A common thought of mine is that people inadvertently reward behavior they don’t like, in terms of how they participate in social behavior around them.
Take car dealerships. Generally, you want to get a good price on the car, but the asymmetric information about the car, combined with the experience of knowing where to increase price, results in consumers paying on average of between a 10% and 35% markup. This excludes the benefits car dealers get through favorable financing terms, additional warranties, and services that they employ high-pressure sales tactics to exploit. If I as a car dealer recognize I benefit from using these high-pressure sales tactics, there’s little reason for me to stop. Additionally, the infrequency of buying new cars, and the ubiquity of them means that those who don’t employ those tactics are likely out of a job.
In an important sense, cut-throat tactics can become a collective action problem, and there isn’t usually a good way out of it, absent regulation , new business models, or coercive action. Models like Carvana’s try and price more transparently, but have the upfront costs of advertising and storage to account for.
You’d think that models with a lot of transactions will necessarily be more trustworthy, but gyms serve as a brutal counterexample. It’s oftentimes quite challenging to cancel your membership at a gym. This is because the route that’s less expensive for gyms is generally to make it harder to leave, rather than more desirable to stay. After all, once you suck someone in, it may be easier to stay than resist. Cable television serves as a similar example.
These cases go to show that the incentives we’re really promoting may not be the ones we intend to promote with how we’re approaching business. Providing more clear alternatives may promote respite as consumers move towards service models that more clearly benefit them.
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