Anti-Capitalist Sentiment (with some morality)

[wufwugy]

Granted, economics is a soft science and maybe it isn't fair to hold it up to the same standards as physics or chemistry. That's one of it's problems though, the system is so chaotic as to be nearly indecipherable.

I think this fact has gotten lots of economists into trouble. Well, not trouble, but claiming things that don't make sense according to the literature.

Here's an example from this week with my money and banking professor. In a lecture she introduced the concept of "random walk", which is the financial theory that stock prices cannot be predicted. The theory is orthodoxy in finance/economics, and she agrees with it. However, when I spoke with her on this topic, she claimed that bubbles exist, economists are right to look out for bubbles (gave examples of them doing it), and that central banks can deflate bubbles before they start. There's one problem with this, if stock prices are a random walk, economists and central banks can't predict bubbles.

Most economists believe in bubbles and that they can be predicted. Some don't. As far as I can tell, the answer to this question is in the literature, but a bunch of economists are letting their politics and public opinion get in the way of their better judgment. This is pretty common in the field, and it's confusing as fuck.

[Poopadoop]

Reminds me of a funny thing I read once about analysts and the stock market. Basically, because it's a random walk, any predictions are made at chance. From any group of analysts, some will guess right, some will guess wrong, and some will guess right a number of times in a row. Guess who gets a raise and promotion?

[a500lbgorilla]

Reminds me of a funny thing I read once about analysts and the stock market. Basically, because it's a random walk, any predictions are made at chance. From any group of analysts, some will guess right, some will guess wrong, and some will guess right a number of times in a row. Guess who gets a raise and promotion?

Generals who tell their leaders they can't win, don't get the job. Generals that tell their leaders they can however...

[CoccoBill]

For-profit schools. Imagine you're running one, and you're facing competition, as one does. Your investors demand profits, as they do. To make yourself more competitive, is it easier and cheaper to

a) cut costs
b) invest in development?

Let's say you're an idiot and you choose b), do you

a) invest in marketing
b) invest in better teachers, curriculum, facilities etc and hope someone eventually notices?

[Savy]

If you ask questions like that you won't get good answers.

"Demand profits" - not how it works
If you make bad business decisions then you lose, when you lose the people not making those bad decisions survive.

a & b in situation one and two aren't mutually exclusive.

You seem to forget or be unaware that schools already spend a lot of time on marketing themselves anyway, it's important.

Schools also heavily market themselves on grades, curriculum, facilities, etc.

[Renton]

For-profit schools. Imagine you're running one, and you're facing competition, as one does. Your investors demand profits, as they do. To make yourself more competitive, is it easier and cheaper to

a) cut costs
b) invest in development?

Let's say you're an idiot and you choose b), do you

a) invest in marketing
b) invest in better teachers, curriculum, facilities etc and hope someone eventually notices?

In all likelihood, all of the above. A properly run business will devote resources to increasing cost effectiveness and development, to marketing and to improving the product, in a ratio of expenditure appropriate to maximizing profit and potential for expansion.

You frame the thought experiment to evoke a response of "worse, cheaper product, sold for a higher price," but do you see that result in the private sector for goods like smartphones and LCD televisions, or services like restaurants or package delivery? Absolutely not. Generally, we enjoy cheaper and higher quality goods and services over time in our capitalistic system. The left-leaning among us irrationally ascribe radically different expectations of how the free-market would handle services that are essential*, but in most cases, those services would respond just as robustly to free trade.

*Never mind the inaccuracy of that word in describing some of them. Ask the truly poor of the 3rd world to find out what essential really is.

[CoccoBill]

You're both missing the point. I'm not saying that's the decision tree in 100% of cases, and those single decisions are the only single action they will take. I'm talking about incentives, which type of action brings the best bang for buck. The r&d becomes necessary only after it's no longer possible to compete just with costs and marketing.

Of course competition [also] incentivizes development and building better products, but that's secondary, not the reason companies exist. The primary motive is to make money. A not insignificant percent of businesses will try to employ the easiest way to get there, which is the smart business decision, and that's where the decision tree comes in.

https://capseecenter.org/comparing-c...ollege-sector/
http://www.huffingtonpost.com/davidh..._14064182.html

[Renton]

I don't think it's appropriate to cite for-profit universities as examples of market failures for the same reason that you shouldn't cite health insurance companies as such. These industries are running in tandem with deeply flawed public systems, and thus cannot be considered to be accurate examples of free markets in action.

[CoccoBill]

Maybe so, but I also don't think it's appropriate to dismiss the distortion of incentives just based on somewhat irrelevant factors. That same incentive structure is true for every company, is it not? The public-private nature of education in the US might affect the outcomes, but not those principles.

To me it sounds like you don't object to the principles?

Edit: To summarize, the easiest, quickest and most economical ways to improve profitability, in order:

1. cut costs
2. invest in marketing
3. invest in product

[Renton]

As I said, all three of those things will have resources devoted to them simultaneously at any given time. There isn't an order of importance or priority that's etched in stone. Each of those things might be the top priority depending on the market conditions.

[BananaStand]

Edit: To summarize, the easiest, quickest and most economical ways to improve profitability, in order:

1. cut costs
2. invest in marketing
3. invest in product

It's unbelievable that you've made multiple posts for an argument that's supported by this inexplicably flawed premise.

There's another easy, quick, and economical way to improve profitability that you've completely left out of your equation here. When you add that OBVIOUS solution back into the conversation, then nothing you've posted today makes a damn bit of sense.

