You are crazy if you think there is no difference between McDonalds, Wendys, and Burger King but that is beside the point. Every business is trying to create a brand so they can create profits. Smashburger and McDonalds are both in the hamburger business but one makes a great burger and one makes a horrible burger. Smashburgers brand is great burgers and McDonalds brand is kid food and breakfast sandwiches. If a company cheapens their brand they go out of business and are replaced by a company that has not. The system rewards companies that maintain their brand and punishes those that don’t. This way the system increases the standard of living for everybody by shifting resources to those who use it most effectively. There are lots of businesses making stupid decisions but these do not mean the system is flawed.
Your definition of the free market is actually a definition of a perfect market. In a perfectly efficient market profit would be impossible. However on this side of the vale of tears perfection is impossible so profit opportunities are available. If companies are systematically biased against paying the correct wage to workers it still would not matter if there are some people who do not share that bias. If 80% of companies hurt their bottom lines by underpaying workers then the other 20% of companies would be more profitable and greedy investors would invest in those businesses and they would expand until they were 80% of the market. If 100% of people had a systematic bias against something they no one would know including the critics.
If someone thinks there is a difference between the products and business you list, does that invalidate your point? There is a difference between McDs and BK. It may be personal preference but that both exist tells me that people’s preferences are strong enough to sustain both.
The same holds true for this. There are differences between brands and while they may be feature orients, it’s enough of a differentiator alongside the price that allows these competitors to stay in business. Magnavox used to be a large TV brand, are they still around? They may be, but not to the extent they were before. Contributing to that may be because they sucked.
Would you believe there are people that like the burgers from McDs more than the ones from 5 Guys? Does that mean the higher pay makes the burgers at 5 Guys taste worse? If not, then why do you think that works in the inverse?
So by your definition, if there are profits, then the market isn’t free? Does this market contain Scotsman perchance? Do you think the converse holds true? If there is no profit, then is the market free?
More sweeping generalizations. Plenty of businesses open with the goal to make money and succeed. Plenty also fail. Regulations could contribute to both, or not. Your brush is so wide I think you may have gotten lost in it.
Your LLC has shareholder(s). You at least. If it doesn’t ever make a profit I’m guessing it would not continue in the long term.
I know right, fucking Google. Their production and employees must be suffering huge.
Fast food burger joints are sufficiently differentiated to not be commodities, and they’re in competition with even more differentiated places- Taco Bell, Sonic, KFC, etc…
What would be a retail commodity would be something like gasoline- for most people, in most modern cars, there’s no difference between running a tankful of Shell gas vs. a tankful of Exxon, Philips 66, RaceTrac, etc… That’s why price is such a huge deal in the gas retail business- people tend to buy by price if they’re shopping around at all.
The other items are pretty much the definition of differentiation- 50" LED television is a category, not a differentiation. Within the category, the various models are well differentiated- some have higher resolution, some are THX-certified, some have better sound, some are integrated better with the internet, and so on and so forth.
Like has already been said, you’re confusing a perfect market with a free market. A perfect market assumes omniscient knowledge about the entire transaction- what the vendor’s cost is, what their price is, etc… so you can basically negotiate out a price that’s at the break-even point for the vendor. But you don’t know any of that in any real-world market. You don’t know their cost on a good or their markup, so that’s how they get their profit.
Huh? It’s true that small businesses often fail, and it’s also true that many (most?) small business owners would actually be better off financially working for someone else (because they don’t pay themselves enough).
But the sole reason for-profit companies organize to go into business is to make money. Suggesting anything else is absurd and laughable.
Not every risk you take is a form of gambling. That’s the flaw in your thinking, I believe.
The main difference is that gambling is typically a fixed bet in a time bound situation- you’re betting $100 that the Patriots beat the Bills this weekend. Investing is neither time-bound, nor is it a fixed bet; you’re not necessarily out your entire investment if it turns out to be not what you want.
For example, you may invest $10,000 in stock for some company. You can keep it there as long as you want if the company stays in business, and if the company struggles, you can still sell the stock for say… $9000.
