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Comment by azinman2 | Hacker News Reader

I worry about time passing for any existing stable industry where MBAs want to come in and “exploit inefficiencies.” It reminds me of Warren Buffet noticing how he can keep raising the price of See’s candies without losing customers. “Look at all that price elasticity l!” Meanwhile ordinary people become poorer.

There are a lot of reasons for wealth inequality, but finding ways to extract more profits off the same product or industry erodes society over time. I don’t know what could practically be done about all of this, but left unchecked, this will continue well into the future.

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It’s an erosion of good will, lots of companies go through build vs exploit cycles where they build up a brand with marketing, good quality, and value. Then they exploit it by cutting any of those. As it’s difficult to know the maximally profitable steady state it’s much easier to slowly oscillate between the two taking measurements on the way. A savvy consumer can pay attention to this and specifically try to buy from companies in a build phase. Often less savvy consumers get stuck with brand loyalty and they get exploited. Unless of course the company is a monopoly or oligopoly at which point it’s most profitable to stay in the exploit phase. It should be noted that some times prices in a build phase are not long term sustainable without a subsequent exploit phase.

Cory Doctorow calls this "Enshittification":

> Here is how platforms die: first, they are good to their users; then they abuse their users to make things better for their business customers; finally, they abuse those business customers to claw back all the value for themselves. Then, they die.

https://pluralistic.net/2023/01/21/potemkin-ai/

I think your idea of this happening in a cycle, with the company switching back to diverting its surplus back to its customers at the end before going back around again is an interesting one. I don't doubt it's possible, and that some companies have pulled it off from time to time. But the ability to win back trust from customers are you've spent two phases of the cycle abusing them seems like a tough hill to climb, and I think it's likely a lot of companies will fail there.

It's probably easiest for a company at the end of the cycle, to be acquired by a new up-and-comer who is still on its first round of diverting surpluses to its customers, to best leave its toxic reputation behind.

You make a good point, I do think having a dysfunctional financial industry makes the build -> exploit -> sell/dump such an attractive option that it would be crazy not to chose it. The problem is that people are buying these companies at overvalued prices. Probably a side effect of low interest rates among other things. In theory those who keep buying overvalued companies would long term lose money and will be less able to keep doing so. That doesn't work with negative real interest rates.

I think in software the exploit phase negatively impacts the culture of the developers in a way that is difficult to recover from. The best have left and the most of those who remain probably should be fired. Probably easier to start a new company from scratch, "Don't boil the ocean".

Maybe a good example could be in chip manufacturing where hiring someone like Jim Keller sends a signal that the company is entering a build phase.

Lacoste is a brand that was exploited to near death and explicitly went through a build phase a few years ago and revived itself. Huge marketing spend, lowered prices to target younger people, and I have no idea if they changed quality - not my field. I think it's more obvious trend in fashion where the underlying product doesn't fundamentally change.

Then there are B2B markets which have high volumes and low margins and in these industries reputations would be paramount and the customers more savvy and less exploitable. It would make sense to try to find a profitable steady state as soon as possible and only make minor changes.

So I guess the build-exploit cycle makes sense if assuming an efficient markets devoid of people with money willing to over pay for things they shouldn't.

>try to buy from companies in a build phase.

It is a lot of work as the big companies will buy brands with good names because of this reason (and will proceed to make them shitty).

After this phase the few remaining companies will attempt to find a way to entrench a regulatory monopoly and survive off of rent seeking behaviors rather than actual work.

I think erosion is a good word for this.

How do we deal with erosion in other situations?

Another thought I had just now is that historically prices were static until an event happened to cause in increase, now prices are becoming dynamic and monotonically increasing unless an event happens.

Edit: The price collusion is greed/growing pains for prices being dynamic by default.

This is another social norm that is being discarded by modern society. You don’t go to a store two days in a row and see different prices without a good reason.

>How do we deal with erosion in other situations?

We drop rocks on it?

I would not advocate for such a thing... but I'm honestly surprised that there haven't been attempts on the lives of executives/management/boards of companies like in TFA... I mean the whole "one bad day" is all it takes. People/society seems to be far more resilient than people give credit for... of course, this is countered by the massive homeless population. Maybe we're just far more docile.