[CoccoBill]

As I said, all three of those things will have resources devoted to them simultaneously at any given time. There isn't an order of importance or priority that's etched in stone. Each of those things might be the top priority depending on the market conditions.

My point is that the order of importance or priority [in a vacuum] for rational actors is to follow those steps, and only move to the next step when the current one is exhausted. Why invest if you don't have to?

[CoccoBill]

It's unbelievable that you've made multiple posts for an argument that's supported by this inexplicably flawed premise.

There's another easy, quick, and economical way to improve profitability that you've completely left out of your equation here. When you add that OBVIOUS solution back into the conversation, then nothing you've posted today makes a damn bit of sense.

Aww please don't keep us in suspense, tell, tell!

[MadMojoMonkey]

Increase prices?

Fire under-performing employees?

Garage sale?

[BananaStand]

Aww please don't keep us in suspense, tell, tell!

Raise the price dummy

[CoccoBill]

Fine.

1. increase prices
2. cut costs
3. invest in marketing
4. invest in product

Yeah my point was completely invalidated.

[BananaStand]

Fine.

1. increase prices
2. cut costs
3. invest in marketing
4. invest in product

Yeah my point was completely invalidated.

Well it kinda fucks up your decision tree, doesn't it? Doesn't it look like this now?

1) Increase Prices and let the revenue flow to the bottom line. Kids keep learning, investors get dividends, everybody wins.
2) Increase Prices and reinvest the additional income into the school in the hopes of attracting new revenue streams (more students)
2a) Use additional new revenue to invest in marketing
2b) Use additional new revenue to invest in product
3) Cut Costs, i.e. degrade the quality of the product.

It seems that your point is that a for-profit school system would be compelled by the free market forces to prioritize bottom line financial results over the quality of education provided to it's students.

You're saying that when faced with profitability concerns, a school administrator's first move would be to cut costs. The first page of the playbook is to diminish the amount and quality of services provided. Your first post seemed to espouse the idea that only an "idiot" would do anything other than this.

But supposing the administrator IS an idiot, you believe his next move would be to take more money out of a failing business and then use it to gamble on measures that may or may not attract more students.

Also in your scenario, it never occurs to this administrator to invest in the quality of service in order to justify a higher price to his existing students.

Unless I'm mistaken, your premise here is that the privatization of education will result in a system where student's concerns rank last. But in order to prove that, you need to use a decision tree that is devoid of the most obvious and beneficial solutions.

Well played

[OngBonga]

4) get another job
5) stop working altogether

[CoccoBill]

Well it kinda fucks up your decision tree, doesn't it? Doesn't it look like this now?

No.

1) Increase Prices and let the revenue flow to the bottom line. Kids keep learning, investors get dividends, everybody wins.

Yes, assuming that the price increase does indeed raise revenues, and not lower them. The only one suffering are the customers, who pay more for an identical product. No appeal to morality, just an observation.

2) Increase Prices and reinvest the additional income into the school in the hopes of attracting new revenue streams (more students)

Now you're fabricating reality. It makes no sense to reinvest if you're already making sufficient profits. If you're not, we've already exhausted option 1), which this is. I'm not looking for anecdotal stories of what company x might do, I'm looking at incentives and the most rational business decisions.

2a) Use additional new revenue to invest in marketing
2b) Use additional new revenue to invest in product
3) Cut Costs, i.e. degrade the quality of the product.

Why would you do this, when cutting costs accomplishes the same with lower expenditure? Alright, major company reorgs and downsizing are more costly than marketing, after the easiest cost-cutting measures have been exhausted. The point is, that improving the actual product seems to make the least economical sense, that's the last resort. R&D, improving manufacturing processes, better QC etc. are costly as shit, take a long time and still don't guarantee better sales.

It seems that your point is that a for-profit school system would be compelled by the free market forces to prioritize bottom line financial results over the quality of education provided to it's students.

More or less.

You're saying that when faced with profitability concerns, a school administrator's first move would be to cut costs. The first page of the playbook is to diminish the amount and quality of services provided. Your first post seemed to espouse the idea that only an "idiot" would do anything other than this.

But supposing the administrator IS an idiot, you believe his next move would be to take more money out of a failing business and then use it to gamble on measures that may or may not attract more students.

Also in your scenario, it never occurs to this administrator to invest in the quality of service in order to justify a higher price to his existing students.

Unless I'm mistaken, your premise here is that the privatization of education will result in a system where student's concerns rank last. But in order to prove that, you need to use a decision tree that is devoid of the most obvious and beneficial solutions.

Well played

I haven't said anything about results or what anyone's gonna do, I've looked at the incentives. The rational move is to minimize expenditure and maximize profits. You could possibly gain more relative profit using a more costly method, but that seems to incur more risk, which again makes no rational sense. To me it looks like improving the product comes last down the list. All the adding of the price hikes to the decision tree does is drop the product improvements further down the list.

[MadMojoMonkey]

It seems that only a complete idiot of a businessman would assume they will retain their current level of customer loyalty if they reduce the quality of their product w/o a commensurate reduction in price.

All of your points, CoccoBill, must be addressed by any business on a relatively constant basis for the business to thrive and grow.

There are good schools and bad schools. There are wealthy neighborhoods and poor neighborhoods. Some people don't care about much. Other people care more about their work than anything else. Your attempt to pigion-hole all schools as identical actors in their economic climate is fatally flawed in this assumption.

Just as Banana's "Let's assume we can remove survivorship bias" statement. Sure, I agree with what follows, but how can we possibly accomplish that assumption?

