17 ms·

The hollowing out of the middle ground seems to happen in most commoditized markets. Take meat. Used to be you'd go to the butcher for your meat, and you'd get

by barrkel 10y ago

The hollowing out of the middle ground seems to happen in most commoditized markets. Take meat. Used to be you'd go to the butcher for your meat, and you'd get a reasonably good product, from a butcher who knew where the meat came from, probably even the farmer who reared the meat. That was the way almost everybody got their meat, so the fixed overheads of having a butcher shop was spread over a large customer base. Move along a couple of decades. Supermarkets, with their more efficient logistics, eat into the meat trade. Butcher shops almost completely disappear. But supermarket meat goes through a longer supply chain with larger suppliers that have the efficiencies of scale to cope with the pricing power supermarkets have. The butcher shops that survive turn into boutiques, where their unique selling proposition is what used to be commonplace: that they know where the meat is coming from and probably know the farmer that reared it. The market bifurcates into two basic strategies, low price and high quality (see also Porter's Cost Leadership and Differentiation). The consumer who's willing to pay a little bit more for a little bit more quality ends up having to pay a lot more rather than a little bit more, because the pool of people who could spread the fixed costs of the higher quality is split - most go for the lowest priced product. There's a ratchet effect, where slightly higher quality products are, at the margin, increasingly expensive because there's no scale in that strategy: the more expensive they become the less uptake they get, which means they have less scale, which means they become more expensive. In some ways it's a collective action problem: what would be a better outcome for a large group of people can't really occur because individual actions can't sustain a stable state change. In other ways - many, if not most economists believe this - it's a better outcome overall, because more people get to use the bargain basement product. But I think people in the middle are usually worse off in commoditized markets.

