I keep redrafting a blog post in my head about this cycle and how it means that even though the world is getting better, every specific brand is getting worse. (There was a wonderful post about Starbucks specifically that I now can't find, talking about how they grew their reputation by having hand-made coffee that people loved before switching to machine brewing that required less skill and people wouldn't hate).
I suspect we're politically rather opposed, as I see this as a consequence of capitalism putting a price tag on everything, and something that regulation is appropriate for (some way of forcing brands to publicise when they've changed something, so that customers can know whether a review they read still applies, although the details of how to do that would be difficult). Indeed I'd argue that the only reason customers can trust a brand like Coca-Cola is strong regulation in the form of trademark law.
I've have had this theory for years-- that restaurants start out, and the ones that survive and multiply do something unique. And then at some size, where economy of scale is involved, they cost reduce to the point that, they've reduced out whatever made them special in the first place. Then you end up with these giants that exist on momentum but are unable to produce a quality product.
It works for any business really.
Starbucks in particular-- there's not enough quality coffee in the world for them to serve it at any price.
They've even gone so far as to redefine the term "blonde" to something that's more like full-city--lighter roasts imply higher quality beans--full city is several shades darker than blonde, and blonde should almost always come with at least some chaff. I've never seen chaff in a bag of Starbucks beans, but it could be possible they're taking extraordinary measures to remove it... But I doubt it.
Yeah it's a reasonable point of view. The other way to go on that is you're in an country whose culture you don't understand which as a wildly corrupt, crony-riddled military dictator and nobody has any rights at all.
Do you want locally bottled Coke(tm) with the red label and dynamic ribbon for your very thirsty child or locally bottled "Odin's Thirst Quencher! (est. 2021)"?
Coke are going to enforce quality control and safety to protect their brand or get out of that market. There is no regulation you can rely on in this mythical country - but there are quite a few countries like that which you may know yourself from having visited them. In France, say, you have regulation that safety is not a concern. When you don't have it you have brands - the owner has the incentive to protect them. So it goes also in France, or the USA or other wealthy countries to the parts of commerce that are not regulated (whether they could be or whether that's because it's not feasible).
But the higher issue is information. Should you be able to sell the same product with a very different quality under the same name? Let's say we agree the answer is ideally "no, you can't do that." Now we want to regulate that you can't do that. How is it enforced? There may be ways. There may be grey areas. The cost may be prohibitive in many instances or there might be new solutions to mitigate those problems.
What is isn't is easy which you can see as soon as you apply it to the industry and case under discussion. Intensive industry training schools.
> Do you want locally bottled Coke(tm) with the red label and dynamic ribbon for your very thirsty child or locally bottled "Odin's Thirst Quencher! (est. 2021)"?
> Coke are going to enforce quality control and safety to protect their brand or get out of that market. There is no regulation you can rely on in this mythical country - but there are quite a few countries like that which you may know yourself from having visited them.
I'd argue that in a lawless country people have no faith in the brands either. Look at the fake Apple stores in China, or at parents importing identically-branded baby formula from abroad because they (justifiably) didn't trust the locally produced version.
It's obviously not a panacea. You may not be able to trust the brand is what it claims to be. You frequently can't in wealthy countries with low corruption indexes.
There are plenty of times what you trust is the interests of the brand holder to defend the value of the brand where regulation can't help you. Coke in a sealed bottle is extremely likely to be coke in a sealed bottle in Mogadishu. The brand "Coke" gives you some information about the probability of not drinking poison. Obviously it isn't perfect. I think it's evident that it isn't something to be dismissed as inconsequential information either. Coke will be trying very hard to make sure nobody impersonates them and kills their customers anywhere in the world because it would be an advertising disaster. Better that than nothing.
(Just quietly I hate the coca cola company and think they are pretty evil. Diabetes. Obesity. They're similar to a cigarette company. Meh. Useful points can still be made using their business as an example.)
Not every brand is getting worse. Some are staying the same, and some are improving.
The regulation you suggest seems a bit silly. If transparency is good for a brand, companies can already implement it. (And if customers don't care enough to pay for transparency, why force them to?)
What's the externality that your proposed regulation is trying to internalize?
Also keep in mind that disclosure regulations put an undue burden on smaller companies and upstarts, as they don't benefit from economies of scale. (You need roughly the same amount of lawyers and accountants etc to comply here, no matter how big your business is.)
> What's the externality that your proposed regulation is trying to internalize?
