Daydreaming of bargains

I’ve tuned out a lot of recent political news – the big topics last week were the QDR and health care reform, which have made me bored and depressed, in that order. So instead I did some thinking about my other great passion: finding ways to avoid paying retail.

One idea that I think could provide a gigantic amount of consumer value would be an institution that compares various generic consumer products with their higher-end equivalents. I don’t want to pay $8 for a detergent that contains identical ingredients and gets my clothes no cleaner than a store brand that I can buy for $3, but I also don’t have the time to do the testing and analyzing myself for everything. In case it’s unclear, I’m envisioning a large-scale version of something sorta like this. Obviously, this would not be an easy task – an ideal version would have to hire experts to do really rigorous comparisons. And producers would hate anything that essentially collapses the value of their brands like this. But wouldn’t it be awesome to go to the grocery store and have your phone tell you, based on your preferences, what versions you should and shouldn’t be buying?

The way I see it, 90% of branded products introduce externalities into the market that unfairly transfer wealth from consumers to producers.  There are a couple of reasons for this: first, producers exploit an information gap. We simply lack sufficient information on products to make a good decision; after all, P&G does not want to throw open its factories to you. Second, there’s immense complexity involved here – producers take advantage of the fact that you don’t have the time or energy to study their products in depth. There are 118 different kinds of toothpaste on the shelf from 8 major players, and you just need to get your damn teeth clean. So anything that helps demystify these decisions is going to essentially work like a well-functioning tax against an inefficient market: consumers benefit, and so do the producers who are truly the most competitive, rather than the ones who manage to thrive by bamboozling us into paying more for what amounts to the same stuff.

  1. February 25th, 2010

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