It's hard to imagine this being tolerated a century or more ago.

They live behind a bland cover, so their names aren't known. Also, they don't seem evil enough. They mostly seem like middle management types.

In other words, they blend in too well.

> Maybe we're just far more docile.

I think it's far more sinister than that. People and companies have learned how far they can push things without invoking outrage and how to release tensions by pretending to have a change of heart. So now they're constantly toeing the line and while each push is small, they are almost constant. Resulting in far greater violations in total.

We have our Big Macs and Netflix. For now.

Of course, that relies on the bread of the bread and circuses staying cheap enough to keep the plebians pacified. If not...a recent example would be the Arab Spring.

Plant grass [roots]

Or, sadly, plant invasive species that then destroy local ecosystems.

Like tik-tok?

Half kidding, half not.

> I think erosion is a good word for this.

The term has a rich history under the phrase: "consumer surplus."

Or “poor(er) people having some money.”

> This is another social norm that is being discarded by modern society. You don’t go to a store two days in a row and see different prices without a good reason.

… Unless that “store” is Amazon, but maybe that’s in support of your point as it’s “modern” relative to legacy retail. However, in this case it’s maybe more that pricing reflects fundamental shifts in the marketing/retail/fulfillment backend over the past decade-plus than a “social norm” being discarded. No profit seeking business would leave money on the table willingly —- greed has always been the default, new tools will always come along to enable it as old tools become less effective.

Prices should roughly double every two decades with “normal” inflation. However over past decade or two we haven’t quite had “normal inflation” and we’ve also had somewhat weirdly static prices for some consumer goods (thanks easy capital + efficiencies from MBAs/offshoring/etc?) and yet unhinged price increases in other areas (college ed, medical care). The overall system has some rebounding/balancing to go (both at micro and macro level) before pricing changes have a clearer relationship to the fed rate. There’s an entire generation of people only knowing zero-percent-interest and sub-two-percent inflation rates as the norm and some thinks those days will return once [whatever now is] passes.

Sure, you’re explaining the mechanism of what I’m talking about.

And yet this generation of low interest rates has gotten progressively and significantly poorer than previous generations. There’s lots of pieces of this at work.

"Consumer surplus" is the term you're looking for. Minimizing consumer surplus leaves you vulnerable to undercutting by competitors.

There are plenty of competitors to See's candies. Just buy from them.

You’re missing the forest for the tree.

Can you elaborate?

All their competitors realize they can do this and begin raising their prices too

Which would be price-fixing and illegal?

I understand there's no way to 100% guarantee such actions will be punished, if it does occur, but clearly it's already not accepted by society.

It's not price-fixing if they don't communicate. AWS is fully allowed to publicly publish their planned price increases for the next 3 years and Azure is allowed to react to that information by doing the same thing -- or announce they won't or whatever.

Saying just buy from a competitor to See’s is completely missing the point. The point isn’t See’s candies specifically (which I’m so surprised everyone really held onto), but rather the mindset of the MBA type (doesn’t matter if they actually have an MBA) that says let’s just keep increasing prices on this commodity forever until we’ve squeezed all the juice, and once we have, we’ll do it some more. When you apply this to every sector, over time you disproportionally hurt those at the bottom and make them poorer. You also cause inflation, which dwindles the power of savings. This software in the article is doing it for housing, and worse, it seems that it does it more than a human would. You especially see it in entertainment, where now a basketball game is something well beyond the capacity of most. It’s very unfair to me as a society that we say only rich kids can go to Disneyland, and NBA game, or a concert. Or if they do, it’s far less often and they’ve had to save for a long time for it. But you also see it with eating out, car insurance, almost every good except fast fashion, TVs (which are largely subsidized by monetizing your viewing), and some other consumer electronics. The percent of people’s average income spent on most sectors has gone up over time.

I’ll leave you with this: https://youtu.be/X29p13cAT1g?t=17

'MBA types' have been punished for illegal activity, such as price-fixing, in the past. No one has granted them immunity from all future prosecution. So then what's your point?

That currently legal actions such as raising prices because a brand wants to move up-market should be made illegal?

I don’t know what I said that made you jump to the conclusion about legality. I never suggested it was illegal. I’m suggesting despite legality, society suffers and wealth inequality grows.

