I generally agree with the idea, that the free market leads to optimum allocation of resources.
However, there is one example that I find strange-why is it that the market allows for large numbers of products (of essentially the same perceived value)?
Take fast food: McD’s supplies generally mediocre quality food. People seek it out because it is fast, and not too expensive. The market also supports a bunch of similar firms (Burger King, Wendys, Hardees, etc.), which supply more or less the same (low quality) stuff.
Why is this? One would think that the efficient market/invisible hand would select out the best supplier, and the others would fade out.
Yet this is true for many productsas well.
Fast food tastes pretty good for the price you pay IMO. And there are different restaurants because they have different foods. A whopper is not a big mac is not an angus thickburger is not a baconator. None of those is a sub or fried chicken, etc.
Duopolies exist in a lot of markets.
So there are situations where a small handful of companies control the majority of the market.
In the free market you always have more people wanting to sell stuff than the discrete number of products and services that can be sold. Unlike say utilities or oil refining there’s nothing to stop a steady stream of people with money to invest from opening a Krusty Burger to compete with McDonalds.
Fast food in particular there’s enough difference in the items to keep multiple chains in business. Wendy’s has fresh meat and Burger King broils instead of fries, and McDonalds is cheap and ubitiquous. I much prefer the Whopper and Baconator to anything McDonalds has, but sometimes I eat at McDonalds because my sister prefers them to Burger King, and there’s usually one available even if there isn’t another fast food. It should be noted that McDonald’s attempt to direclty compete with Burger King, the Arch Deluxe, was a spectacular failure.
A more interesting case is auto insurance, where the products really are almost exactly alike. For one thing it would probably be blocked by anti-monopoly laws if Allstate tried to buy up GEICO and Progressive, the idea that a monopoly would be more harmful than the inefficiencies of multiple companies offering the same thing. For another thing the insurance companies try every gimmick they can thing of to try and differentiate themselves from each other- 15 minute enrollment, vanishing deductable, safe driving checks, accident forgiveness, no drop promise. And the advertise a lot to try to create further differentiate themselves and create an aura around a bland product, and it’s so cuthroat that some of the advertising borders on shady.
Fast food joints serve us tons of fat, salt and sugar at a reasonable price and quickly. We don’t even have to get out of our cars to get it.
Fast food is not mediocre when it comes to “serving tastes you crave quickly for a low price.” It is the top of the game.
It is not in the same game as your favorite steakhouse or four-star restaurant. So do not compare it to those. If you go to a steak house do you get a shitton of salt and fat for $5 in 2 minutes delivered to your car? No. Those places fail at the fast food game.
McD’s fries are not mediocre. They are excellent. Those fries are why Ray Kroc, milk shake machine salesman, bought into the company and later bought out the MacDonald brothers.
McD fries can range from very good to mediocre, depending on how long they’ve been sitting around. Hot and fresh? Great. Sitting under the heat lamp? No.
What current marketing strategy creates, however, is a regression to the mean. Basically, you only want to sell the items that lots of people will eat. So you limit your choices to the most popular ones – which can be those that have less character or individuality. It was neatly encapsulated by Roger Price in the 60s: “If everybody doesn’t want it, no one gets it.”
Business management now demands that you focus this way.
Why does a burger from McD’s cost $0.99 while one from Manhattan’s P.J. Clarke’s costs like $13.00? Or people wait in line at the Shake Shack in Madison Square Park for up to an hour for what is basically the same menu as McDs?
The market doesn’t necessarily trend toward’s mediocrity. It trends towards low-cost high volume products or high cost low volume products. All things being equal, low cost products tend to be made of lower quality material / ingredients and require less specialized labor or processing. IOW, they tend to be made cheap so they can be sold cheap.
Higher end products can be sold at a premium.
Even with “duopolies”, there are still a lot of niche players providing special services/products:
Coke, Pepsi - Dr Pepper Snapple Group
McDonalds, Burger King - Wendys, Five Guys, Johnny Rockets
Boeing, Airbus - Gulfstream Aerospace (a division of General Dynamics), Lockheed Martin
By mediocrity, I assume you mean mediocre quality. A mediocre-quality product can have advantages unrelated to the product itself, such as cost, convenience, etc. (as in the McD’s example already given.)