myowncrapulence 10y ago
You just described the entire American Economy.
- devoply 10y ago
  Funny thing is this also describes the job market. Very low wages at the bottom, not even enough to sustain a living, nothing in the middle, high wages at the top. Hollowing out of the middle. All a result of supposed efficiency, but really it's just externalities pushed onto the employees. It's not as if they can afford it, they have no choice.
  - hueving 10y ago
    >Very low wages at the bottom, not even enough to sustain a living, nothing in the middle, This is false. 15 percent in the US are at or below the poverty line. The remaining 85 percent certainly aren't at the top.
    - devoply 10y ago
      I am not saying it's there. But it's getting there. This shows it more clearly. https://upload.wikimedia.org/wikipedia/commons/0/0d/Distribution_of_Annual_Household_Income_in_the_United_States_2010.png https://upload.wikimedia.org/wikipedia/commons/0/0d/Distribu...
    - ryhamz 10y ago
      You assume that $1 above poverty line is "middle". I certainly don't.
      - hueving 10y ago
        Median income in the US: https://en.m.wikipedia.org/wiki/Household_income_in_the_United_States https://en.m.wikipedia.org/wiki/Household_income_in_the_Unit... "nothing in the middle" is a blatant lie and hackernews discussions are much better when they are backed by facts and logical arguments rather than political clap trap.
        croon 10y ago
        https://en.wikipedia.org/wiki/Household_income_in_the_United_States#/media/File:Personal_Household_Income_U.png https://en.wikipedia.org/wiki/Household_income_in_the_United... 71% making less than $50k/y. 51% of households.
        wott 10y ago
        A median says close to nothing about repartition. That's not a fact that you can use in a logical argument against your opponent's claim about repartition.
- eli_gottlieb 10y ago
  I think that's the general setup you get when an economy cartelizes. The untold story of American inequality has been the reversal of decades of antitrust work by the state, resulting in the oligopolization of most major labor, consumer, and capital markets. http://washingtonmonthly.com/magazine/junejulyaug-2016/populism-with-a-brain/ http://washingtonmonthly.com/magazine/junejulyaug-2016/popul...
golergka 10y ago
You didn't mention the affordability of meat to average customers in the age of the butcher.
- barrkel 10y ago
  I did, indirectly - "more people get to use the bargain basement product". I don't deny that the commodity situation is better for people at the lower end of the income distribution. It's the middle that gets hollowed out.
  - golergka 10y ago
    So why are you telling the story with supermarkets and meat producers framed as actors? Looks like it's the consumers who have collectively made this decision, and companies have just been following their wishes.
    - barrkel 10y ago
      Yes indeed, consumers have collectively made the decision from the choices given to them by the market (you need at least two sides for most market outcomes, since transactions generally have two parties). My point is that not all consumers are necessarily better off from the collective decision.
      - golergka 10y ago
        The fact that you only see two choices at the stabilized market right now doesn't mean that these were the only two choices present when the market transformed. It's impossible for everyone to be happy when you're making the collective decision.
WildUtah 10y ago
That's a very interesting phenomenon with the butchers (and about 1/5th of the American retail economy in my experience), but it's not what's happening in airline services. Airlines have jacked up the prices of comfortable berths people can sleep in on long haul journeys to almost 10x the price of shrinking torture chairs that most of us buy. For a long while business class and coach drew apart in price even as business got more luxurious with flat beds and fancy wines while coach seats in Boeing's newest, most advanced 787 jets are the narrowest trans-oceanic seats ever sold and Spirit/Frontier domestic seats don't even recline anymore. But that difference was driven by corporate executive passengers whose employers were paying the 10x prices and getting tax breaks for doing so. Corporate sales is complicated and charging more can actually sell more units so the airlines carefully eliminated mid-priced options to force businesses to pay far more for the very profitable business class seats than their marginal cost. And economic rationality has reasserted itself. Premium economy seating is now common on airlines outside the USA without such easily gamed large corporations to scam. The premium economy is similar in quality to old-fashioned business class seating at prices that middle class leisure travellers can afford. Mostly you can't buy it from the USA without paying a steep premium, but anyone flying to the USA from abroad has been able to for about a decade. Carriers refused to sell it at the same prices in the USA because running the game on corporate purchasing departments is so lucrative. For example, JAL and Cathay Pacific round trip fares between the Far East and USA in premium economy have been about $500-1000 more originating in the USA than in their home countries. But Delta and American are now outfitting planes with premium economy because it's the most profitable use of space for carriers that have it and supporting the corporate business class sales inflation scam can't hold it back anymore. American is flying the new class on planes already. Even CX and JL prices are starting to rationalize. So the key variable in airline discomfort has been American corporate purchasing culture irrationality and not the natural division of markets into tiers. Corporate purchasing irrationality and cartel pricing to exploit it are also the drivers of advance-purchase fares, last-minute price gouging, saturday night stay requirements, steep premiums for one-way fares, and lots of other paradoxical and nasty pricing strategies.
- blowski 10y ago
  > torture chairs Maybe part of the problem is the tendency to hyperbolize.
simonh 10y ago
It's not just about bargain basement product though. Supermarkets do offer premium products and prices more people can afford. Maybe not hand-reared meat, but better cuts of meat from e.g. Aberdeen Angus. The Bronze turkey we had for Christmas was dry hung, bought at Aldi (a German owned chain that operates here in the UK) at the price of a basic bird from a butcher.
- barrkel 10y ago
  My experience of supermarket premium products is that they are barely acceptable approximations of a quality version of the product. Take cheese, for example - it's much easier to taste the difference with cheese. I've never had a UK supermarket Comte comparable to a Comte from a cheesemonger, no matter how premium it was advertised. Or pastries. The only widely distributed supermarket in the UK with what I would consider edible pastries is Waitrose, and not all branches have a decent range. But bakeries in the UK have their own mass-market pathologies. What really brought the insight home to me was my experience eating in Morocco. There, bread was baked by street vendors - it was always fresh and warm. You have to get lucky with timing to get the same experience in the UK, even if you go to bakeries. I realised we've lost certain qualities of life with our economic setup, and the more I found out about good food, the more I realised that supermarkets and commoditization had created a mechanism that forced me to work much harder to get good food. Anyway, this isn't directly related to airline seats, but I do think the ratchet effect is real and it shows up in a lot of places.
  - majewsky 10y ago
    > There, bread was baked by street vendors - it was always fresh and warm. You have to get lucky with timing to get the same experience in the UK, even if you go to bakeries. Maybe that's just the UK? In Germany, many supermarket and discount store chains have recently been outfitting their stores with bakery stations, where you have a somewhat decent chance of actually getting warm rolls. Also, I've had a pretty good experience with premium products in German supermarkets. I only rarely buy from a premium store (sometimes for cheese, almost never for meat), but when I do, their performance is pretty comparable to supermarket premium lines.
yakult 10y ago
While I agree with your points, I would also add that most of the people who are in the middle in the second, bifurcated market would likely be in the low end or outside the market entirely in the first market, e.g. they won't even be able to afford the meat. So they're not really worse off, the goalpost has moved.
- barrkel 10y ago
  I don't agree at all. Even today, meat from a good butcher is quite affordable. A much bigger part of the cost is physically visiting the butcher, since there's far fewer of them. It does tie in with two-income families (households are more time-poor) and other changes in the economy, it's not just commoditization.
- aembleton 10y ago
  Totally agree. Some of the fares are really cheap these days. For example a return flight from Manchester to Dublin booked two weeks in advance is £20. That's a journey that can only be done by flying for one hour or driving for two followed by a three hour ferry. Or perhaps even better, a return from Manchester to Nürnberg for ~£30 in 2 hours instead of a 14 hour drive plus ferry. The fuel for that alone (not including the ferry) would cost £170. I just don't understand the complaints! Booking a few months in advance I can get a return trip to the otherside of the world (Australia) for under £700 and get there in less than 24 hours. I find that incredibly cheap and would be mindblowing just 20 years ago.
  - earcaraxe 10y ago
    That would be amazing. We can't even get across the states for less than $250.
itsjoeco 10y ago
Exactly! Segmentation is good for consumers. Back when I was in college I would have stood up for a flight or been harnessed into a hanging seat for a cheaper flight. Now I'm not rich enough to fly first class but I would like a better option than crammed economy. The solution is to bring back steerage like in the old passenger ships. It would cost less money than economy currently costs and make airline travel available to more people. Then, the airlines could afford to improve economy or leave some economy and put some seats between economy and first.
nradov 10y ago
It's not just price. Most consumers don't want to waste time travelling to multiple different specialty food stores. It's not worth the hassle for a marginal improvement in quality.
deleted 10y ago
[deleted]

