My initial reaction to Joel Waldfogel's argument that the market gives us too few choices was that it directly contradicts Barry Schwartz's claim that it gives us too many because it is hard for consumers to decide which of the bewildering array of options available is best for them. However, it is theoretically possible that both are right.
Waldfogel argues that markets give us too few choices because they fail to provide products that satisfy minority preferences in situations where there are high startup costs or fixed costs. For example, there are very high fixed costs to producing a new type of car. That implies that markets will not have this problem in situations where the fixed costs are low. For example, there are millions of websites that cater to small, specialized audiences because the fixed costs of establishing a website are low.
This suggests that markets could theoretically provide too little variety of products with high fixed production costs, and too much of products with low fixed production costs. Maybe there are too few car models, but too many websites.
For reasons that I explained in my previous posts discussing Waldfogel and Schwartz's arguments (here and here), I think that both of them are wrong. Markets generally do a good job of both satisfying minority preferences and reducing the costs of choice for consumers who don't want to do detailed comparison shopping. However, it is worth noting that it is theoretically possible for Waldfogel to be right about one set of products, and Schwartz about another.
Related Posts (on one page):
- Waldfogel and Schwartz Reconciled:
- Do Markets Give Us Too Few Choices?
- Do Markets Give Us Too Many Choices?
Uh, you meant, "worth noting", right? (Otherwise, you probably wouldn't have bothered to post this...)
My local sole-prop sub shop has 45 varieties on the menu, I can order in 3 words: Number "3" Everything. The local franchise sub shop has far fewer varieties listed, but it's nearly impossible to order a sub from that shorter menu. What kind of bread, what kind of cheese, what kind of this, that and the other thing, so I stopped going there.
Recently they mailed a coupon for a free particular style of sub with a beautiful photo of it, so I went back and sure enough they started in with the questions again, so I held up the photo and said I just want it like it's pictured. Haven't been back since.
Uh, you meant, "worth noting", right? (Otherwise, you probably wouldn't have bothered to post this...)
"Noted," and now corrected. Thanks!
Further, like it or not, human psychology does tend to second guess itself, so that people emotionally prefer sometimes having no choice and never knowing what they potentially "missed out on." A choice that is rationally not exercised invokes this second-guessing whereas having no choice does not. (if Ilya never does this, then more power to him, but I think this phenomenon is quite common).
That said, I share Ilya's general skepticism toward a "ignorance is strength" philosophy. I just think that Ilya is not giving the other side of the debate enough credit.
Too many people believe in the market as a matter of ideology. A free market does what it does. It's good at local optimization and poor at global optimization. The regulated markets of real life work well or badly depending on the industry and the implementation. California's experiment in free energy markets are an example of the downside.
I disagree Seadrive. Rather, it was a muddled mess of cryptically explained (to put it mildly) choices with an odd combination of if/then stipulations. I spent hours trying to figure it out for a couple of neighbors. But too much choice was not the culprit.
The small specialty business would carry a larger variety of special widgets than Walmart, but a significant part of the profit would be from the most popular widget.
For example, my wife was recently at a needlework convention where the exhibitors and attendees remarked how small stores in small towns were gone. In that case, Walmart was taking away the core DMC thread business with very low prices, but would not carry specialty threads, the profit per sq ft would be too low on that, and there is not enough supply in any case for Walmart, but there was not enough business in a small town for the specialty store to make up for the loss of the DMC thread sales.
In a big city, there are enough customers to support a needlework store based on the specialty thread business, and certainly this is true on the INTERNET.
The point is that you have to gather a large enough minority to support the business. It is not just production, but also location. It makes little sense to open a small business in a small town where Walmart is.
That's quite the cynical position, don't you think Eli? I doubt, completely, that the executives at Wal-Mart sit around rubbing their hands together plotting to put small businesses down when they scout out new store sites. I'm sure, though, they do a demographic study to determine whether any given population in any given area will potentially, successfully, support their expansion.
I've got Wal-Marts to the south of me, to the west of me, to the north of me, though none to the east as they've not figured out how to break into the marine market with an offshore nautical version of their stores, and guess what? Every single one of the local hardware stores that I've frequented for years (and still do) are doing just fine thanks.
In fact, over the past few years, subsequent to a Wal-Mart opening in a desolate area, I can think of at least a dozen new franchise restaurants that opened in the vicinity to take advantage of the traffic -- oh, and the existing "mom and pop" bars, taverns and restaurants are doing better than ever as well.
Lots of choices! :-)
The alternative in a store with huge selection, is to "middle of the road" and choose an item with an average price. Don't marketers take advantage of this phenomenon?
I was going to make Mark H's point until I read his post. I disagree that it is ideologically based/biased. Use a true "market" example if you wish to support the too much choice point - not a bureaucratic boondoggle.
Face it, Walmart competes, they do so on price, they have the leverage to do so in any small market and they use it.
If we can look at particular situations and are willing to be creative about solutions that start by finding the actual problem, it is usually possible to come up with a solution that does a pretty good job of addressing all parties' concerns.
Many other zoning provisions, on the other hand, are burdensome for property owners and builders while providing little, if any, public benefit. For example, a well-built 8-unit condo on two acres with good landscaping can easily be more attractive than eight individual houses on .25 acre each, and poses no additional traffic or infrastructure burden, but most areas zoned for low-density residential would not allow it.
The real situation can't be reduced to either a "markets are driven by greed" or a "politics is driven by ignorance" mentality.
The fact that the average homebuyer doesn't have the knowledge or time to get too involved in the choice of structural materials or construction techniques means that building codes work well, but saying the market would provide "too many choices" doesn't really grasp the issue.