The passage that struck me most profound was the idea of controlling prices in a competitive market. Charles Wheelan gave examples of a gas station in South Africa, where the well dressed attendant filled up, checked the oil, and washed the windshield of his car, and the other example was of "the good 'ol days" of airplane travel, where the seats were bigger and quality of the plane and service was much higher. In the both examples, when the government controlled the price of an item (such as gas or plane ticket pricing), there has to be some way for the consumer to distinguish between the people who are selling these items. The quality has to go up in order for people to want to buy from them versus their competitors.
This chapter also seemed to be an extended introduction, letting the reader know what is coming up in the following chapters of the book (like the concept of investment diversification in Chapter 7). It gives me something to look forward going from chapter to chapter.
I too found this to be an interesting concept of quality versus pricing. In some ways I wish we still had gas stations and airplanes with high quality services, but I do certainly enjoy having the lower prices. Also, in a free market, I suppose now the prices would go up according to the more fancy something becomes, and I really don't care about the quality of the gas station bathroom as long as I can have some relatively cheap gas.
ReplyDeleteI agree with Zach. Although I would definitely prefer a gas station with low prices and sanitary bathrooms overall I would rather have the lower prices. There is no longer any reason to fight another company for better quality because fighting over the better price is what's going to bring in the most buyers.
ReplyDeleteI agree with both of you. Firms and customers both seek to maximize their utility and customers are often willing to sacrifice quality for a lower price. The opposite is also true, however. Many often will pay more for better quality based on their preferences instead of sacrificing quality. I think that it depends on each situation and each consumer, whether they are willing to shell out the extra cash or save a little for lesser quality.
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