The implications of your previous comment suggests so?

> Saying just buy from a competitor to See’s is completely missing the point. The point isn’t See’s candies specifically (which I’m so surprised everyone really held onto), but rather the mindset of the MBA type (doesn’t matter if they actually have an MBA) that says let’s just keep increasing prices on this commodity forever until we’ve squeezed all the juice, and once we have, we’ll do it some more. When you apply this to every sector, over time you disproportionally hurt those at the bottom and make them poorer. You also cause inflation, which dwindles the power of savings. This software in the article is doing it for housing, and worse, it seems that it does it more than a human would. You especially see it in entertainment, where now a basketball game is something well beyond the capacity of most. It’s very unfair to me as a society that we say only rich kids can go to Disneyland, and NBA game, or a concert. Or if they do, it’s far less often and they’ve had to save for a long time for it. But you also see it with eating out, car insurance, almost every good except fast fashion, TVs (which are largely subsidized by monetizing your viewing), and some other consumer electronics. The percent of people’s average income spent on most sectors has gone up over time. I’ll leave you with this: https://youtu.be/X29p13cAT1g?t=17

It appears to be trying to argue some point, advance some claim, advocate for some cause, etc., relating to organizations increasing their pricing for their goods and services.

Ticketmaster is still going strong with no truly serious threats to their Enshittififation business plan. Seems pretty immune to me.

Funny that you decided to include fast fashion. Fast fashion by definition is a cheap alternative to high fashion. Similarly, there are cheap alternatives to all of the goods that you mentioned.

I suggest you to get out of your first-world bubble. Somehow you seem to think that everyone is entitled to luxury.

> The percent of people’s average income spent on most sectors has gone up over time.

First of all, that's a weird statement. The percent of people average income spent on most sectors is close to 100%. Ratios will change, but they don't indicate anything if you don't know how to read them.

What's your interpretation of this graph? Is it "billionaires are making movies more expensive and people are forced to save on food"?

https://www.ers.usda.gov/webdocs/charts/58367/food-prices_fi...

> I don’t know what could practically be done about all of this

Make your government ensure market competition, and stop it from harming said competition an declaring winners.

This.

The problem is not that companies are able to increase prices and improve their margins. That's good!

The problem is that our institutions (government, journalism, small business entrepreneurship) have reneged on their role of promoting competition, leading to a lack of fear of competitors in companies, leading to an increased ability by them to increase prices.

There should be more self-reflection on why price increases are possible, and redress of those causes, versus attempting to treat the symptom.

#1 place to start looking -- how to balance the ultra-high efficiency of consolidated firms with their ability to deploy overwhelming capital in novel industries to crush competition.

Or in other words: "How do we make it so that starting up a Facebook or Google or Microsoft competitor today is a reasonable?"

E.g. instead of putting price caps on necessary-but-low-volume medications, look into why it was able to collapse into a single-supplier market

> The problem is not that companies are able to increase prices and improve their margins. That's good!

That's going a bit too far. Under perfect competition there aren't any profit margins: everything sells at marginal cost. Real-world markets won't be like this, but they can get reasonably close. If there are large and increasing profit margins, that's a sign something has gone wrong.

Also, we need to be realistic about natural monopolies. Sometimes the competition we want isn't in the cards, and treating the symptoms really is the right answer. If that necessary-but-low-volume medication has sharply declining costs with increasing production, as many things do, there just aren't going to be enough suppliers to build a competitive market. Competition policy is great, but it can't do everything.

Under perfect competition, no one will invest in anything. So it does not seem very desirable.

Under perfect competition there aren't any profit margins: everything sells at marginal cost.

True, but that includes the cost of capital, so liquidity theoretically remains adequate and capital provision/replacement is just a business function rather than the business function.

The problem with capitalism is that it's totalizing; the idea that the whole point of society should be making more and more wealth forever is kind of ridiculous when you think about it, like deciding that it'd be great for your social body to get diabetes. It's ridiculous in the same way that pure laborism would be (everyone should work hard, never mind at what) or pure consumerism (everyone should have all the stuff they want, all the time).

Point. I should have more accurately said "The problem is not that companies are attempting to increase prices and improve their margins..."

Obviously the goal of a functioning system would be that they run into competition restraining them from doing so.