Gambling would be saying that you bet $10,000 that the stock price will go up 3% in the next year, and you lose the entire $10,000 if it doesn’t, and get $15,000 back if it does. Investment by comparison would be investing the $10,000, and then having $10,300 at the end of the year. See the difference?
People may certainly negotiate their wages- the ultimate step is the “take it or leave it” point on either side. I’ve probably turned down as many jobs for insufficient pay, or undesirable conditions (e.g. location, environment, etc…) as I’ve taken over the years. I’ve also negotiated the salary upward on a few as well.
The key is to be differentiated enough to be able to do that; there are a lot of jobs where the workers don’t have a lot of leverage, other than to go take a higher paying/less dangerous/longer hours job somewhere else. This isn’t because the job market is somehow unfree, or because they aren’t being allowed to negotiate, it’s because their jobs are fungible, and the company isn’t going to negotiate, when it can get someone just like them for the amount they’re willing to pay. THAT is the point on the lower echelons of the job market- the supply and demand of the job market are such that they can name their price and find plenty of willing people to do the same job just as well as the rest of the applicants. So if one guy tries to negotiate a 50 cent/hr starting salary hike vs. the posted rate, he’s not going to get that job because there are 99 other people willing and able to do that job for the posted rate.
It’s also why on the other end of the spectrum, you have say… professional athletes negotiating huge salaries; there is only ONE Tom Brady, and apparently he’s worth it to the Patriots for them to pay him what they do. He can go in there and successfully point out that he’s better than say… Brock Osweiler, and thereby command a higher salary.
It’s probably an unpopular opinion, but the problem isn’t with the employers for setting the wages where they want; it’s with the workers for being effectively unskilled.
I mean, look at it this way- let’s say you need some plumbing work done. Nothing particularly skilled- just a fair amount. Based on previous experience, you have a feeling that it’ll be about $500 worth of work. So you send around to plumbers asking for quotes. You also offer something like “$350 or best offer” as the rate.
Let’s say one guy quotes you $700, and the other 5 who reply are willing to do it for $350. Why would you bother to hire the $700 guy, all else being equal? Employers are in the same situation. Now if it was something like decorative tile, or architect work, then you might make your choice based on examples of their work and reputation, and you’d negotiate the price to something that both of you can live with.
But in the case of the toilet-swapping plumbers, you have no incentive whatsoever to go above your $350 price, because that’s what qualified plumbers are willing to do it for. This is the same situation as the unskilled people are facing- they’re the plumbers, and the employers are you.
That sounds more like the definition of a collective, rather than a corporation. The fact remains that the vast majority of corporations exist to make a profit.
You obviously have never heard native Californians shudder at the very thought of moving somewhere where it gets cold and snows. Being from the east I find this very amusing.
The perfect rational economic actor is called homo economicus. Even one who is a high school dropout can supposedly do economic calculations which challenge Harvard MBA students. And his existence has been disproved in countless experiments. My daughter and I got a bunch of engineers to be extremely irrational in an anchoring experiment.
Anyone who does salary administration knows about salary compression, which is when new hires over time get bigger raises (often much bigger) than existing employees. If everyone were a rational player, established employees could clearly change jobs and demand more money than new employees. But it doesn’t happen. I’ve seen it. The reason is, as you say, there is substantial psychic cost in changing a job which you like, especially of it involves a move. I got all sorts of crap moving from NJ to California, even though AT&T gave me oodles of money to leave and Intel gave me a bunch of money to come.
And it even happens in Silicon Valley where you generally don’t have to move.
I don’t know if this applies moving from one commodity mcJob to another, but it sure does for higher paying jobs.
People making irrational economic decisions is not a marginal case. Consider Mr. Greenspan, who was sure that bankers would act rationally and not greedily in taking risks. Oops.
Look at people paying 30 cents a gallon more for gasoline than they can get 500 feet away. Marketing would be very boring if consumers were rational.