[OngBonga]

pigion

haha dear me your spelling is terrible for a teacher.

[BananaStand]

No.

Yeah, yeah it is.

Yes, assuming that the price increase does indeed raise revenues, and not lower them.

Seems like an obvious and trivial assumption. People don't choose schools merely based on what's cheapest. If that were true, then there would be no such thing as private schools, since public schools are free! School selection is based on a myriad of other choices, which are likely to factor more heavily into a decision than a small price increase.

Also, Price elasticity is a thing. Banks will try to get you set up with auto-pay for your bills and a bunch of other integrated services so that it becomes a monumental endeavor to change banks. Then they jack up the ATM fees when you're not looking. I imagine that effect would be much more intense when we're talking about children, who have formed relationships with teachers and classmates.

In that context, a price increase is unlikely to reduce revenue.

The only one suffering are the customers, who pay more for an identical product. No appeal to morality, just an observation.

If you're not trying to appeal to morality, don't use words like "suffering". Bullshit ploy. Businesses experience rising costs for their materials and labor all the time. Those costs get passed onto consumers all the time. It's called an economy, not the "why isn't he world exactly how I want it" game.

Now you're fabricating reality.

Preposterous.

It makes no sense to reinvest if you're already making sufficient profits.

This just demonstrates that you know zilch about business. Where did you hear that businesses ever use terms like "sufficient" when talking about profits.

It's totally common and natural for a company to invest money in measures that attract more revenue, even in times of prosperity.

If you're not, we've already exhausted option 1), which this is

How? Where in this ridiculous fabrication of nonsense did you stipulate that we can't raise prices?

Why would you do this, when cutting costs accomplishes the same with lower expenditure?

Because quality, brand, reputation, and service are all things that matter.

The point is, that improving the actual product seems to make the least economical sense, that's the last resort. R&D, improving manufacturing processes, better QC etc. are costly as shit, take a long time and still don't guarantee better sales

Cutting costs doesn't guarantee against a loss of sales. For every action, there's a reaction. What's your point?

More or less.

So explain how a state-run institution would do it better? They have no profit motive, but are still motivated to reduce costs. In that scenario, why would they EVER in a million years consider reinvesting money into the quality of their product? Their decision tree has one branch....cut costs.

This is why it's pretty much a proven economic certainty that competition improves quality and lowers prices. Remove the competitive aspect and you have a beached whale of a business.

I haven't said anything about results or what anyone's gonna do, I've looked at the incentives. The rational move is to minimize expenditure and maximize profits.

Why do you equate a minimization of expenditure with a degradation in quality? Is it possible that a business spends money on frivolous things? Is it possible that there is fraud, waste, and abuse occurring within the business? Is it possible that a reduction in costs could improve the quality of education?

You could possibly gain more relative profit using a more costly method, but that seems to incur more risk, which again makes no rational sense.

In what universe is the goal of businesses to avoid any and all risks? Do you fold everything but the nuts in poker? It's perfectly reasonable for businesses to assume risk if the potential rewards justify it.

To me it looks like improving the product comes last down the list. All the adding of the price hikes to the decision tree does is drop the product improvements further down the list.

Jeeeeezus! Did you go to public school or something!?

Look at the list again. By adding price increases to the list, you have options to generate capital that finance growth, expansion, and improvements. And then way down there at the BOTTOM of the list, is cost-cutting and quality-lowering.

[CoccoBill]

Your attempt to pigion-hole all schools as identical actors in their economic climate is fatally flawed in this assumption.

Forget schools for a bit, I'm not talking about them or what any school should or does do in any given situation. What I'm trying to say is that it looks like the economic incentives are not in line with consumer benefit. If you're in a competitive market and need to do something to compete, you have several options. Doesn't it make sense to pick the option that gives you the best bang-for-buck, the most +EV? Improving the product seems to be last on that list which I find, as a consumer, less than optimal. In fact, out of the 4 options identified:

1. increase prices - same product with higher price, consumer gets shafted
2. cut costs - worse product for same price, consumer gets shafted (or in best case no effect, when just trimming excess from the company)
3. invest in marketing - same product with higher price, consumer gets shafted
4. invest in product - better product with same price, consumer benefits

Now I'm not (yet) saying anything about what's the right way to run a school or a business, or whether for-profit or not-nor-profit is better, just talking about this dynamic. Yes, there are obviously a million other variables in play on top of the incentives, but it's hard for me to think they're irrelevant unless someone proves they are.

[MadMojoMonkey]

haha dear me your spelling is terrible for a teacher.

Shut up, nerd!

***
I'm sick AF right now. I'm lucky to have pieced together coherent thoughts, let alone spelled words goodly.

[BananaStand]

I thought you weren't trying to appeal to morality. Stop using words like "shafted"

Also, your entire analysis assumes that the school administrator has no idea WHY he's unprofitable. Usually analysis of a problem helps determine the best solution. Your whole premise assumes that management is totally blind, and is just throwing the highest +EV darts they can pull out of their asses.

Here on planet earth, it works differently.

1. increase prices - same product with higher price, consumer gets shafted

Why should consumers be totally insulated from price increases? Why is it a "shafting" if a business passes its higher costs on to its customers. Who is doing the shafting here?

2. cut costs - worse product for same price, consumer gets shafted (or in best case no effect, when just trimming excess from the company)

If the cost cuts are targeted at fraud, waste, and abuse, then how does the product get worse? Why is the best case 'no effect'? Is it possible that a more streamlined and efficient business could provide better service?