And 100% agreed on natural monopolies, although I believe the classification should be the exception rather than risk being a rule for "things we don't like."

The need to actively defend competitiveness from erosion seems like a vulnerability in the capitalist system. Anticompetitive behavior is a natural tendency in the system; it is advantageous for everybody all the time to be doing as much of it as they can get away with, and the gov has to actively exercise energy to determine when it gets too bad and needs to be reversed. Governments are fundamentally not very good at holding a line like this, they get tired... they greatly prefer to let things just play out on their own. They prefer to have a private company managing e.g. a local utility monopoly rather than do it themselves.

It always feels like there is some element that should exist-by-default in our economic system to organically oppose monopolistic behavior, without active government attention. Roughly this looks like consumer unions: the more monopolistic an organization, the more it looks like a governmental agency, and correspondingly the more power the public should have over it—putting a ceiling on the ability of private enterprises to extract value from the public.

Yeah... I think that the FTC needs to get back into trust busting a lot more frequently. I've been saying for over a decade, and amplified since covid supply issues, that the FDA should absolutely require dual sourcing and at least 50% domestic production. Many industries should require at least some percentage of domestic production, just for security concerns regarding supply.

I think the various government agencies, but especially the FTC, have taken the position that its America vs the world, and thus have looked the other way as tech giants have engaged in anti-competitive and consumer hostile behavior that earlier would have resulted in at least raps on the wrist, if not more (MS antitrust suit).

Now the position seems to be to let them do whatever they want and shield them from other governments and competition if necessary.

That doesn't work anymore.

>Public Opinion Has "near-zero" Impact On U.S. Law.

>Professors Martin Gilens (Princeton University) and Benjamin I. Page (Northwestern University)’s study found that the number of Americans for or against any idea has no impact on the likelihood that Congress will make it law.

>One thing that does have an influence? Money.

>While the opinions of the bottom 90% of income earners in America have a “statistically non-significant impact,” economic elites, business interests, and people who can afford lobbyists still carry major influence.

https://represent.us/americas-corruption-problem/

America is a republic only on paper. It's a de facto oligarchy.

I mean look at how TurboTax, Intuit, H&R Block have been able for decades to keep the IRS from doing our taxes for us. Literal rent seeking behavior and the only people it benefits are the tax filing companies. Literally everyone else in America loses. https://sunlightfoundation.com/2013/04/15/tax-preparers-lobb...

The biggest trick capitalism ever pulled is convincing people that it's not a system of government where whoever has the most money, rules. The plague of rampant regulatory capture just further proves it.

Yeah, private equity is a plague on humanity. I've heard so many stories of industries made worse for workers and customers just so some dicks can extract a steady stream of cash along the way to destroying everything.

This is a shame, because I think markets can be amazing engines for optimization. But unless we're going to work to make sure there are strong markets for a given good, we're not going to see much of that.

> can keep raising the price of See’s candies without losing customers. “Look at all that price elasticity l!” Meanwhile ordinary people become poorer.

Minor nit - See's candies is a luxury good and shouldn't affect the average customer from becoming poorer.

Healthcare, hosing, education, etc. on the other hand...

Personally I don’t consider it a luxury good. It’s candy, not bread, but it’s there for the masses. It’s just an example being done to literally everything.

Give the actual product didn’t change, just the pricing, it actively takes money away from ordinary people and gives it to a few. Would you consider Disneyland similarly a luxury? It’s sad how expensive it’s gotten to keep Wall Street happy, meanwhile it allows for rich kids to go but not poor. Same with baseball games. Same with literally everything. Raising prices to make more profit disproportionally hurts the poor, and makes them poorer.

A 'luxury good' in the technical sense is one where when your income goes up your spending on that good goes up disproportionately. So:

* Rice, Buses: 'inferior goods', because as people get richer they shift their spending to other goods.

* Bread, Cars: 'normal goods', because as people get richer they spend more on them.

* Caviar, Sports Cars: 'luxury goods', a category of normal goods where as as people get richer they spend a much larger percentage of their income on them.

See's Candy is a high-end candy brand, and I would expect it to function as a luxury good here.

