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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.

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.
  - gnicholas 10y ago
    This would be true where the product is already built. The point I was trying to make is that if we lived in a world where "crippled" / "premium" products were not allowed, companies would face the High Price / Low Price choice in advance and would have to choose an option and make development / feature choices accordingly.
arximboldi 10y ago
This is why liberal economics are such a conservative force. Their hide moral arguments by embedding them in a loop: "this how things are, there are some good things, so how things are is good". Then they also use the argument the other way around and in the end, there is no way to bring up the possibility of change or challenging the status quo: "What? You don't like how things are? Poor thing, cheer up! Maybe you are not trying hard enough?". The underlying truth is that how things are is good for them and the capitalists that fund them. Then they will rationalize whatever excuse to pretend that it is also good for the rest of us.
- dTal 10y ago
  I keep seeing stuff on here that describes classical conservative stuff as "liberal" (or sometimes 'neoliberal'), and it's starting to leave me thoroughly befuddled. This time you even used the word "conservative". Where I come from "liberal" and "conservative" are as opposite as (and indeed roughly synonymous with) Left and Right.

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.
- gnicholas 10y ago
  This would be true where the product is already built. The point I was trying to make is that if we lived in a world where "crippled" / "premium" products were not allowed, companies would face the High Price / Low Price choice in advance and would have to choose an option and make development / feature choices accordingly.

arximboldi 10y ago

This is why liberal economics are such a conservative force. Their hide moral arguments by embedding them in a loop: "this how things are, there are some good things, so how things are is good". Then they also use the argument the other way around and in the end, there is no way to bring up the possibility of change or challenging the status quo: "What? You don't like how things are? Poor thing, cheer up! Maybe you are not trying hard enough?". The underlying truth is that how things are is good for them and the capitalists that fund them. Then they will rationalize whatever excuse to pretend that it is also good for the rest of us.

dTal 10y ago
I keep seeing stuff on here that describes classical conservative stuff as "liberal" (or sometimes 'neoliberal'), and it's starting to leave me thoroughly befuddled. This time you even used the word "conservative". Where I come from "liberal" and "conservative" are as opposite as (and indeed roughly synonymous with) Left and Right.