by barrkel 10y ago

myowncrapulence 10y ago

You just described the entire American Economy.

devoply 10y ago
Funny thing is this also describes the job market. Very low wages at the bottom, not even enough to sustain a living, nothing in the middle, high wages at the top. Hollowing out of the middle. All a result of supposed efficiency, but really it's just externalities pushed onto the employees. It's not as if they can afford it, they have no choice.
- hueving 10y ago
  >Very low wages at the bottom, not even enough to sustain a living, nothing in the middle, This is false. 15 percent in the US are at or below the poverty line. The remaining 85 percent certainly aren't at the top.
  - devoply 10y ago
    I am not saying it's there. But it's getting there. This shows it more clearly. https://upload.wikimedia.org/wikipedia/commons/0/0d/Distribution_of_Annual_Household_Income_in_the_United_States_2010.png https://upload.wikimedia.org/wikipedia/commons/0/0d/Distribu...
  - ryhamz 10y ago
    You assume that $1 above poverty line is "middle". I certainly don't.
    - hueving 10y ago
      Median income in the US: https://en.m.wikipedia.org/wiki/Household_income_in_the_United_States https://en.m.wikipedia.org/wiki/Household_income_in_the_Unit... "nothing in the middle" is a blatant lie and hackernews discussions are much better when they are backed by facts and logical arguments rather than political clap trap.
      - croon 10y ago
        https://en.wikipedia.org/wiki/Household_income_in_the_United_States#/media/File:Personal_Household_Income_U.png https://en.wikipedia.org/wiki/Household_income_in_the_United... 71% making less than $50k/y. 51% of households.
      - wott 10y ago
        A median says close to nothing about repartition. That's not a fact that you can use in a logical argument against your opponent's claim about repartition.
eli_gottlieb 10y ago
I think that's the general setup you get when an economy cartelizes. The untold story of American inequality has been the reversal of decades of antitrust work by the state, resulting in the oligopolization of most major labor, consumer, and capital markets. http://washingtonmonthly.com/magazine/junejulyaug-2016/populism-with-a-brain/ http://washingtonmonthly.com/magazine/junejulyaug-2016/popul...

golergka 10y ago

You didn't mention the affordability of meat to average customers in the age of the butcher.

barrkel 10y ago
I did, indirectly - "more people get to use the bargain basement product". I don't deny that the commodity situation is better for people at the lower end of the income distribution. It's the middle that gets hollowed out.
- golergka 10y ago
  So why are you telling the story with supermarkets and meat producers framed as actors? Looks like it's the consumers who have collectively made this decision, and companies have just been following their wishes.
  - barrkel 10y ago
    Yes indeed, consumers have collectively made the decision from the choices given to them by the market (you need at least two sides for most market outcomes, since transactions generally have two parties). My point is that not all consumers are necessarily better off from the collective decision.
    - golergka 10y ago
      The fact that you only see two choices at the stabilized market right now doesn't mean that these were the only two choices present when the market transformed. It's impossible for everyone to be happy when you're making the collective decision.