Maybe I lay off a long-tenured teacher who has accumulated decades worth of salary increases, and then replace him with two entry-level teachers. Two teachers for the price of one would certainly NOT result in shafting of the customer.

In a macro sense, the threat of this practice may motivate more experienced teachers to continuously enhance their skills and increase their value, thus justifying their higher price. In other words, teachers are forced to get better if they wish to continue to prosper.

That's the opposite of shafting the consumer.

3. invest in marketing - same product with higher price, consumer gets shafted

This presumes that the marketing efforts are fruitless. Maybe the marketing attracts new customers. That additional revenue improves profits. The quality of the product, and the price to the individual consumer remain unchanged. Who's getting shafted?

4. invest in product - better product with same price, consumer benefits

In what fucked up reality does a business add costs (invest in product) and not pass that cost on to the consumer? In order for the price to stay the same, the improvements need to attract new customers. If you are willing to stipulate that as a possibility, why won't you recognize that possibility in #3???

How are you assuming that #3 will result in a higher price, but #4 wont. They're both investments that increase costs.

Also, if you add costs, and offer the same price, how are you addressing the profitability problem that caused this debate in the first place?

[CoccoBill]

OK, I'll just answer to the bits with even a modicum of relevance.

It's totally common and natural for a company to invest money in measures that attract more revenue, even in times of prosperity.

For sure, but not by spending as much money as possible.

Because quality, brand, reputation, and service are all things that matter.

Sounds like you're cutting too much costs, in other words you've exhausted option 2.

Cutting costs doesn't guarantee against a loss of sales. For every action, there's a reaction. What's your point?

Of course it doesn't, but it's in most cases cheaper to implement than doing R&D.

So explain how a state-run institution would do it better?

Let's not get ahead of ourselves, we're just talking incentives.

Why do you equate a minimization of expenditure with a degradation in quality?

I don't, it's you who said that: "3) Cut Costs, i.e. degrade the quality of the product." Either way, I'm sure you can agree that at some point the degradation of quality is inevitable.

In what universe is the goal of businesses to avoid any and all risks? Do you fold everything but the nuts in poker? It's perfectly reasonable for businesses to assume risk if the potential rewards justify it.

Probably in the same universe where someone claimed that. Why do you think the potential rewards always justify it?

Look at the list again. By adding price increases to the list, you have options to generate capital that finance growth, expansion, and improvements. And then way down there at the BOTTOM of the list, is cost-cutting and quality-lowering.

Yes, and I agreed raising the price is the most +EV option if that is viable in your market situation. If it isn't, most likely the next best option is to cut costs, since that is also quick and easy, entails no additional costs like research, testing, development, and is fairly guaranteed to work, since you don't need to generate more business. Marketing is also a better option than r&d, since it's far cheaper and quicker. Then again it's not guaranteed to work.

[CoccoBill]

Banana, you're talking about something completely different than I am. I'm not interested in figuring out the best business strategy for a school administrator, I'm interested in the incentives created by a market for businesses to improve their profitability. Each of those options come with certain expenses, EV, risk etc. and it seems to me like they can roughly put in 4 categories, of which the "make great products" option seems the least favorable to the businesses.

[BananaStand]

Banana, you're talking about something completely different than I am.

No, I'm not.

You're making totally nonsensical presumptions about the cause and effects of various business decisions. Your assumption about which actions will affect quality or price, in which direction, are very very poorly thought through.

it's entirely possible, and actually quite common, for a business to cut cost and also improve quality by doing so.

It's also entirely possible, and actually quite common, for a business to increase costs (marketing and product development) without increasing price.

You whole argument depends on completely ignoring those entirely plausible and quite common outcomes.

[OngBonga]

Shut up, nerd!

***
I'm sick AF right now. I'm lucky to have pieced together coherent thoughts, let alone spelled words goodly.

No excuse. Typo is an excsue. Say it was a typo.

Goodly is a good enough word whether it exists or not.

[BananaStand]

Speaking of students getting shafted

http://www.foxnews.com/us/2017/04/26...udit-says.html

[CoccoBill]

No, I'm not.

You're making totally nonsensical presumptions about the cause and effects of various business decisions.

*whoosh*

[MadMojoMonkey]

@Cocco: Whether or not its a school is beside the point, I agree.

1) You're stipulating that increasing prices (and shafting consumers) increases revenue, but that is not a given.
Shafted consumers tend to lose customer loyalty.

2) You're stipulating that selling a worse product for the same price will increase revenue, but that is also not a given.
(see above)

3) is really a corollary of 1) and 2), and could mitigate some lost customer loyalty if the ad campaign is successful, but again, if unsuccessful, then it will not increase revenue.
(Do you like my implicit definition of "successful" in terms of a marketing campaign?)

4) You're stipulating that if your customers like product A, then they will like product A+, and will pay the additional price for it. Again, this is not a given. Better is subjective and the changes you make to your products may not appeal to all of your customers. Furthermore, your customers may simply love your improvements, but cannot afford the additional costs associated with those improvements. They may well decide that their current product is "good enough."

[CoccoBill]

1) You're stipulating that increasing prices (and shafting consumers) increases revenue, but that is not a given.
Shafted consumers tend to lose customer loyalty.

No, I'm just saying that increasing prices is one of the 4 available options a business has when facing competition. I put it at number 1 because, well, you just (theoretically) increase the price and that's it, immediately more money coming in. Clearly you can't just keep doing that, but economically, this option is as good as printing money.

