↑ comment by lessdazed ·
2011-10-19T01:10:20.397Z · LW(p) · GW(p)
high profit margins are a better sign of low competition than high markups.
I see. High competition does not strongly imply high price competition with other factors such as service fluctuating little, I think there is significant service competition in the current market.
Since I'm pointing out potential downsides of your suggestion, isn't invoking LCPW for me invoking MCPW for yourself?
It depends. "...are you going to put one of them on the toll lane, significantly decreasing throughput?" and "I can't remember the last time I had to wait more than 2 minutes to check out," seem like implausible over-interpretations of my suggestion, as if I meant for it to apply at all times and in all places regardless of store layout and business etc. "5% is a lot when it comes to groceries" is much more fair.
You are suggesting a small change to an existing structure.
This is a good point. I said "improvement" because increasing choice is usually, all else equal, an improvement, though it isn't always. Here it sort of obviously isn't a pure improvement, but the cost to consumers (assuming store prices are constant) that they pay for a chance to check out much faster is a slightly slower checkout if they don't so choose (i.e. the toll line might be half as long as the others, distributing those it would have were it free among many other lanes).
To have consumers think they are worse off, it isn't plausible to think that their free lanes have noticeably longer lines than they would have were all lanes free, so you rightfully didn't say they would - particularly if the store loses customers. Instead you said consumers would irrationally disfavor the system - which is perfectly fair. In particular, you said they would resent being in a longer line compared to those in the toll lane (rather than compared to the line they would have been were all free, the rational comparison that people might not make), and that they would have a negative feeling they would associate with the store, despite the lines at other stores being just as long.
extra choices making people worse off
While choices make people worse off, they are still biased towards preserving their choices, so I think this factor would still benefit the supermarkets, though this part of it wouldn't simply be from creating value and taking some of it rather than have consumers take all of it.
I think you are overly caught up in the subject matter here, which disguises how little those examples are relevant here, a great analogy furthering some of your points is from traffic showing Braess's Paradox.
One important thing to track is if either of us is "cheating" in a general way I will try to describe by example. It would be cheating to make certain simultaneous claims, such as that 5% isn't enough that people would mind paying it but that it would also be enough to make the toll lane noticeably shorter, or that free lanes would be longer under the toll system than they would be otherwise and that many people would avoid the toll store,
There is something very worthwhile to point out, and that is that people would favor or disfavor the store, and for other reasons the store would benefit or lose, from three types of influences. The first is people's simply rational natures, the second is people's simply irrational natures, and the third is people's strategically rational causally irrational mindsets. That is not a technical term so if anyone would tell me what it is I would appreciate that. See this great post and TDT/UDT.
The store with a toll lane during rush hour (that at least does not make throughput worse, though for many stores that would be improved by having some lines consistently longer than others, and for other stores that would make throughput worse), and how the toll policy changes things from the status quo:
I) Rational decision making:
a) Consumers get to put off deciding whether or not to pay a premium for faster service until after they see how much time it too them to reach the market, shop, and observe the lines.
b) Free lanes are barely longer with one toll lane existing than they would have been were all free unless the policy greatly increases store traffic, which would simply be good for the store, which has the power to implement the policy unilaterally (unless people go to this store whenever they need just a few things, and the cashiers' time is taken up largely by individuals paying, such that store profit comes from people buying many items at once, and people who need to buy many things go to other stores...or something else I haven't considered).
c) Rich people, whose time is worth the cost, and who buy more expensive things and with fewer coupons, might favor the toll store during rush hour.
a) Free lines are slightly longer, which would particularly not be worth it if store prices were unchanged despite increased profit from the toll lane.
II) Irrational decision making:
a) Consumers are biased towards keeping options open, and would choose to put off deciding between spending more time or money.
b) Consumers in line have to resist their impatience every second they are in the longer line, and have many opportunities to pay the store more, even if they told themselves they were going to this store and paying regularly.
a) Consumers resent paying for something they think of as free, such as checking out.
b) Consumers might compare their experience in the more crowded free lane to that of those in the toll lane and have negative feelings about the store, rather than properly comparing that experience to the lines had all lanes in that store been free or the lines in other stores.
III) Game theoretic decision making
a) Consumers might punish institutions that raise prices or attempt to influence them by taking advantage of their irrational behavior (i.e. manipulating them).