WildUtah 10y ago

That's a very interesting phenomenon with the butchers (and about 1/5th of the American retail economy in my experience), but it's not what's happening in airline services. Airlines have jacked up the prices of comfortable berths people can sleep in on long haul journeys to almost 10x the price of shrinking torture chairs that most of us buy. For a long while business class and coach drew apart in price even as business got more luxurious with flat beds and fancy wines while coach seats in Boeing's newest, most advanced 787 jets are the narrowest trans-oceanic seats ever sold and Spirit/Frontier domestic seats don't even recline anymore. But that difference was driven by corporate executive passengers whose employers were paying the 10x prices and getting tax breaks for doing so. Corporate sales is complicated and charging more can actually sell more units so the airlines carefully eliminated mid-priced options to force businesses to pay far more for the very profitable business class seats than their marginal cost. And economic rationality has reasserted itself. Premium economy seating is now common on airlines outside the USA without such easily gamed large corporations to scam. The premium economy is similar in quality to old-fashioned business class seating at prices that middle class leisure travellers can afford. Mostly you can't buy it from the USA without paying a steep premium, but anyone flying to the USA from abroad has been able to for about a decade. Carriers refused to sell it at the same prices in the USA because running the game on corporate purchasing departments is so lucrative. For example, JAL and Cathay Pacific round trip fares between the Far East and USA in premium economy have been about $500-1000 more originating in the USA than in their home countries. But Delta and American are now outfitting planes with premium economy because it's the most profitable use of space for carriers that have it and supporting the corporate business class sales inflation scam can't hold it back anymore. American is flying the new class on planes already. Even CX and JL prices are starting to rationalize. So the key variable in airline discomfort has been American corporate purchasing culture irrationality and not the natural division of markets into tiers. Corporate purchasing irrationality and cartel pricing to exploit it are also the drivers of advance-purchase fares, last-minute price gouging, saturday night stay requirements, steep premiums for one-way fares, and lots of other paradoxical and nasty pricing strategies.

blowski 10y ago
> torture chairs Maybe part of the problem is the tendency to hyperbolize.

simonh 10y ago

It's not just about bargain basement product though. Supermarkets do offer premium products and prices more people can afford. Maybe not hand-reared meat, but better cuts of meat from e.g. Aberdeen Angus. The Bronze turkey we had for Christmas was dry hung, bought at Aldi (a German owned chain that operates here in the UK) at the price of a basic bird from a butcher.

barrkel 10y ago
My experience of supermarket premium products is that they are barely acceptable approximations of a quality version of the product. Take cheese, for example - it's much easier to taste the difference with cheese. I've never had a UK supermarket Comte comparable to a Comte from a cheesemonger, no matter how premium it was advertised. Or pastries. The only widely distributed supermarket in the UK with what I would consider edible pastries is Waitrose, and not all branches have a decent range. But bakeries in the UK have their own mass-market pathologies. What really brought the insight home to me was my experience eating in Morocco. There, bread was baked by street vendors - it was always fresh and warm. You have to get lucky with timing to get the same experience in the UK, even if you go to bakeries. I realised we've lost certain qualities of life with our economic setup, and the more I found out about good food, the more I realised that supermarkets and commoditization had created a mechanism that forced me to work much harder to get good food. Anyway, this isn't directly related to airline seats, but I do think the ratchet effect is real and it shows up in a lot of places.
- majewsky 10y ago
  > There, bread was baked by street vendors - it was always fresh and warm. You have to get lucky with timing to get the same experience in the UK, even if you go to bakeries. Maybe that's just the UK? In Germany, many supermarket and discount store chains have recently been outfitting their stores with bakery stations, where you have a somewhat decent chance of actually getting warm rolls. Also, I've had a pretty good experience with premium products in German supermarkets. I only rarely buy from a premium store (sometimes for cheese, almost never for meat), but when I do, their performance is pretty comparable to supermarket premium lines.

yakult 10y ago

While I agree with your points, I would also add that most of the people who are in the middle in the second, bifurcated market would likely be in the low end or outside the market entirely in the first market, e.g. they won't even be able to afford the meat. So they're not really worse off, the goalpost has moved.

barrkel 10y ago
I don't agree at all. Even today, meat from a good butcher is quite affordable. A much bigger part of the cost is physically visiting the butcher, since there's far fewer of them. It does tie in with two-income families (households are more time-poor) and other changes in the economy, it's not just commoditization.
aembleton 10y ago
Totally agree. Some of the fares are really cheap these days. For example a return flight from Manchester to Dublin booked two weeks in advance is £20. That's a journey that can only be done by flying for one hour or driving for two followed by a three hour ferry. Or perhaps even better, a return from Manchester to Nürnberg for ~£30 in 2 hours instead of a 14 hour drive plus ferry. The fuel for that alone (not including the ferry) would cost £170. I just don't understand the complaints! Booking a few months in advance I can get a return trip to the otherside of the world (Australia) for under £700 and get there in less than 24 hours. I find that incredibly cheap and would be mindblowing just 20 years ago.
- earcaraxe 10y ago
  That would be amazing. We can't even get across the states for less than $250.

itsjoeco 10y ago

Exactly! Segmentation is good for consumers. Back when I was in college I would have stood up for a flight or been harnessed into a hanging seat for a cheaper flight. Now I'm not rich enough to fly first class but I would like a better option than crammed economy. The solution is to bring back steerage like in the old passenger ships. It would cost less money than economy currently costs and make airline travel available to more people. Then, the airlines could afford to improve economy or leave some economy and put some seats between economy and first.

nradov 10y ago

It's not just price. Most consumers don't want to waste time travelling to multiple different specialty food stores. It's not worth the hassle for a marginal improvement in quality.

deleted 10y ago

[deleted]