2) You're stipulating that selling a worse product for the same price will increase revenue, but that is also not a given.
(see above)

I'm saying cutting production costs, be it labor, manufacturing, marketing, materials etc. is the 2nd easiest option in the arsenal, and guaranteed profits as long as your product does NOT decrease in quality, and no major extra costs are required to go through with it, such as lengthy company reorgs etc.

3) is really a corollary of 1) and 2), and could mitigate some lost customer loyalty if the ad campaign is successful, but again, if unsuccessful, then it will not increase revenue.
(Do you like my implicit definition of "successful" in terms of a marketing campaign?)

Yup, but I'd say it's the 3rd best option, if just raising prices or cutting costs are no longer an option. Marketing can cost significant amounts of money, take a long time and in no way guarantee you get results. Done right, though, it can be massive.

4) You're stipulating that if your customers like product A, then they will like product A+, and will pay the additional price for it. Again, this is not a given. Better is subjective and the changes you make to your products may not appeal to all of your customers. Furthermore, your customers may simply love your improvements, but cannot afford the additional costs associated with those improvements. They may well decide that their current product is "good enough."

You're of course right about everything you say. Making a better product is typically the most expensive option to increase profits. I would argue that it makes the least sense business-wise, since the other options above are faster, easier, cheaper and less risky. And unfortunately, it also seems to be the only option that actually benefits the customer.

Am I really this bad at explaining, does anyone get what I'm getting at? I do know I hate explaining myself and spelling things out, but I figured the text coming out of my face would at least be intelligible.

[Savy]

You seem to be looking at a business in isolation. You're forgetting they have competition.

If you don't make better products and someone else does then they stop buying your product and if they do that you stop existing. If the aim of a business is to make money then going out of business sounds pretty -EV to me.

[CoccoBill]

In isolation of course, since I only want to know what the incentives are. Those incentives of course are just one variable, there are probably a million others. But, if the incentives are to prioritize everything else other than making a better product when facing competition, to me that sounds like a big fucking deal. No, not big enough to destroy the world and make no one ever invest in product quality, but a counterproductive incentive on par with say a government worker not having a profit incentive.

Prove me wrong, that's why I'm here. So far everything has been largely besides the point, show me why increasing product quality is actually a better option or at least on par with the rest.

[BananaStand]

show me why increasing product quality is actually a better option or at least on par with the rest.

They're not mutually exclusive dude!

[MadMojoMonkey]

No, I'm just saying that increasing prices is one of the 4 available options a business has when facing competition. I put it at number 1 because, well, you just (theoretically) increase the price and that's it, immediately more money coming in. Clearly you can't just keep doing that, but economically, this option is as good as printing money.



I'm saying cutting production costs, be it labor, manufacturing, marketing, materials etc. is the 2nd easiest option in the arsenal, and guaranteed profits as long as your product does NOT decrease in quality, and no major extra costs are required to go through with it, such as lengthy company reorgs etc.

@ first bold: You're still assuming that the businesses' customers are either too stupid to notice that their value is reduced or too loyal to search for other businesses' solutions.

@ second bold: The stipulation that "product does not decrease in quality" is a shift in position from your original stipulation.
If a business can cut costs while maintaining or improving product quality, then that's likely to be win-win. It's not a sure thing, though.
Just because something is an improvement, doesn't mean it's a move to optimal. Competition means that someone else may be able to achieve a more optimal solution than you, even though you've improved.

Am I really this bad at explaining, does anyone get what I'm getting at? I do know I hate explaining myself and spelling things out, but I figured the text coming out of my face would at least be intelligible.

I think we get what you're saying, but you've made too many or too strong of stipulations, which separate your thesis from realistic business scenarios.

[MadMojoMonkey]

Prove me wrong, that's why I'm here.

lol

People.

SMH

***
Your exact meaning of "in isolation" has not been defined, yet.

Any definition of "in isolation" which allows me to agree with your statements is divorced from a real business run by real people. Businesses can't exists in isolation of customers, even if they can exists in isolation of competition.

The assumption that customers are a static commodity, unrelated to the quality/cost of the businesses' products is my real issue with your assertions.

[BananaStand]

The assumption that customers are a static commodity, unrelated to the quality/cost of the businesses' products is my real issue with your assertions.

Despite his denials, he is clearly trying to look at things from the perspective of a privately run school. In that case, the customers are somewhat of a static commodity. Everyone has to go to school. And "everyone" is a finite number.

[CoccoBill]

They're not mutually exclusive dude!

Of course not, and they don't have to be. It's enough that there's a stronger incentive to try everything else rather than making a better product. I'd say already a few percent decrease in research investments compared to a market without said incentives would be significant, and all out of the pocket of the consumer without added value to them. I'm wondering if it might actually be way more than that.

[BananaStand]

I don't think you know what mutually exclusive means.

You're not allowing for the common occurrence where a cost cutting measure results in a superior product.

[CoccoBill]

@ first bold: You're still assuming that the businesses' customers are either too stupid to notice that their value is reduced or too loyal to search for other businesses' solutions.

No no not at all. I'm only saying that IF a company wants to increase profits and IF they decide to do it by raising prices and IF that actually works and they get more profits, it's basically free money, effortless and requires 0 investment. I'm saying nothing about when or how it would or would not work, just saying it's a theoretical option. It can work and if it does, sweeet free money! If it doesn't, time to try the other 3 strategies.

@ second bold: The stipulation that "product does not decrease in quality" is a shift in position from your original stipulation.
If a business can cut costs while maintaining or improving product quality, then that's likely to be win-win. It's not a sure thing, though.
Just because something is an improvement, doesn't mean it's a move to optimal. Competition means that someone else may be able to achieve a more optimal solution than you, even though you've improved.

