5 ms·

That is a nice example of why the free market is not neccessarily the guarantor of efficiency.

by maze-le 10y ago

leni536 10y ago
But why? It exactly looks like a problem that free market should be able to solve.
- maze-le 10y ago
  I am not an economist, but I think it is a problem with information assymetry. The cleaning worker does not have many connections to CEOs, to wich he can sell his services, but the middle men have. The middle men can leverage this situation to gain the profit, the cleaning worker would have gained. But I have no idea, why this would evolve into a pyramid scheme. One level of "management" would have solved the "information assymetry"-problem, without inefficiency (and this could be done in a fair way, so the worker can profit too).
  - deleted 10y ago
    [deleted]
  - flukus 10y ago
    > The cleaning worker does not have many connections to CEOs, to wich he can sell his services I think you might of hit on a possible explanation there, maybe it's wealth inequality? When there was more equality that CEO (or company owner, or just someone near the top) might have been going to the same bars or been part of the same local sports clubs as the cleaner, their kids might have gone to the same school. Now they probably live in other parts of the city. Politics lately has been an example of this divide.
    - patrickk 10y ago
      > might have been going to the same bars or been part of the same local sports clubs as the cleaner, their kids might have gone to the same school. Now they probably live in other parts of the city. I don't think this ever the case, in any era. Rich people in many countries definitely send their kids to posh schools through their connections (e.g. slots available for those with a parent who attended), go to different bars and follow different sports (e.g. rugby union vs football/soccer, depending on the country obviously).
      - coldtea 10y ago
        >Rich people in many countries definitely send their kids to posh schools through their connections (e.g. slots available for those with a parent who attended), go to different bars and follow different sports (e.g. rugby union vs football/soccer, depending on the country obviously). Yes, but company owners in many countries weren't that rich that the other people they provided services to. Consider a company with 10-20-100 people, serving a city. Now, those jobs go to huge conglomerates and companies with 1000s upon 1000s of employees, and CEOs that are 100x as rich as the people buying their services.
      - flukus 10y ago
        I'm not thinking CEO of MEGCORP here, but a typical business owner or office manager of a 5-50 person office, they aren't so detached. I'm not sure which end of the wealth divide the fall on though.
  - narag 10y ago
    Not a free market if there is information assymetry, it's there in the first paragraph: https://en.wikipedia.org/wiki/Free_market https://en.wikipedia.org/wiki/Free_market It says that there is a less assuming version, but I'd always heard the information thing.
    - makomk 10y ago
      Since there is inevitably going to be information asymmetry, this is rather a "no true scotsman" approach to redirecting blame away for the problems that plague free markets in the real world.
      - scrollaway 10y ago
        "I support our free market! But since our free market isn't really a free market, I'm still right and it's not my fault if things go wrong!"
    - maze-le 10y ago
      Well, if that is the case, the free market is a pureley theoretical concept, that is not realized anywhere in the world. And it cannot be realized, because there is always inevitable some form of information assymetry.
      - baq 10y ago
        economics 101 right here. free market is a theoretical model.
      - coldpie 10y ago
        Yes, precisely. Which is why you should immediately dismiss any politician masturbating about government interference in the "free market." Their premise starts in fantasy land and only gets worse from there.
      - narag 10y ago
        Something can be a theoretical concept and still useful. For politics you might want to favour transparency instead of obscurity. As an employee in software I've been working through intermediaries for a good part of my career, so obviously interested. I suspect that, at least in my country, it's more a matter of bad regulation than of information assymetry. But the mere fact that we're not sure which are the causes is in itself information assymetry.
  - patrickk 10y ago
    > The cleaning worker does not have many connections to CEOs, to wich he can sell his services, but the middle men have. Bingo. Additionally, in many cases the person/team carrying out a procurement process may require (often by law or company policy) a ridiculous set of documents that some sleazy company is an expert in navigating, and exploiting any loopholes or poorly-written selection criteria. They deliver crap service that barely qualifies, but the procurement person/team can say, "well technically they fit the criteria" so their ass is covered. The procurement team is not rewarded for selecting the best candidate, so they minimise their own exposure.
    - cmdrfred 10y ago
      Also the problem is in many businesses the person choosing the cleaning company isn't spending their own money. So if company A is more expensive but Company B will take more effort to onboard due to the fact they aren't familiar with the paperwork. The employee (often on salary for unlimited hours) will pick the easier option. Another reason to support small businesses, it helps keep markets honest.
- TheOtherHobbes 10y ago
  Markets exist to magnify political inequalities, not to deliver cost-effective and efficient solutions. Businesses don't compete for customers. They compete for investor and shareholder cash. For most businesses, the point of optimum return for investors is in a completely different part of the graph to the points that keep customers happy and employees secure and well-paid.
- coldtea 10y ago
  Because "free market" in practice means "what the big fish allow to happen with the help from their friends at office". The only one who can guarantee a free market (e.g. big players not monopolizing, abusing their position, underbidding and then killing small more efficient players, etc) is the government/law. But the government is also often in the hands of big players, and passes laws to their favor. And even when it isn't, they have the upper edge in other ways (purchasing and negotiating power, better lawyers, more money to burn, etc). Heck, even the simple fact that "bigger player = more advertising money" can make free competition from a newcomer a non-starter. Even if the new company can make something for cheaper (despite the better economies of scale of the big players) people don't buy cheaper, they mostly buy what they know. Hence, free market is a myth, perhaps even more so than communism.
- fennecfoxen 10y ago
  The free market is only efficient when - property rights exist, and are enforced - there are few barriers to entry - transaction costs are low My money's on transaction cost issues. BigCorp has teams of people dedicated to making customer acquisition more effective and efficient.
- Asooka 10y ago
  A free market doesn't guarantee a free society. Over time, people who have more political power can deny that to others, forming de-facto monarchies and serfdoms. Don't forget that the state humanity started from was a totally free deregulated market, the consequences of which was the formation of tribes ruled by the strongest, most vicious guy and his spear-happy friends. When you don't have regulations, the person with the most power can impose their regulations.
deleted 10y ago
[deleted]