The externality is the cost of staying informed. The theorems about the efficiency of a free market assume perfect information. If someone reads Consumer Reports and decides that brand XYZ is making a good product they want to buy, but brand XYZ switches to producing lower-quality products in between when the review is written and when the reader buys the thing, then we lose all the benefits that the free market was supposed to give us.
> The theorems about the efficiency of a free market assume perfect information.
Huh? That comparatively freer markets make people better off in the real world is an empirical observation, and doesn't rely on theorems. (You can make a few assumptions and prove a few theorems, if you want to. But it's not essential.)
> If someone reads Consumer Reports and decides that brand XYZ is making a good product they want to buy, but brand XYZ switches to producing lower-quality products in between when the review is written and when the reader buys the thing, then we lose all the benefits that the free market was supposed to give us.
Eh, there's a simple fix that people intuitively implement already: trust brands more that have been around longer.
Assume the delay between the review being written and you buying stuff is eg a quarter of a year. Then, simplified, someone who goes only for brands that have been around for at least ten years only runs at most a 1 in 40 chance of getting duped like this.
> That comparatively freer markets make people better off in the real world is an empirical observation, and doesn't rely on theorems.
It's not empirically true in all cases; lemon laws are broadly in the same category as what I'm advocating, and empirically make people better off.
> Eh, there's a simple fix that people intuitively implement already: trust brands more that have been around longer.
> Assume the delay between the review being written and you buying stuff is eg a quarter of a year. Then, simplified, someone who goes only for brands that have been around for at least ten years only runs at most a 1 in 40 chance of getting duped like this.
That's a lot less practical now than it used to be; the pace of innovation is higher, which is good, but has brought a lot of churn and it's hard for reviewers to keep up.
> Btw, that's not an externality. That's just a regular cost.
It can be either or both. Information discovery can simply be a cost of transaction, sure, fine. Find out about the stuff you're thinking of buying. Regular transaction cost.
Where there are markets and methods of transacting in those markets where one can assume the product that was being sold previously with a given name is precisely similar to the one being sold when you want to buy it there is some information acquired without additional cost. If it becomes more popular for some market participants to start messing with that such that everyone has to double check everything all the damn time even when purchasing from people who would not tolerate selling like that because of the uncertainty that is now in the marketplace. That is clearly a cost imposed on people not involved in those messed up transactions. The honest sellers have an additional cost to demonstrate they aren't crooks. The buyers have an additional cost to find that out. The sensible buyer buys from the honest seller with an additional transaction cost that has nothing to do with a change in policy or behavior of either party, it's a result of some other transaction they were not party to and had no control over. That's an externality. One usually enforced via social norms first ("I've come back because you lied to me!" - we've all seen someone, somewhere taking out their fury like that) and regulation second (because yelling at shop attendants is a rubbish thing to do).
Pretty sure such externality, while undesirable in itself, does not render useless all the benefits of a marketplace. The idealised form of the microeconomic model known as "perfect competition" has perfect information as an assumption. As soon as you apply the model to a real market that assumption has to be somewhat relaxed. The relaxation may make little difference (eg there's not much to know, it doesn't change much and we all basically know it) or an immense difference (eg insider trading on the stock exchange). Such models are for positive economics (describing what is happening) rather than being prescriptive about what should happen (normative economics).
I hope explaining the jargon doesn't come off as being a condescending idiot here. The jargon is used for gatekeeping in many of these discussions and it bothers me that this is how it works.
I know the jargon. (But explaining it doesn't hurt.)
The 'perfect competition' model is indeed not applicable here. But that's not a problem: we know empirically that markets work (and work better the freer they are). The theory just gives us the intellectual tools to investigate why that is so.
What you are describing is still not a proper externality. In the same sense that eg having a competitor is not described as an externality.
(Or similarly, given your logic, the existence of shops where people have to pay for stuff would be an externality, because now they have to make sure that they are not in a 'shop' where everything is free first. The example is admittedly a bit silly, but if you substitute 'hospital' for 'shop', it's somewhat applicable to the UK.)
I suspect we're politically rather opposed, as I see this as a consequence of capitalism putting a price tag on everything, and something that regulation is appropriate for (some way of forcing brands to publicise when they've changed something, so that customers can know whether a review they read still applies, although the details of how to do that would be difficult). Indeed I'd argue that the only reason customers can trust a brand like Coca-Cola is strong regulation in the form of trademark law.