We agree this is generally a worse (considering cost, time, risk etc) option to increase profits than the first one, in cases where that one works? Yet, it's probably most of the time better than the following two options (marketing and improving product quality)? Then we're on the same page.

I think we get what you're saying, but you've made too many or too strong of stipulations, which separate your thesis from realistic business scenarios.

Maybe they are strong stipulations. I can think of scenarios where marketing may be better than cutting costs, or even improving a product being a better one, but overall my gut seems to think that that's the order of preference for those 4 tactics.

[CoccoBill]

I don't think you know what mutually exclusive means.

You're not allowing for the common occurrence where a cost cutting measure results in a superior product.

Me: What's better, bananas, apples or oranges?

Banana: I like both bananas and oranges! Why do I have to pick one?

[BananaStand]

Me: What's better, bananas, apples or oranges?

Banana: I like both bananas and oranges! Why do I have to pick one?

That's a retarded analogy. If you decide you like apples best, it doesn't affect the quantity or behavior of the other two fruits.

In business many different operational forces interact with each other.

[Jack Sawyer]

http://www.cnbc.com/2017/07/14/roger...aboolainternal


Relevant story


If those kids would be earning $7.25 an hour ...

[Jack Sawyer]

More goodness

As we detailed in a feature last year, Comcast doesn't have a meter in each customer's home to measure data usage. Instead, Cable Modem Termination Systems (CMTS) in Comcast facilities count the downstream and upstream traffic to and from each subscriber's cable modem.Though Comcast lets customers check Comcast's measurement totals online, it doesn't provide any way for customers to verify whether the meter readings are accurate. Customers who measure their own usage with tools such as DD-WRT and OpenWrt are routinely told by Comcast that only Comcast's meter provides an accurate reading.
Comcast has admitted mistakes in some cases, but it's nearly impossible for regular customers to challenge Comcast's data usage claims. Comcast CEO Brian Roberts has claimed that Internet data is just like electricity and gasoline and that customers who use more should pay more. But with traditional utilities, government regulation ensures that prices are fair to consumers and that meter readings are accurate. There are no comparable safeguards with Comcast's data charges and usage meter.

Thoughts?

https://arstechnica.com/information-...ancel-service/

[wufwugy]

Price controls *can* allow for current quantity and quality of goods and services by a given distribution of producers over a given distribution of consumers to be "fair," though even this does not maintain since societal conditions are not in stasis. Price controls deter the signaling to producers and consumers regarding how to most productively allocate their resources that grows quantity and quality so that more people can have more and better goods and services.

[Jack Sawyer]

Price controls *can* allow for current quantity and quality of goods and services by a given distribution of producers over a given distribution of consumers to be "fair," though even this does not maintain since societal conditions are not in stasis. Price controls deter the signaling to producers and consumers regarding how to most productively allocate their resources that grows quantity and quality so that more people can have more and better goods and services.

And I do agree with you on that




However, I also think that there are exceptions to this rule as with everything in life. While theoretically it *should* work everywhere, I cannot see every industry as exactly equal in the today’s real world.

And particularly ISPs are one of those exceptions

[CoccoBill]

When medical doctors have to compete for their customers, they tend to give the treatments and tests that their customers want, rather than what they need or what would be cost-effective.

[wufwugy]

When medical doctors have to compete for their customers, they tend to give the treatments and tests that their customers want, rather than what they need or what would be cost-effective.

Do customers not also want what is most cost-effective?

[wufwugy]

And particularly ISPs are one of those exceptions

What, in your estimation, makes ISP an exception?

[Jack Sawyer]

Do customers not also want what is most cost-effective?

IME they just want their health. While dying, you tend to not think about money

[Jack Sawyer]

What, in your estimation, makes ISP an exception?

For starters, the traditionally small amount of "competitors" due to that market having very high natural and artificial barriers of entry

[wufwugy]

IME they just want their health. While dying, you tend to not think about money

This change of preference is very true, and it is not involved with any shift away from seeking the most cost-effective option.

Even when unhealthy and dying, a $3000 treatment with 30% rate of success is preferred to a $3000 treatment with 25% rate of success. Given those parameters, the unhealthy and dying patient will choose the more cost-effective option (the one with 30% success rate). In fact, according to fundamental economic theory, patients will ALWAYS choose the most cost-effective treatment given their perceptions and preferences.

There are a bunch of things to discuss regarding problems in healthcare, but it is not the case that a patient will ever say "hey doc give me the least promising, more expensive treatment" (unless his preference is to get sicker or to waste money or something like that).

[wufwugy]

For starters, the traditionally small amount of "competitors" due to that market having very high natural and artificial barriers of entry

While there are natural barriers to entry in ISP, the causative factors for why there isn't sufficient competition such that deters one firm's market power (ability to set price) are artificial barriers (largely restrictions by municipal governments). It's tough to say exactly how much natural barrier to entry there is in ISP, but we do know that competition is arising where the artificial barriers are low enough. Apparently there are a lot of small ISPs that are jumping in and taking business from the big incumbents.

ISP is definitely not one of the markets I'm worried about even with its super high artificial restrictions. There are a wide variety of ways for firms to make money in the market and there are many other markets that provide substitutes.

[wufwugy]

The biggest natural monopoly I know of is airlines, and even they have enough competition naturally that their biggest problems are artificial restrictions.

