We are entering an era where corporations have perfect data. They can charge each customer exactly the maximum amount possible, and pay each worker the exact minimum amount possible
> They can charge each customer exactly the maximum amount possible
The company captures the consumer surplus. Generally currently we often get way more value than we pay for. We hate having that surplus taken away from us and we hate being charged what something is worth to us.
Two questions: How do we fight back? Is it unfair that we pay the amount that something is worth to us individually?
Currently think of any service you use and the value you get from it. What happens when Apple or Google start to try and capture the consumer surplus we receive?
If every product/service has exactly zero consumer surplus, then consumers won't have any reason to prefer product/service A at price p over product/service B at price q, or even over not spending money at all. This will kill innovation, since business competition is based on providing a higher consumer surplus (better quality for the same amount of money, or same quality for less money). This is a clear market failure, therefore this kind of discriminatory pricing should be made illegal.
I'm not sure you should be mixing perfectly rational buyers and imperfect markets together and then hypothesizing A therefore B from those assumptions.
Are there better economic theories than traditional microeconomics? Something that (a) models information asymmetry, (b) models measurement risk/variability of expectations versus actual reward, (c) doesn't assume a perfectly rational consumer or producer - instead follows what we see in the world better?
> [W]e hate being charged what something is worth to us.
I'll rephrase this in a way that's more straightforward and clear:
> We hate being charged every penny we could conceivably pay for a given thing.
In part because many ordinary folks believe that a fair deal is for businesses to cover the cost of R&D for the thing and the cost of getting it to us, as well as a reasonable profit to cover both expected future support and future R&D for improvements and/or new products.
And also in part because most folks can figure out what's likely to happen when every company out there demands that we pay them not just enough to cover the above, but every penny we could conceivably pay for the thing. (To spell it out: One suddenly has to make very hard choices about what one does without... likely for an uncomfortably long time. [0])
[0] If you think that this wouldn't happen, or that if it did it would be over in a matter of weeks (rather than years) remember the aphorism "The market can stay irrational longer than you can stay solvent.".
> as well as a reasonable profit to cover both expected future support and future R&D for improvements and/or new products.
That would be a weird definition of profit. Profit is what is left after expenses (like future support and R&D). But I will admit R&D is an oddball (there a taxation difference between R&D, compared against earning profits then investing the profits into a startup).
Do you have a pension, or own shares, or want to own your own business? Profit and some types of interest are rewards for risk.
But yeah, people think they pay too much for everything, that profits are unethical, and most people in wealthy countries don't understand how they get their lifestyle, and then get ignorantly angry at everything!
That's fine. I'm using layman's definitions of these words so that we can avoid the "What do you mean you don't want my business to make a profit?!?! What sort of MONSTER are you??" style of soundbites. Jargon has its place and can be very, very, very valuable. However, in the realm of economics, jargon obscures far more often than it illuminates.
> But yeah, people think they pay too much for everything...
Some people do, yes. If you're of the opinion that businesses working together to ensure that they extract every penny possible from all of their customers would not result in people consistently paying too much for everything, then I ask you why you're not taking the amount of money that you're underpaying for each and all of your goods and services and donating that (whether to charity, or directly to the businesses that are undercharging you). [0] Don't forget to structure your donations so that you have to choose between having the occasional luxury or maintaining a very small emergency savings fund... after all, all of that consumer surplus needs to be captured, doesn't it?
[0] Assuming that you're not already doing this, of course.
That's why they said "reasonable profit" not just "profit". Most people regard it as unfair or even immoral to charge dramatically more than how the parent describes "reasonable profit".
People probably regard excessive profits as immoral for a variety of reasons:
There are situations where people have little choice but to accept a deal. E.g. imagine someone requiring a drowning person to agree to pay a million dollars to be rescued.
Increased profits are often "unearned" in that they don't stem from something like working harder or innovating. Encouraging innovation and hard work is one of the primary justifications given for capitalism.
Society's operation is often based on the assumption that things will be priced perfectly. E.g. no one would be able to retire if companies where able to perfectly match prices and pay.
The rich hurting the poor in order to become even more rich is considered immoral in almost all philosophies.
> Encouraging innovation and hard work is one of the primary justifications given for capitalism.
Yep. And it's very important that the folks managing our generally-capitalist economy to force businesses to act against their own self-interests and engage in innovation and hard work, rather than milking cash cows for perpetuity. [0]
> Society's operation is often based on the assumption that things will be priced perfectly.
Did you mean to say "priced imperfectly"? If so, then I agree. The same goes for enforcement of laws, actually... which is why largely-unrestricted superhuman surveillance and information correlation powers are such a threat.
> The rich hurting the poor in order to become even more rich is considered immoral in almost all philosophies.
You don't even have to get questions of morality involved.
1) Soaking people for every penny they have means that folks don't have money to buy anything else, which makes it dreadful hard for anything new to enter "the market", because with what money would anyone purchase it? (Not to mention, how the hell can you handle emergency expenses if everyone else is soaking you for all of your money?)
2) People who don't have money for some luxuries are unhappy people. People who don't have money for emergency expenses are very unhappy people. If you have enough people unhappy for long enough, they're going to behave drastically. Maybe they're going to drop out of your system. Maybe they're going to forcefully upend your system.
[0] To be clear, there are products out there that are high quality and need no improvement. It's fine for a company to sell the same solid product or service at a reasonable price from now until the end of time. That's -IMO- the ideal situation for a company to be in. What's NOT fine is if that company prevents other companies from selling similar (or functionally identical) products/services, OR if that company suddenly decides that they need to massively increase the price, decrease the quality (or both) of the product/service.
Who captures the surplus is dependent on how competitive the market is.
In highly competitive markets, any substantial profits get competed away, and captured by the consumer.
In monopolistic / uncompetitive markets, profits are captured by the monopolist.
Of course, this is a spectrum not a dichotomy. Last I tried to quantify this, I got numbers like 50-60% of the US economy is at least somewhat uncompetitive. But I’d like better numbers. (It’s easy to come up with examples on both sides, IMO)
However for most goods/services there is variability in multiple dimensions. And we are irrational buyers and we poorly measure our +ve/-ve utility on multiple dimensions into dollars. And we poorly choose between different options. Plus there is variation.
I would love to meet a rational consumer - their purchasing habits would be interestingly abnormal!
The only thing that seems to protect us from corporate abuse currently is the information gap - we poorly measure our preferences and lack product/service knowledge so producers struggle to measure our preferences and so they struggle to discriminate. If those information asymmetries decrease (especially if they know us better than we know ourselves) then we are in trouble.
I don't think it should be a question of fairness. Not everyone is a producer. Everyone is a consumer, including producers. Therefore, it is socially optimal that, wherever welfare surplus exists in price levels, more of it should be consumer surplus than producer surplus.
