out of business.
  - npezolano 10y ago
    Right but they might still be available via resellers.
  - TeMPOraL 10y ago
    I wonder why. Were I making such superior LEDs, I'd market the living shit out of it, including lifetime warranties and public demonstrations of quality and whatever. If you can't ensure recurring sales by making the product shitty (like most companies do), you need to grow very fast to compensate. Once such a brand reaches high enough trust level, it should not die without making you FU money. If anyone here is thinking about starting a company making high-quality, lifetime, user-serviceable stuff with well-defined lifecycle from purchace, through repair until eventual recycling / scrapping for parts, please do so; I'll happily put you next to SpaceX and Tesla on the "list of companies I'm an active fanboy of" list.
    - lightedman 10y ago
      If you wanted the LED tech, you'd need to contact the parent UK company. See if FutureLED is still in operation, they have all my developed IP.

klagermkii 10y ago

I don't agree with the idea that giving companies better and better tools to achieve price discrimination is the win-win that the final quote seems to make it out to be. Yes, I can see how it could allow a company to offer goods to people who otherwise would not be able to access their services, but this comes at the cost of potentially complicated usage restrictions, making it easier for incumbents to squash new competitors, and pushing for more and more of a legal framework to support this kind of business model at the expense of the end user. I can think of examples where the products are barely (if at all) worse and see how heavily it swings things in favour of the powerful incumbent: Trademark restrictions to prevent importing what could be effectively the same textbook or wrist watch. DVD region locking where you can sell practically an identical product but charge vastly different rates in different areas, and it's illegal to work around. License agreements on software not to restrict specific functionality, but rather the usage scenarios. The example in the article of the slower LaserPrinter example morphs from being a physical restriction to modern printer cartridges that block ink refills via DRM. Comcast's battle with Google Fibre where the price will heavily drop in just the areas where Google Fibre operates. Makes it much harder for Google Fibre to make any gains, but the vast majority of Comcast customers see no decrease in their bills. Even the recent EpiPen drama, where they want to be able to milk as much as possible out of the pockets of insurance companies, but end users don't want to play the real price, so they introduce the co-pay discount to try and offset that cost. It makes the "rich" organisation pay, but reduces the amount paid by an individual.

Retric 10y ago
The devils advocate is something like: If a game cost say 50$ they sell approximately zero of them in India. Dropping that to 5$ does not mean they sell 10x as many worldwide thus company keeps the higher price. If they can sell them for 5$ just in India they may sell 10x as many in India which is good for people in India and the Company. But, people in US are never getting 5$ disks either way. Making this a net win. The counter argument is price discrimination often operates inside a country. Coupons are the classic example, but clearly Coupons are a net economic loss. Which IMO suggests we should have limits on the kind of acceptable price discrimination.

sickbeard 10y ago

"Product Managers". If you have ever had the pleasure of dealing with one you would know

oli5679 10y ago

There is a result in microeconomics that if you ban price discrimination from a previously discriminating firm, there was a always an alternative policy (specifying a maximum profit margin the firm can achieve but placing no restrictions on price discriminations) that would have lead to strictly greater welfare gains. http://www.sciencedirect.com/science/article/pii/S0165176597001900 http://www.sciencedirect.com/science/article/pii/S0165176597... This is ignoring competitive and redistributive effects, but the competitive implications should be positive (higher profits encourage competition) and this tool is sufficiently blunt for it to be unlikely to be the optimal feasible redistributive mechanism.

makomk 10y ago
It is, of course, rather difficult to cap the profit margin of a company in the real world, both for political reasons and due to the difficulty of actually defining profit.
- oli5679 10y ago
  You can just use the gross margin accounting definition, this isn't too difficult and firms should be roughly compliant. Also, firm profits should be higher than if you ban price-discrimination, so I don't see where the political resistance would come from? There are issues with: 1) Estimating the demand system and so picking the optimal gross margin. However, banning price discrimination is also relatively blunt and leads to a somewhat arbitrary outcomes from a welfare perspective. 2) Effects on firm incentives to reduce costs. If a firm knows that it will be subject to maximum gross margin restrictions in the future, it will have a weaker incentive to innovate possibly?

eth0up 10y ago

I fear many economists have the mentality of child prodigies; brilliant, extremely clever and very unwise. On a planet (<-- maybe note this) with limited surface-space and resources, and with growing populations with growing standards and demands, the paradigm of Planned Obsolescence(PO) is going to be exceedingly difficult to sustain. Aside from the physical limitations (see: Pacific Ocean plastic island, wars for resources, ocean acidification, climate change, etc., etc.) facing this paradigm of PO, the social costs generally go overlooked. Whether it is a reluctantly accepted 'necessary evil', or something merely conveniently ignored, there is something dishonest at the root of PO, which may have the collective effect of promoting a dishonest society. Perhaps some here can laud the virtues of the Phoebus Cartel[1], or any number of other such rackets - there are clear short-term benefits. But it seems terribly unlikely that a strong and trusting society will ever be more than ephemerally forged from this material. The PO paradigm also seems to lend itself generously to the Hegelian Dialectic while contributing ineffectuality to the masses, demarcating Consumers from Providers. I'd like to see economists explore the advantages of local economy more often. It's a complex world that's unraveled, one where our popular methods of survival can be perfectly legal, unethical, hypocritical and irrational simultaneously, and the ensuing conflicts arising therefrom, conveniently viewed and treated as isolated. I think Adam Curtis's The Century of the Self[2] offers a bit of insight on where things starting going silly, and some of the mechanisms involved. While the article may not be directly supporting PO as a paradigm, it gets uncomfortably close. Planned Obsolescence is great fun and games for a while, but I think the final results are predictably grim. There are definitely great challenges in maintaining a thriving economy without enslaving ourselves to endless consumerism, but these challenges must be faced. PO isn't the way. 1. https://en.wikipedia.org/wiki/Phoebus_cartel https://en.wikipedia.org/wiki/Phoebus_cartel 2. https://en.wikipedia.org/wiki/The_Century_of_the_Self https://en.wikipedia.org/wiki/The_Century_of_the_Self

ryuker16 10y ago
Planned Obsolence is also beneficial in some cases. Many products are significantly more energy efficient although they function the same(fridge and cars come to mind). In the software realm, plenty of software that should have been replaced or constantly updated chugs along managing critical infrastructure. Old hardware compatible with such systems get rarer thus raising operating costs and difficulty in servicing. THe Phoebus Cartel was some major bullshit hence laws against price fixing were passed. These days trade is global so smuggling products from other countries is easy...unlike in 1939 where you only had a few stores/vendors to choose from who sold lightbulbs. The modern version is vendor lock-in(see microsoft, sony, and apple which love this): hopefully this philosophy dies in the long run.

jokoon 10y ago

I fail to understand how it becomes economically viable to sabotage a product like this. A third class is a form of subsidy, it will be sold at a loss. I don't think having a train company decide for the date of your trip a choice. It's just that train management is expensive, so if you remove the date constraint, everything is simpler, because you can fill an entire train that will travel a certain week, instead of having to deal with the uncertainty of a train which is not entirely full. Ouigo do that in France.

fyhhvvfddhv 10y ago

Bahumbug. Another lame attempt to justify greed at the expense of others. Not to mention the added resource use and pollution. The Profit motive isnt always right, correct or optimal.