As far as I can tell, voters and politicians and bureaucrats don't make decisions based on what is best for the industry and producers/consumers/laborers/entrepreneurs but based on how they feel or what directly lines their individual pockets. Airlines just *seems* like something that needs a bunch of regulations to most people, so it gets a bunch of regulations, which have distorted the industry significantly and caused loads of problems and greater costs.

Other industries get very little artificial restrictions because they just don't seem like they need them, yet those industries can still have very big natural monopoly attributes while still having robust competition and servicing of the customer's desires. Smart phones are a good example of that.

My point here is basically that most people think they apply their preferences for regulation in different areas based on reason, but I'm saying they don't and instead it's more about familiarity or false intuition. Why do people think government should own roads? Probably because that's what people are used to. Why do people think government shouldnt own farms? Probably because that's what people are used to.

[CoccoBill]

Do customers not also want what is most cost-effective?

With insurance, why would they? The point isn't that they'll want a less cost-effective treatment over a more cost-effective one, they'll want every test imaginable, whether they're even relevant or remotely helpful, since if you don't prescribe them, I'll find someone who does.

[a500lbgorilla]

http://www.cnbc.com/2017/07/14/roger...aboolainternal


Relevant story


If those kids would be earning $7.25 an hour ...

Devil's avocado for a moment.

Why do either of us know about Roger Federer?

[a500lbgorilla]

More goodness




Thoughts?

https://arstechnica.com/information-...ancel-service/

Changing the rules is always an effective tact. But sometimes you have to let life breathe.

[a500lbgorilla]

And I do agree with you on that




However, I also think that there are exceptions to this rule as with everything in life. While theoretically it *should* work everywhere, I cannot see every industry as exactly equal in the today’s real world.

And particularly ISPs are one of those exceptions

Yeah, work produces sweat which is the best of its pollutants.

[a500lbgorilla]

When medical doctors have to compete for their customers, they tend to give the treatments and tests that their customers want, rather than what they need or what would be cost-effective.

Yeah, because everyone has an entire life to live. They have kids and interests and desires...

If you can punch through someone with great insurance, why not?

[a500lbgorilla]

Do customers not also want what is most cost-effective?

Most comfortable, imo.

People can't worry about everything. You check in with the guy that understands your organs, you want him to tell you your organs in shape.

[a500lbgorilla]

IME they just want their health. While dying, you tend to not think about money

IME = In My Estimation?

Yes, when it's all laid bare and you're leaving this world, and those that gravitated toward you leave you because they abhor your degenerative weakness, you will remember what you left - and what you left better be for the living.

[wufwugy]

ISP is definitely not one of the markets I'm worried about even with its super high artificial restrictions. There are a wide variety of ways for firms to make money in the market and there are many other markets that provide substitutes.

I want to expound on this, in part because it gets at a concept very useful for life that is at the heart of economics: marginalism.

A response to what I said in the quoted, which is a response I've gotten here before, is "but if you have to use your internet to run your business, you don't have substitutes." For our intents and purposes, that is true. You DO have substitutes, but they are costly enough that we can assume you don't have substitutes. BUT people using ISP to run their businesses are not the only part of the equation. ISPs have a bunch of different customers with a bunch of different preferences and different changes in marginal behavior based on changes in ISP's inputs. Example, if an ISP racks up its price, the internet-business-operator takes it on the chin and wrings his hand. He gets screwed. BUT the family down the street who uses the internet for email only, they may then drop the cable ISP and use only their smart phones for internet. Another example, maybe the ISP decides to throttle too much. Maybe this screws over the internet poker player, but down the street may be a family that only has high speed internet because their son games, and maybe he's the kind of kid who likes playing with legos and outside in the woods a lot and after enough frustration with getting throttled while playing Diablo 3 he decides it is more worth his time to stop gaming and do those other things. Then his family drops the high speed internet because they're no longer using it.

In each scenario, the ISP's "bad" behavior may gain it money from the poor schmuck who runs his business on the internet, yet the ISP could still lose by net due to losing revenues from others who were also affected and were marginally attached to their consumption of the ISP's product. This is how the internet-business guy won't get screwed over, because the ISP will make decisions based on its marginal gains and marginal losses, which it gets from the customers and revenues on its margins.

This essentially exemplifies the most profound concept in all economics: Adam Smith's invisible hand.* Even when the internet-business guy depends on the ISP to not behave badly, the ISP depends on its marginal customers to keep making profits, which means that it is because of the internet-business guy's neighbors that are marginal customers of the ISP that internet-business guy gets a good product from the ISP.


*The invisible hand is essentially a description of how people acting in their own self-interest in voluntary transactions makes society better for all.

[a500lbgorilla]

This change of preference is very true, and it is not involved with any shift away from seeking the most cost-effective option.

Even when unhealthy and dying, a $3000 treatmen...

:^)

[wufwugy]

With insurance, why would they? The point isn't that they'll want a less cost-effective treatment over a more cost-effective one, they'll want every test imaginable, whether they're even relevant or remotely helpful, since if you don't prescribe them, I'll find someone who does.

You're right. It's a big problem in second-party and third-party payment systems.

Insurance is a second-party payment system. Government is a third party payment system. First-party is what we want, third-party is the least efficient.

It is likely that most health insurance would go by the wayside without government involvement. Most of the healthcare system naturally works well as a first-party payment system, but government policies have basically made it where the only viable kinds are second and third party payments.

[wufwugy]

Most comfortable, imo.

People can't worry about everything. You check in with the guy that understands your organs, you want him to tell you your organs in shape.

That too.

