Do Markets Give Us Too Few Choices?

University of Pennsylvania business Professor Joel Waldfogel argues that markets give us too few choices because they often fail to provide products that satisfy minority preferences. This is the opposite of Barry Schwartz’s argument that markets are bad because they give people too many choices, which I criticized here. In one sense, Waldfogel’s point is irrefutable: due to high startup costs or fixed costs and just to the general scarcity of resources in the world, there are some minority preferences that the market won’t satisfy. The market is undoubtedly inferior to a hypothetical world in which all preferences, no matter how unusual, could be satisfied at zero cost. Not even the most hard-core of libertarian thinkers denies this. That, however, says little about the question of whether government could satisfy such minority preferences better, or whether it is even a good thing to provide products whose costs are greater than their benefits.

Glen Whitman and Tyler Cowen have already pointed out the main flaws in Waldfogel’s argument. Let me make two additional points.

First, Waldfogel largely ignores the fact that the market gives entrepreneurs incentives to find new and cheaper ways to satisfy the unmet demands of people with minority preferences. If an entrepreneur can figure out a way to reduce the fixed costs of, say, establishing a TV channel, then we can have channels that cater to unusual minority tastes. Of course, this is exactly what happened with the rise of Cable TV, which gave us such minority-oriented channels as C-SPAN, the History Channel, channels devoted to fishing and sports history, and so on. One of the most important economic trends of the last 200 years is the rise of a bewildering variety of products catering to specialized “niche” markets.

Government, by contrast, has little incentive to figure out new ways to satisfy unmet minority preferences, unless the minorities in question are wealthy or politically influential in some other way. Even then, the politicians – unlike private sector entrepreneurs – have little incentive to satisfy those preferences in a way that is cost effective. After all, they’re not spending their own money, but that of the taxpayers.

Second, the relative lack of diversity of programming on radio stations – one of Waldfogel’s principle examples of the inability of the market to satisfy minority interests – is actually a failure of government regulation. As Jesse Walker documents in this book, the FCC has for decades colluded with big broadcasters in suppressing alternative and “microradio” broadcasters, thereby greatly reducing the number of stations and making it very difficult to run a station that caters primarily to the interests of a small minority. Even a completely free broadcasting market would not satisfy all potential listeners. But it would have a great deal more diversity than is currently permitted by the FCC.

Waldfogel is absolutely right that fixed costs, startup costs, and scarcity limit the ability of markets to satisfy minority preferences. But this insight is neither original nor particularly helpful in determining the relative merits of government intervention and the market.