January 28, 2011

What bad things have not (yet) been eliminated by market competition?

Both economists and other interested observers make a serious but simple mistake when they look around and judge anything that's been a stable feature for at least the short term as having "passed the market test." Hey, if it's so bad, then why hasn't one of the competitors come up with a different and better way of doing things and put the existing sellers out of business?

This is similar to the uber-adaptationist tendency of many who talk about evolution -- if some feature has not been genetically weeded out, how can you say it's maladaptive? It must have passed the test of natural selection or "survival of the fittest."

Yet one of the requirements of natural selection is that there is variability in what individuals do. (The other requirements are that this variability in some trait must be related to variability in fitness, and that the trait can be passed on at least somewhat through heredity.) If individuals don't vary in what they do, then natural selection cannot weed out the more fit from the less fit. Suppose that someone says there's an adaptive value to being right-handed. If there have never been any left-handers, then this argument fails. It rests on the assumption that there have been left-handers over whom the right-handers have prevailed.

Given how much churning there is in a modern market-based economy, there is often a lack of variability in the strategies of different firms, individuals, etc., because the niche occupied by the competitors may not last long enough for such a variety of strategies to catch on. Particularly when the competitors perceive their niche to be endangered -- then they go into "hold on for dear life" mode and wouldn't dream of introducing a radical alternative to the status quo. Sure it could save them, but if it's a wrong move, they don't just suffer a loss in profits -- they get wiped out for good. They are so close to the brink of extinction already.

With little or no variability in the strategies of these endangered industries, nothing can be said about their persistent features having passed the market test. Indeed, all manner of silly and low-quality things may persist during this stage of their existence.

Take the sellers of CDs. Most places where you buy new CDs (as in "unopened") have a terrible selection -- almost all of it is new garbage, perhaps going back as far as the mid-1990s, which doesn't raise the quality level much. Better music came out from the late '50s through the late '80s or even early '90s, so that's what should be available. At least, a large chunk of what's offered should be from that period, allowing the leftover space for newer junk.

Virtually no music seller does this, though. (Wal-Mart comes the closest that I've seen, although their CD section is so small that it's hard to consider them a major player.) Why doesn't some existing firm or an entrepreneur try out the alternatives -- from, say, 30% up through close to 100% being good music, instead of around 10% or less being good music? When music retailers were on top of the world, selling good music and selling contemporary music were not at odds with each other, so none of them ever had to try out the alternative of selling very little contemporary music and focusing on music that was 20 to 50 years old.

Rather, the heavy emphasis on current music is a carry-over from an earlier period where it was not harmful to business. It did not pass a market test in earlier times, and no one is trying out these alternatives now, so it's plausible -- and I think certain -- that this is a maladaptation. That's one major reason why people are so disappointed and leave without buying anything when they visit a music seller these days. They remember the not so distant past when Tower Records (or whoever) carried everything, rather than a large bulk of it being unlistenable trendoid junk. I remember that, at least as of the mid-1990s, even Best Buy -- not even a specialist in recorded music -- had a gigantic selection, including independent / college radio bands from the 1980s such as the Dead Milkmen, Camper Van Beethoven, the Jesus and Mary Chain, and so on.

I think that focus on good rather than new music would work even better today, since consumers who buy unused CDs are not as price-sensitive as those who buy used CDs or digital music, and they are more focused on quality rather than novelty. But again, everyone is too afraid to explore the range of possibilities since selling CDs is already risky enough -- one failed experiment could put them out of the music-selling business for good.

There are other examples, but I'm only going to walk through one for the sake of brevity, just to illustrate the main point that gets over-looked when observers of the economy praise something that has merely persisted rather than something that has passed the market test. What examples jump out at you?

5 comments:

  1. Old stuff competes with the interenet. Competing with the internet is a bad idea. So stores only carry new stuff, since any golden oldies are online.

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  2. So is all the new stuff, even more so than old stuff because of its fashionableness.

    Look up the music video of any hit from the past year to five years, say by Justin Bieber, then another video of a golden oldie. Compare the view counts.

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  3. I don't understand the CD store example at all. CD stores ARE getting eliminated. They carry a good that people nowadays don't consider as good as the alternative - mp3s.

    Why would I leave my house to go purchase and lug around a physical item that gives me limited utility, when I could get better utility out of an mp3 file without ever leaving my bedroom? I can safely say I'll never purchase a physical CD again in my life.

    I'll never have a Blockbuster membership b/c I stream Netflix and Hulu. Why would I limit myself to a store in a particular location when I could get that content from anywhere with an internet connection?

    I won't buy any PC game that doesn't have a digital download. Why would I limit my install to a computer that requires me to find a damn disc I probably just misplaced just to play a game I bought legally? A digital download means I can install on any compatible operating system forever (or as long as that company exists).

    The CD is a "bad thing" and it's getting eliminated by the competition - the internet.

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  4. Movie releases. Who wants to go to the movie just to go to the movie? I'd much rather stay at home with my big screen, but the movie theater survives as a cultural "date night" institution... and it sucks as that. But you have to go to the "big, new release".

    Another example is tipping, most people would rather have it just included in the price... but it still survives as purely cultural institution.

    Another example, the whole modern educational establighment from K to Graduate school.

    I can come up with other example but at some point it's just stuff that sucks, I don't know how specific your analysis really lets one be.

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  5. CDs cannot compare to mp3s/digital downloads in my mind. It's a great feeling to visit the store on the day of a long-awaited release and buy the album. Also, I enjoy having something physical in my hands. Which is why I have no desire for an e-reader. Besides, sound quality is greater on cd than a low-quality, compressed mp3.

    Great observation about CD stores though. I've had much better luck the past 5+ years at the second-hand shops as finding good, obscure music. Even FYE is now selling used, whereas I don't remember that when I was younger. 4-20 is Record Store Day, by the way. R.E.M. is releasing live material from 1988 that I'm really looking forward to. www.recordstoreday.com

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