Economists don't think of (or at least try not to) costs as just dollar costs, but opportunity costs and baked into utility (preferences). Conceptually, it is appropriate to "price" comfort in terms of dollars even though it typically isn't in practice. If in the hypothetical I constructed, the lower probability success treatment carries with it greater comfort due to something like the type of treatment it is such that the patient chooses it, it means that the 'true" cost to that treatment in the eyes of the customer was the lowest of available options.

[Jack Sawyer]

You're right. It's a big problem in second-party and third-party payment systems.

Insurance is a second-party payment system. Government is a third party payment system. First-party is what we want, third-party is the least efficient.

So what is first-party? Out of pocket payment for treatment?

[Jack Sawyer]

IME = In My Estimation?

In my experience

[wufwugy]

So what is first-party? Out of pocket payment for treatment?

When the person paying is the person buying and using. Like if you buy a sandwich with your money at the store that you eat.

Second-party is when the person paying is the person buying but not the person using. Like if you buy a gift with your money for some guy at work's birthday.

Third-party is when the person paying is neither the person buying nor the person using the product. Like when the government taxes a guy in Nebraska to buy food stamps for a guy in West Virginia.

Quality and efficiency deteriorate with each step away from first-party payment. Regarding insurance, it functions efficiently as a catastrophic measure. Our current healthcare market is nothing of the sort, and costs are outrageous because of it. I believe it is due to some specific government policies (like how tax breaks for employer health insurance are creating a whole market of health insurance where there would likely otherwise be upfront prices and first-party payments instead).

[wufwugy]

I may be wrong in calling insurance strictly second-party payment. It seems to be a pseudo-second-party or pseudo-third party payment system.

[Jack Sawyer]

When the person paying is the person buying and using. Like if you buy a sandwich with your money at the store that you eat.

Sure. Now, buying in bulk should not bring down costs? I assume that if you buy 10 sandwiches, you may get at least 1 free. Or some free OJ.

Quality and efficiency deteriorate with each step away from first-party payment. Regarding insurance, it functions efficiently as a catastrophic measure. Our current healthcare market is nothing of the sort, and costs are outrageous because of it. I believe it is due to some specific government policies (like how tax breaks for employer health insurance are creating a whole market of health insurance where there would likely otherwise be upfront prices and first-party payments instead).

We are buying insurance against something that hasn't happened yet. By buying in bulk, ergo 1 entity buying all of the insurance, it *should* bring down the price paid. Like buying 10 sandwiches and getting 1 free, Or some free OJ.

Sidenote: these first party purchases obviously already exist, like when Cristiano Ronaldo buys insurance for his legs, or Kim Kardashian buys insurance for her ass. Those that need it, can get it as per usual

[OngBonga]

Ronaldo doesn't insure his legs. Real Madrid (his employer) do. They're the ones who invested over £100m in him. Likewise, Kim's arse will be insured by her record label.

[Jack Sawyer]

I want to expound on this, in part because it gets at a concept very useful for life that is at the heart of economics: marginalism.

A response to what I said in the quoted, which is a response I've gotten here before, is "but if you have to use your internet to run your business, you don't have substitutes." For our intents and purposes, that is true. You DO have substitutes, but they are costly enough that we can assume you don't have substitutes. BUT people using ISP to run their businesses are not the only part of the equation. ISPs have a bunch of different customers with a bunch of different preferences and different changes in marginal behavior based on changes in ISP's inputs. Example, if an ISP racks up its price, the internet-business-operator takes it on the chin and wrings his hand. He gets screwed. BUT the family down the street who uses the internet for email only, they may then drop the cable ISP and use only their smart phones for internet. Another example, maybe the ISP decides to throttle too much. Maybe this screws over the internet poker player, but down the street may be a family that only has high speed internet because their son games, and maybe he's the kind of kid who likes playing with legos and outside in the woods a lot and after enough frustration with getting throttled while playing Diablo 3 he decides it is more worth his time to stop gaming and do those other things. Then his family drops the high speed internet because they're no longer using it.

In each scenario, the ISP's "bad" behavior may gain it money from the poor schmuck who runs his business on the internet, yet the ISP could still lose by net due to losing revenues from others who were also affected and were marginally attached to their consumption of the ISP's product. This is how the internet-business guy won't get screwed over, because the ISP will make decisions based on its marginal gains and marginal losses, which it gets from the customers and revenues on its margins.

This essentially exemplifies the most profound concept in all economics: Adam Smith's invisible hand.* Even when the internet-business guy depends on the ISP to not behave badly, the ISP depends on its marginal customers to keep making profits, which means that it is because of the internet-business guy's neighbors that are marginal customers of the ISP that internet-business guy gets a good product from the ISP.


*The invisible hand is essentially a description of how people acting in their own self-interest in voluntary transactions makes society better for all.

Yup, theoretically.

And meanwhile, back in Gotham

https://motherboard.vice.com/en_us/a...s-after-harvey

Trump’s FCC Will Let Big Telecom Destroy Small Houston ISPs As It Rebuilds After Harvey: The FCC has rules in place to prevent Big Telecom from leaving local competitors in the lurch, but it’s currently scrapping those rules.

Take away the rules, take away the regulations, and instant destruction happens.

I can see some irony in there among economic theory and the law of unintended consequences

[OngBonga]

Take away the rules, take away the regulations, and instant destruction happens

So why does the black market exist? Why is my weed consistently good quality?

Sometimes, crap quality weed hits the market. It's rare, because the person who sold it will lose customers as a consequence. That's why most dealers I know will reject crap quality weed.

Despite being an unregulated market, cannabis dealers effectively regulate themselves for their own business interests.