Trusting Markets and Not Getting What you Want

While watching "Goodbye Lenin" a few years ago, my friend Adam made fun of me. We were watching the beginning of the movie where the mother of the main character dictated letters to the socialist manufacturers giving feedback on the products they had produced. She felt it was her duty to the common good.

The implication was that this is what I do, and too often. I give unsolicited feedback on my experiences in real time, constantly. This, it is implied, is a rival to the market. Perhaps I think that I live in East Germany?

I call hotlines and complain when restaurant service is less than stellar. I fill out comment forms. I spend a great deal of time responding to surveys for those companies that I patronize often. Does any of this make sense?

The great thing about a market economy is that unsuccessful businesses are allowed to fail. But we are reminded all the time of businesses that are both failures (based on the promise of a certain level of service) and good enough to stay in business. How is it that this persists in a market economy? See Alchien.

This results from an overly simplified dichotomy between patronage or not. The typical response is to say that there are many imperfections in the market. We see barriers to entry and we see large firms that have brand recognition survive just on the fact that people know the quality of the product they will receive.

Does this dichotomy make us abandon the market concept? I think there is a difference between a cold Burger King sandwich that is supposed to be hot and a full-blown socialist economy. Ironically, the perfectly discriminating monopoly gathers more information than the perfect competition model.

Why would anyone give other types of feedback. I have debated people in the past who assert that market prices contain all relevant information. Certainly over large arcs this could be useful in predicting who stays in business, but there are significant sources of information that cannot be reduced to price. We can simply start with the hypothesis that businesses that do not have customer feedback will not stay in business, and if shown to be false, assume that customer feedback is irrelevant.

I prefer to think about markets as more complex. Price is a good first approximation. There are a number of things that can be better understood by prices in a thick market. However, as soon as you remove the assumptions 1) non-bundled goods and 2) thick market; we are in a different territory altogether. Most goods are bundles. Even a cone of ice-cream is a bundle of services rendered and location. Further, imagine an ice cream good enough to justify a sub-par cone...

How we talk about cost without simplifying this to simply the realized money-price is important. I continue to exploit the opportunity to raise non-price costs for bad behavior because I believe that all things too have downward sloping demand curves vis-a-vis disapprobation and upward sloping supply curves vis-a-vis approbation. This encourages my tendency to complain...