I wouldn’t equate it with caviar or sports cars. It used to be a treat for the masses. My grandparents would often have a box, and were anything but luxury - sharecropping farmers retired and living on social security. I don’t think they ever bought a “luxury” item. But perhaps this is regional as it’s HQed in South SF.

I do think it's likely more of a luxury item nationally, yeah; I didn't realize you were talking specifically about Sees in its local area.

But even then, I wouldn't be surprised at all if had your grandparents suddenly had 20% more money their spending on Sees would have gone up by more than 20%.

Luxury goods have a definition and has little do with how luxurious the potential buyer is:

In economics, a luxury good (or upmarket good) is a good for which demand increases more than what is proportional as income rises, so that expenditures on the good become a greater proportion of overall spending. Luxury goods are in contrast to necessity goods, where demand increases proportionally less than income.

https://en.wikipedia.org/wiki/Luxury_goods

The etymology is interesting, and even more emphatic:

c. 1300, "sexual intercourse;" mid-14c., "lasciviousness, sinful self-indulgence;" late 14c., "sensual pleasure," from Old French luxurie "debauchery, dissoluteness, lust" (12c., Modern French luxure), from Latin luxuria "excess, extravagant living, profusion; delicacy" (source also of Spanish lujuria, Italian lussuria), from luxus "excess, extravagance; magnificence," probably a figurative use of luxus (adj.) "dislocated," which is related to luctari "wrestle, strain" (see reluctance).

<https://www.etymonline.com/word/luxury>

luxury != luxury goods

Etymology informs. It is not definition, but does show sense evolution.

That said, this etymology tends to support your position, given that at the heart of luxury is the sense of self-indulgence. Which would seem to apply to the non-essential nature of See's Candies.

Regardless, I wasn't arguing for or against your view, only providing what seems to be an interesting datapoint.

Cheers.

Ok.

It still is affordable. It is only considered expensive when you compare it to the candy in the checkout line at the grocery store.

Of course Disneyland is a luxury. Do you want to delete the word luxury from the human vocabulary? And for what?

To go one step further…it is at sellout capacity at luxury prices. Lowering prices would create an untenable situation.

I think one of the problems is that people will treat these as the same. They follow Buffet's lead because the end goal is money. Everything else is a number on a spreadsheet

minor minor nits - it's price inelasticity and it's affect not effects

fixed.

Huh? Are you really saying expensive candies are causing wealth inequality?

If a certain product has tons of loyal customers, it's creator/owner deserves all the wealth he gains off of it.

Unlike candies, housing is essential.

Edit: It's such a nice example of the first-world leftism: "those damn billionaires are stealing my... fancy candies".

unaltered housing markets have the same market signals of candy markets. If housing is "artificially expensive", others can build new housing and collect all of the customers. In this instance, find "Real Page" communities and build similar housing next to them and offer 5-10% less than Real Page and take all of the renters. The big problem in housing is the NIMBY and regulations surrounding it.

You would be right if housing location (mostly) didn't matter. But people generally want housing close to where they work and "location" is not a fungible input.

To use an extreme example, if every landlord in Manhattan was using Real Page where would you build your competing housing? Manhattan is already pretty densely developed and housing in the other boroughs involves a much longer commute for someone working in Manhattan.

Edit: Another point is that, unlike something like a web service, you can't collect all the customers. You could only steal as many customers as your buildings can hold. Meanwhile the landlords using Real Page are collecting higher rents and can squeeze you out of building additional property by bidding up the cost of the land you would have to build on.

Real estate is the only asset that is absolutely limited in quantity. With all other businesses you can compete if you are smart and resourceful, with real estate you have to first pay those who are sitting on the land. And they all demand a payout like winning the lottery to let go.

In other businesses you have the very common occurrence that an old small/medium size business owner wants to sell his business and retire, but he's stuck because the actual value of his company is close to 0, and any new person is at best interested in the real estate or parts of the inventory. So the old person doesn't sell and the business continues to deteriorate until nothing is left. With real estate it is different, because there's always some old person sitting on it. You can't create it from nothing like you can any other asset.

But yet here the same principal is being applied to housing. Keep raising prices until you can’t, but in the mean time, make people poorer.

I don’t know if See’s candies are expensive now, but they didn’t used to be. That’s my point. Same with going to the ball game. Same with Disneyland (or at least not at this level). Movies. Going out to eat. Etc.