People making irrational decisions are the infra marginal cases. If all people were willing to pay 30 cents a gallon more for gas, then no business person would ever lower the price of gas. Yet this is not what we see happen. The price of gas stays about a dollar over the price of oil because enough marginal customers exist to put downward pressure on prices.
I don’t think you are talking about rational actors. The above about ailing mothers and ties to the land are about opportunity costs, which certainly can be, and are, included in economic models. They are harder to measure, but it is not exactly non-rational to make choices based on non-monetary factors.
If I am offered a job with a two hour commute, and the increased salary is enough to offset the increased gas costs, and wear and tear on my car, I could still refuse the job and it is a rational decision, and is explainable by the economic theory of marginal cost. Unless you meant something else.
Regards,
Shodan
Homo economicus always makes the same, rational, decision based on the same set of inputs. If the world was populate with h.e. they would all go to the cheaper station. Clearly some - irrationally - think that brand name gas is better.
That’s not saying either that everyone is price insensitive or anyone is infinitely price insensitive.
No. Want more money? Get a better job or get a rich Uncle to die, don’t whine like a baby about it.
If the ‘rich company’ is a public stock company the managers have a fiduciary duty to the shareholders to maximize their return. A manager who uses shareholder money with an explicit intent other than shareholder interest is acting wrongly. That is the system in principal. Nobody has come up with a better system in principal.
In the real world of course there’s lots of uncertainty about what maximizes return, and over what horizon it should be measured. Likewise ‘market’ wage is hard to measure for a lot of jobs. In fact a significant component in growing income inequality in rich countries is the fact that more profitable companies do tend to pay higher salaries for the same jobs. See the section and chart on this in “The Economist” special section on the debate about anti-globalism (Oct 1 2016 issue, not sure there’s any full link). And profitability among companies is also less equal than it used to be.
Now that still leaves room for causality. A lot of people like Costco in part because it tends to pay higher wages for the same (basically) unskilled jobs vs other retailers. But lots of consumers liking a big consumer company could boost its profits. So to some degree or in some cases at least paying more could be a reason for greater profitability. The key is that Costco’s management’s actual motive should not be giving away other people’s money (the shareholders’) they were entrusted with, even if they say for public consumption ‘we at Costco believe in justice’ or whatever. If they are actually adopting this policy for shareholder interest, fine, and it seems to work out that way in their case.
Not to pile on, but those are two remarkably erroneous statements…even for the internet.
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This is pretty trivial, but in fact the burger market is going in the exact opposite direction in recent years with premium fast food places like 5 Guys, Smashburger, Shake Shack etc taking market share from the upper tier of ‘drek’ burgers like Wendy’s, and it is truly absurd to say Wendy’s is the same as McD’s. It might be better for one’s health never to go to any of those places but you’d have to never have gone, and be unaware of the nature of all the recent startups in that business, to make such a statement.
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This is a lot more fundamental. If you believe you’ve proved even to yourself that profit is theoretically impossible in a free market you need to go back and rethink that. Actually there are any number of markets or large segments of them (slicing either vertically or horizontally) which are virtually completely free, and which behave pretty much exactly as theory would suggest*, and where participants make profits decade after decade on average. Businesses where large ostensibly well and professionally run companies in aggregate sometimes don’t make net money for long periods (airlines have did that for a long time) tend to be complicated ones, with lots of unpredictable effects of govt action and limited competition.
*a lot of times those are markets related to the production and transport of…commodities, literally. World oil production for example is not a free market, a lot of the capacity is owned by national oil companies, but oil transport by tanker to most of the world’s market does in fact show the characteristics of a theoretical free market, international bulk shipping does in general, as just one of many examples. Participants don’t make profits all the time (it’s a terrible time right now for dry bulk ship owners though not tanker owners) but do on average over time. Because of the simple reality nobody would risk capital with a negative real expected return. Even in the strange world of very low interest rates you can get close to zero real return on USD’s with essentially no risk, in US govt bonds. So you’d put USD’s in a risky business like owning ships if the expected return was zero or negative…why?