4 ms·

Isn't a race to the bottom the best possible thing that could happen to transaction fees?

sadfev 6y ago
To a certain extent, it is detrimental if the prices are lower than the transaction expenses. Because you have to pay indirectly which is even worse
- jtsiskin 6y ago
  Can you elaborate on this?
  - cdirkx 6y ago
    It might be bad if their main source of incomes becomes not the transaction fees, but hidden fees or selling data about you. However, that argument requires them not doing this already :)
sib 6y ago
In a competitive industry with high fixed costs and low _marginal_ costs, a race to the bottom often leads to pricing less than _average_ costs and a reduction in service quality (or inability for providers to replace infrastructure consumed in providing service.
- remarkEon 6y ago
  I keep having to make this point to both my liberal and conservative friends, but ... just because microecon 101 (or macroecon 101 in some cases) is conserved doesn’t mean it’s an optimal solution. If your high fixed cost infrastructure suddenly becomes critical for society to function perhaps it’s time for a much different conversation.
- refurb 6y ago
  But that argument completely ignores the consequences to prices less than average. If you drop your fees so low your customers get pissed, well then, you'll loose customers. Or if you can't afford to maintain infrastructure, then you'll lose customers due to your unreliability. A race to the bottom is the reason we have 60" flat screen TVs that are better quality and cost a fraction of what a similar TV cost 10 years ago. It's a good thing. The race to the bottom in the airline industry was entirely driven by consumers who were willing to put up with crappy seat just to save $10. They got exactly what they wanted. That said, we are seeing a shift toward premium economy. Basically some airline said "I'll bet there are some customers will to pay more to get more" and they were right. HN likes to talk about the "race to the bottom" as some failing of capitalism, when it's actually working exactly as it should. "The market" doesn't get it right every time - plenty of companies make the wrong trade off - but the consumer is the ultimate decision maker if the tradeoff is worth it.
  - tweetle_beetle 6y ago
    An idealised race to the bottom which just eats into excessive profits would be great. But typically companies want to maintain their margins, so it's the staff that get squeezed, or the service, or the ethics, or all of the above. And it often ends up warping the market so that choice is removed, a premium economy does not always spring up. To take your TV example, modern mainstream TVs now bundle spyware/malware/adware. Yes the hardware is better than it was, but it is being invisibly subsidised by the reduction in ethical standards. And now none of the major players can now afford not to do it if they want to compete. Is this exactly what people wanted? The market no longer offers allows them to choose and they aren't being fully informed about the implications. It's really a failing of marketing - being unable to continue to justify the price of a product (whether it was warranted or not).
    - Super_Jambo 6y ago
      We could fix it with better regulation of product information though. No one seriously argues against weights and measures legislation. We've supposedly had an information revolution but I still can't really trust any source of product information online.
pbalau 6y ago
No, because then you end up with someone like Amazon underpricing everyone out.
- stevenhuang 6y ago
  How does that follow?

To a certain extent, it is detrimental if the prices are lower than the transaction expenses. Because you have to pay indirectly which is even worse

jtsiskin 6y ago
Can you elaborate on this?
- cdirkx 6y ago
  It might be bad if their main source of incomes becomes not the transaction fees, but hidden fees or selling data about you. However, that argument requires them not doing this already :)

sib 6y ago

In a competitive industry with high fixed costs and low _marginal_ costs, a race to the bottom often leads to pricing less than _average_ costs and a reduction in service quality (or inability for providers to replace infrastructure consumed in providing service.

remarkEon 6y ago
I keep having to make this point to both my liberal and conservative friends, but ... just because microecon 101 (or macroecon 101 in some cases) is conserved doesn’t mean it’s an optimal solution. If your high fixed cost infrastructure suddenly becomes critical for society to function perhaps it’s time for a much different conversation.
refurb 6y ago
But that argument completely ignores the consequences to prices less than average. If you drop your fees so low your customers get pissed, well then, you'll loose customers. Or if you can't afford to maintain infrastructure, then you'll lose customers due to your unreliability. A race to the bottom is the reason we have 60" flat screen TVs that are better quality and cost a fraction of what a similar TV cost 10 years ago. It's a good thing. The race to the bottom in the airline industry was entirely driven by consumers who were willing to put up with crappy seat just to save $10. They got exactly what they wanted. That said, we are seeing a shift toward premium economy. Basically some airline said "I'll bet there are some customers will to pay more to get more" and they were right. HN likes to talk about the "race to the bottom" as some failing of capitalism, when it's actually working exactly as it should. "The market" doesn't get it right every time - plenty of companies make the wrong trade off - but the consumer is the ultimate decision maker if the tradeoff is worth it.
- tweetle_beetle 6y ago
  An idealised race to the bottom which just eats into excessive profits would be great. But typically companies want to maintain their margins, so it's the staff that get squeezed, or the service, or the ethics, or all of the above. And it often ends up warping the market so that choice is removed, a premium economy does not always spring up. To take your TV example, modern mainstream TVs now bundle spyware/malware/adware. Yes the hardware is better than it was, but it is being invisibly subsidised by the reduction in ethical standards. And now none of the major players can now afford not to do it if they want to compete. Is this exactly what people wanted? The market no longer offers allows them to choose and they aren't being fully informed about the implications. It's really a failing of marketing - being unable to continue to justify the price of a product (whether it was warranted or not).
  - Super_Jambo 6y ago
    We could fix it with better regulation of product information though. No one seriously argues against weights and measures legislation. We've supposedly had an information revolution but I still can't really trust any source of product information online.

pbalau 6y ago

No, because then you end up with someone like Amazon underpricing everyone out.

stevenhuang 6y ago
How does that follow?