That is a nice example of why the free market is not neccessarily the guarantor of efficiency.

by maze-le 10y ago

That is a nice example of why the free market is not neccessarily the guarantor of efficiency.

leni536 10y ago

But why? It exactly looks like a problem that free market should be able to solve.

maze-le 10y ago
I am not an economist, but I think it is a problem with information assymetry. The cleaning worker does not have many connections to CEOs, to wich he can sell his services, but the middle men have. The middle men can leverage this situation to gain the profit, the cleaning worker would have gained. But I have no idea, why this would evolve into a pyramid scheme. One level of "management" would have solved the "information assymetry"-problem, without inefficiency (and this could be done in a fair way, so the worker can profit too).
- deleted 10y ago
  [deleted]
- flukus 10y ago
  > The cleaning worker does not have many connections to CEOs, to wich he can sell his services I think you might of hit on a possible explanation there, maybe it's wealth inequality? When there was more equality that CEO (or company owner, or just someone near the top) might have been going to the same bars or been part of the same local sports clubs as the cleaner, their kids might have gone to the same school. Now they probably live in other parts of the city. Politics lately has been an example of this divide.
  - patrickk 10y ago
    > might have been going to the same bars or been part of the same local sports clubs as the cleaner, their kids might have gone to the same school. Now they probably live in other parts of the city. I don't think this ever the case, in any era. Rich people in many countries definitely send their kids to posh schools through their connections (e.g. slots available for those with a parent who attended), go to different bars and follow different sports (e.g. rugby union vs football/soccer, depending on the country obviously).
    - coldtea 10y ago
      >Rich people in many countries definitely send their kids to posh schools through their connections (e.g. slots available for those with a parent who attended), go to different bars and follow different sports (e.g. rugby union vs football/soccer, depending on the country obviously). Yes, but company owners in many countries weren't that rich that the other people they provided services to. Consider a company with 10-20-100 people, serving a city. Now, those jobs go to huge conglomerates and companies with 1000s upon 1000s of employees, and CEOs that are 100x as rich as the people buying their services.
    - flukus 10y ago
      I'm not thinking CEO of MEGCORP here, but a typical business owner or office manager of a 5-50 person office, they aren't so detached. I'm not sure which end of the wealth divide the fall on though.
- narag 10y ago
  Not a free market if there is information assymetry, it's there in the first paragraph: https://en.wikipedia.org/wiki/Free_market https://en.wikipedia.org/wiki/Free_market It says that there is a less assuming version, but I'd always heard the information thing.
  - makomk 10y ago
    Since there is inevitably going to be information asymmetry, this is rather a "no true scotsman" approach to redirecting blame away for the problems that plague free markets in the real world.
    - scrollaway 10y ago
      "I support our free market! But since our free market isn't really a free market, I'm still right and it's not my fault if things go wrong!"
  - maze-le 10y ago
    Well, if that is the case, the free market is a pureley theoretical concept, that is not realized anywhere in the world. And it cannot be realized, because there is always inevitable some form of information assymetry.
    - baq 10y ago
      economics 101 right here. free market is a theoretical model.
    - coldpie 10y ago