Why does the market tend towards mediocre products? Because people like mediocrity.
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Makes me appreciate a local dive that’s been around for 50 years. I can get a four-course Prime Rib dinner (aged, 12 oz, one inch thick, cooked to order), and dessert for $13.95. The locals aren’t sophisticated and no CEOs dine there. But the atmosphere is great. People are friendly, the place is clean and it’s always busy.
I’ve eaten at the very much better upscale local steak places, too. Same quality food, only more expensive. But the atmosphere is business. Order, wait, eat, then get out. Even on a “relaxed” Saturday night.
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I’ll never understand. Those burgers are frighteningly mediocre.
If you want to know, read the book, “Fast Food Nation.” It basically says that fast food, and other businesses that follow the model are successful because they do produce the same quality. One can go to a McDonalds anywhere in the USA and you pretty much know what you are getting, and it pretty much tastes the same.
If you’re in NYC and have a Burger King or a Joe’s Burger, you’ll probably go with what you know.
I think the market tends toward practicality and “good enough”, there is a happy medium between top quality and total crap where price and other factors converge on a point most people are happy with, and thats what sells.
Because mediocrity is where it is at.
You are confusing mediocrity with “low quality.”
While all the fast food you mention is mediocre, or less, it is not “low quality.” All the makers conform to strict regulations and the food they serve is exactly as advertised.
Sure it isn’t healthy - high fat, high sugar, high salt (to make it more appealing to your palate) and sure it isn’t very interesting - piles of protein with fat, sugar and salt, but it is definitely high quality crap.
You can feed people high quality crap all of the time, low quality crap some of the time but no-one can serve low quality crap all of the time.
Because most people don’t care enough to sample all the available choices.
You can view this as lacking tastes or class or whatever, but most people do not care for the “best”. It takes time to find the best, and best is so subjective that word of mouth isn’t always reliable. So you’ll make do with “good enough”, especially if “good enough” is everywhere.
The strange thing about fast food is that it’s so ubiquitous that it sets the standard of what’s “good”. I remember always being a bit disappointed in the french fries my mother would make from scratch because they didn’t taste like McDonald’s. If I go to a sit-down restaurant and order a hamburger and it doesn’t bowl me over, I’ll find myself thinking, “Gee, I could have gone to McDonald’s and not wasted my money on this!” Because McDonald’s has defined what hamburgers and french fries are “supposed” to taste like for those us who did not grow up with lots of choices.
You start with a belief unsupported by any facts and contradicted by studies from sociologists and psychologists.
Because consumers don’t make a logical choice based on what’s best for them. They are manipulated by the marketing industry. There are tons of studies on how human psychology about choosing products works, and marketing has honed this to a fine art.
So some people go to McDonalds because of their image, others want a different image and go to BK. There are happy memories because they started eating at place X when 7 years old and it was great, or they met their first love at place Y. There are special deals and many many other effects.
What invisible hand? Is this like Mother Nature? There is no invisible hand. And there is no efficient market. Efficiency in the market is not an aim for any of the companies competing.
The companies aim for “as much market share as possible; selling as high as the customer accepts, buying as low as possible”.
In fact, many companies aren’t even efficient in their own internal structure - big companies have terrible bureaucracies. The trend of the last 30 years to reward CEOs not only with insane salaries but also with stock options has lead to extreme short-term thinking instead of strategic long-term, leading to ruin of many companies or worse quality.
So neither the market nor the companies aim for efficiency, superior quality or similar.
If a company can produce either 100 superb products that last 50 years, or 100 000 cheap products that last 10 years, but pay Micheal Jordan 1 mil. for an ad spot and get their stores run over - what will they choose? Obviously, the richer option.
Mediocrity is:
- cheaper
- easier
- more convenient
- more profitable
- more appealing, in many cases, than excellence