Same principle, different markets, different outcomes.

> Keep raising prices until you can’t, but in the mean time, make people poorer

That's a primitive model employed by people that are unable to think long term and at scale. More than half of US population lived in poverty in 1900. You know what changed that? "Keep raising prices until you can’t" combined with competition.

I want good products to have higher prices - this ensures I'll get access to even better products at lower price in the long term.

There are dangerous exceptions of course, we learned what those are long time ago: essential goods and monopolized industries. Arguably, housing is both. Candies and "going out to eat" are neither.

I couldn't care less if some billionaire is becoming 10x wealthier if I'm also becoming wealthier at the same time. Complain about inequality all you want, but if I was born 100 years ago, my diet would likely be shit. Today and can eat the same (or even better) food than the richest man in the world. Think about it for a minute.

That’s working as intended. If you expand the profit margin you just expose yourself to competitors.

See’s candy isn’t the only candy company, nor is candy a necessity.

Japanese culture seems to have workarounds for this, with many businesses that have run for many centuries. It's harder to become rich in Japan; wealth concentrations are less encouraged, and many people are arguably underpaid to the point of exploitation. Political capital is (imho) much more concentrated, and the relative difficulty of wealth concentration reduces sociopolitical mobility. Arguably the social ethos is one of preserving a harmonious balance, partly because it's profitable for incumbents but perhaps also because it's emergent from geographic factors.

I’ve been saying for a long time that the U.S. likes to treat all problems as if they just need money, when in reality a huge portion of our societal ills are cultural and thus “free.” Worse, most often money won’t actually solve them at all and just wastes everyone’s treasure and time. No one wants an honest debate or meaningful change, nor does it seem possible when everyone just wants to pick a team and parrot the teams opinions.

Japan has many good and bad things about it. There is no utopia, and I’d rather live in the U.S., but I wish we had a bigger mix of harmony as a cultural North Star. Covid demonstrated to me over the past 3 years significant weaknesses of a individualist culture.

I think it's a cultural hangover from getting a thinly populated continent for free at a stage in the civilizational game when you have all the technology to settle and develop it, but still early enough to feel like it's infinite in extent and that there's enough for anyone who wants it.

An interesting comparison is Saudi Arabia, which liberated itself from external rule just a few years prior to the discovery of its vast oil reserves (and just a few years after the realization that oil would fuel industry for the century to come).

See's candies are not essential goods or service. This is a prototypical first-world problem.

Capitalism has lifted hundreds of millions out of poverty in the last century by essentially targeting inefficiencies.

But here we are worrying about price of high-end candies.

The cannibalistic nature of Capitalism requires a "Big New Thing". The internet and tech at large has propped up power structures in the United States, for example I think without computing and the internet the American middle-class would've degraded much faster then it has.

I don't know what the next "Big New Thing" will be, but I doubt it will have the same impact as computing/internet. I think things are just going to get pretty bleak for the lower classes as more and more of the world is consumed by oligopolies.

Historically you get uprisings and revolts when the lower classes are trampled. I don't even think that can happen anymore with even small police departments getting tanks and access to drag-net surveillance at global scale.

> The cannibalistic nature of Capitalism requires a "Big New Thing".

That's completely false. Just look at all the convenience stores spread across the world. Or, if my neighbor sells widgets, I can still go into the business of selling widgets.

> next "Big New Thing"

The internet was transformational because it (1) decreased communication friction by orders of magnitude & (2) enabled digital business operations, powered by computation instead of people.

And specifically, these were both things that applied to every business on the planet.

A lot of job roles disappeared as a result of that, but it made business much more efficient and scalable. And allowed the remaining employees to be more highly compensated (same_revenue / fewer_employees = more salary space).

Looking around for similar future potentials, I see 3.

1: Applied AI integrates itself into businesses (specifically, in finance, operations, and analytics) enabling another increase in efficiency by an order of magnitude

2: Remote working (and specifically international) allows use of a wider range of talent, at competitive salaries, which permits businesses to hire specific skillsets they previously lacked access to (didn't exist or unaffordable)

3: Driverless over-the-road freight vehicles increase shipping efficiency by an order of magnitude

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