      Yes, precisely. Which is why you should immediately dismiss any politician masturbating about government interference in the "free market." Their premise starts in fantasy land and only gets worse from there.
    - narag 10y ago
      Something can be a theoretical concept and still useful. For politics you might want to favour transparency instead of obscurity. As an employee in software I've been working through intermediaries for a good part of my career, so obviously interested. I suspect that, at least in my country, it's more a matter of bad regulation than of information assymetry. But the mere fact that we're not sure which are the causes is in itself information assymetry.
- patrickk 10y ago
  > The cleaning worker does not have many connections to CEOs, to wich he can sell his services, but the middle men have. Bingo. Additionally, in many cases the person/team carrying out a procurement process may require (often by law or company policy) a ridiculous set of documents that some sleazy company is an expert in navigating, and exploiting any loopholes or poorly-written selection criteria. They deliver crap service that barely qualifies, but the procurement person/team can say, "well technically they fit the criteria" so their ass is covered. The procurement team is not rewarded for selecting the best candidate, so they minimise their own exposure.
  - cmdrfred 10y ago
    Also the problem is in many businesses the person choosing the cleaning company isn't spending their own money. So if company A is more expensive but Company B will take more effort to onboard due to the fact they aren't familiar with the paperwork. The employee (often on salary for unlimited hours) will pick the easier option. Another reason to support small businesses, it helps keep markets honest.
TheOtherHobbes 10y ago
Markets exist to magnify political inequalities, not to deliver cost-effective and efficient solutions. Businesses don't compete for customers. They compete for investor and shareholder cash. For most businesses, the point of optimum return for investors is in a completely different part of the graph to the points that keep customers happy and employees secure and well-paid.
coldtea 10y ago
Because "free market" in practice means "what the big fish allow to happen with the help from their friends at office". The only one who can guarantee a free market (e.g. big players not monopolizing, abusing their position, underbidding and then killing small more efficient players, etc) is the government/law. But the government is also often in the hands of big players, and passes laws to their favor. And even when it isn't, they have the upper edge in other ways (purchasing and negotiating power, better lawyers, more money to burn, etc). Heck, even the simple fact that "bigger player = more advertising money" can make free competition from a newcomer a non-starter. Even if the new company can make something for cheaper (despite the better economies of scale of the big players) people don't buy cheaper, they mostly buy what they know. Hence, free market is a myth, perhaps even more so than communism.
fennecfoxen 10y ago
The free market is only efficient when - property rights exist, and are enforced - there are few barriers to entry - transaction costs are low My money's on transaction cost issues. BigCorp has teams of people dedicated to making customer acquisition more effective and efficient.
Asooka 10y ago
A free market doesn't guarantee a free society. Over time, people who have more political power can deny that to others, forming de-facto monarchies and serfdoms. Don't forget that the state humanity started from was a totally free deregulated market, the consequences of which was the formation of tribes ruled by the strongest, most vicious guy and his spear-happy friends. When you don't have regulations, the person with the most power can impose their regulations.

deleted 10y ago

[deleted]