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Comment by dalbasal | Hacker News Reader

The margins in this industry and its structure are almost an economic paradox. The dynamic is basically (1) markups are very high (2) manufacturing is a solved problem and (3) there is lots of competition.

This should resolve to a very competitive market with costs trending to marginal manufacturing cost. Instead, you have high prices for consumers and competition for the tremendous sales margins driving a marketing bidding war. IE consumers pay 400%. 100% is used to make mattresses. 300% is used to market mattresses.

IMO, this is something like the wine industry. People want a premium product, but a premium product doesn't exist. So, the market spoofs it with marketing.

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> People want a premium product, but a premium product doesn't exist. So, the market spoofs it with marketing.

I had never heard it described this way. I love it.

Slightly off-topic, but if you genuinely think that there's no such thing as high-end wine, I feel a little sorry for you. Surely you can tell the difference between the Budweiser/Calsberg-type beer and beer from an independent brewery? If so, then surely you can imagine the same might be true of wine? I get that the fact that some bottles cost thousands may offend some people's sensibilities, but this hardly covers the wine mainstream and is usually down to intangibles that go beyond the wine itself, just like a piece of art.

It's certainly the case, of course, that while there's a big gap between a $10 and a $50 bottle of wine, naturally the gains for price points above that get incremental pretty quickly in much the same manner as TVs — is a TV that costs $9,000 over four times as good as a $2,000 model?

Wine experts often stumble on double-blind tests, sure, but then again, so do audiophiles trying to differentiate lossy and lossless audio.

A handful of people might be "super tasters" and be able to tell the difference.

I suspect most people in a properly run double blind test would be able to tell you what they like, but that wouldn't be repeatable over time and it wouldn't correlate with price.

Your last sentence about audiophiles is odd, because everyone knows audiophile hifi is full on nonsense.

Sorry, yes I should clarify. What I mean to say by that is that while there is objectively a difference between a 256kbps MP3 and a FLAC copy of a song, it's very hard to discern, but the difference is there. But personally, I can't imagine being unhappy with a $30-50 bottle of wine. I suppose this is part of the attraction here — mattresses aren't a regular purchase and the notion of 'cutting out the middleman' is a big part of the value proposition for lots of companies these days (Warby Parker and Everlane make a big play of this in their marketing).

Being able to slap a label on someone else's product and have them handle both production and distribution while you just do the marketing is the dream for a large chunk of the Valley, I guess!

I feel a similar way about micro-brews. It's good because people think it's good. They think it is good because of cultural/narrative reasons. It's not good for any underlying or objective reason. If Budweiser made a beer that tasted like micro-brew, the connoisseurs would be drinking a micro-brew that tastes like budweiser.

Don't feel bad for me though :) Being a philistine is not life-threatening.

Wine is a good example because it's proven to be nonsense. Neither experts nor consumers can rank wines for taste in either a consistent way or a way that corresponds to price. Prices & blind test preferences are random. OTOH, people demonstrably prefer expensive wine when they know it's expensive.

This comes back to my earlier point, it's not all economics. Human beings are complicated. In these cases, some of us want to pay a premium for a premium product. There is no such thing, so the market spoofs it.

>It's good because people think it's good. They think it is good because of cultural/narrative reasons. It's not good for any underlying or objective reason.

I just want to point out that this is true of basically all food, drink, and art. https://en.wikipedia.org/wiki/Distinction_(book)

At some level, value is a matter of taste. I agree.

Is this $900 phone better than this $200 phone, or two $200 phones? IDK, but at least they are different. The question is not (IMO) about absolute rationality, but having enough rationality to drive a market. Wine & mattress markets don't have it. You can't offer a near identical wine or mattress cheaper than market price and expect it to disrupt the market, forcing competitive price-cutting.

Beer is somewhat different here, in that it is not just one ingredient. One reason Budweiser/Carlsberg are not "high-end" is they use ingredients that make production cheap. For example, both of these beers use rice, which is a much cheaper source of sugar than barley. But when you get to comparing full-barley beers from Anheuser-Busch vs a micrcobrewery, you'll find just as much pretense as in the wine world.

This is all true, however even among all-malt beers there is significant variance in the quality of ingredients. That doesn't mean that there is no pretense but that high-quality beers can be measurably better (GCMS, blind sensory tests etc.) than less expensive ones made with cheaper inputs.

But it certainly hits a ceiling at some point. I've had really expensive beer and it doesn't taste any different than moderately priced beer.

Beer made by independent breweries doesn't taste better by virtue of being independent or small. There's some bad beer made by craft breweries out there.

Furthermore, some formerly independent breweries are owned by Budweiser, but that doesn't make their beer suddenly taste bad. Goose Island has been owned by Budweiser for 7 years now, for example.

It's almost as if the hegemonic form of Econ theory is mostly bullshit that doesn't correspond to reality.

Not in this case, though hegemonic is a big word here. You can still buy a mattress for $200 if you want. Micro-102 has all sorts of funky examples where things behave weird. This mattress situation is only possible because people want to buy a premium product "irrationally." This isn't housing.

Mattresses and wine are pretty straightforward examples because "marketing" is straightforward, advertising and sales. It seems obviously wasteful when $400 of your purchase price was spent on FB ads, $400 on sales and only £200 on manufacturing.

In the garment trade (a much bigger industry), there's still that insane manufacturing/price ratio. It's just that "marketing" is more complicated, involving premium retail experiences and difficult stock management. In both cases, you could hypothesise a different structure where stuff gets produced and shipped to consumers at a fraction of current prices.

But... this particular thing can't really happen in markets where people want/need stuff and can't afford it. Cheap/cost-price alcohol (also wine) is also available, and popular. This can only really exist when people don't mind paying more.

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