The problem is that the cheap option kills off the pay more to get more option. Informed consumers, especially those who have perfect knowledge of the effects o

The problem is that the cheap option kills off the pay more to get more option. Informed consumers, especially those who have perfect knowledge of the effects of their actions on future and who can optimize for cooperate-cooperate in a prisoner's dilemma, are largely a myth. The general store only works because a significant number of people were buying their weekly groceries at the high-quality price, it withers away when the only consumer surplus left in the market is at the tippy top of the demand curve. Even if they were viable in the long term, it would be easy for competitors to temporarily undercut them and put them out of business. It's easy to observe that small-town general stores disappear when WalMart and Dollar General arrive. It may be even harder for these niche businesses to survive on the Internet, where instead of clinging to existence through the local customers who don't want to drive to the big city Walmart, the more local source for Internet customers is the first ad from the Amazon conglomerate they already have an account with. That's a lot easier than drilling down through the search results to the specialty site (that you've vetted as an actually more valuable option, not a scam forwarding cheap junk) and creating an account there. Rational, informed consumers do not exist, human beings do. Capitalism does not create an infinite spectrum of a free market where all needs are met, there are winner-takes-all effects that distort the result. I don't claim to know of a better system, and I don't have the power to change the current system, but I can imagine some changes to resolve various injustices that the system's current incentive structure will never arrive at.