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Comment by kauffj | Hacker News Reader

Many people seem to hold an intuition or belief that it is wrong to profit, or profit "excessively" when providing certain types of services, particularly related to "care", survival, or necessities (e.g. "price gouging" laws).

I think this is misguided for (at least) two reasons:

1. Profit allows for the services to be sustainable, rather than charity-dependent.

2. The more profit, the stronger the incentive for entrepreneurs to enter the market and/or innovate.

Figuring out a way to profit and reduce the problems of refugees in any way is win/win for everyone.

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> 2. The more profit, the stronger the incentive for entrepreneurs to enter the market and/or innovate.

3. The more entrepreneurs in the market, the tighter the margins will become, due to competition. The price for the service will fall as a result, and the companies will become more efficient.

But also remember that:

4. The more low-hanging fruits in terms of efficiency have been picked, the more entrepreneurs will be pressured into saving money on quality of their product - which in this case means quality of care. This is the stage when serious abuse starts. The maximum benefit of a market solution is reached when you can stop companies from progressing from 3 to 4.

Only if the barriers to entry into that market or product/service stickiness are high. Otherwise, customers, unhappy with the quality, will flee to the competition.

To clarify my point - 4 is when all competitors are pressured into saving on the product itself. It's not just about barriers to entry or stickiness - it can be simply because margins are very low. There will always be someone who will sacrifice yet another value in order to be more profitable, and thus will force his competitors to either give up on that value too, or to get outcompeted.

If that is the decision they face, that means customers did not want the thing that was sacrificed, and leaving it out is an improvement.

The danger most people worry about is when the customers are getting a better experience at the expense of individuals who don't have any choice in the matter, like in the prison scenario. But negative externalities are hardly specific to this situation.

I think you may be underestimating just how much crap customers can deal with before they say "enough" (and just how hard is it to coordinate them to say it together). I don't think anyone is happy that they have to replace light bulbs and electric kettles every other year, but we have no choice - the durable options are not on the market. They have disappeared years ago. And in case of housing, I think the conditions could reach a pretty horrible level before people would be forced to seek something else.

My point is that market is too good at making things efficient. Its goal is to make things profitable. Which is a decent proxy for the peoples' goal of making a product or service "good", but those two ideas start to diverge at some point.

I know exactly how much "crap" customers are willing to deal with. The difference is that unlike you, I don't take it as a given that they are wrong to do so. Is your computer crap because it's not a blue gene? Are you dealing with crap by driving a Honda instead of a Bentley? If people willingly choose conditions you think to be horrible, try to at least consider the possibility that you might be the one misjudging things and not them.

Well, the market responds to consumers, who say (much to my chagrin): price/quantity over quality. The fact that these consumers spoil things for people like me who would gladly pay more for quality is another topic. But the market works as expected.

> If that is the decision they face, that means customers did not want the thing that was sacrificed, and leaving it out is an improvement.

This is only true if you don't take sticky prices into account. It is quite well established that sticky prices screw with efficient market theory quite a bit, and the scenario provided by the gp sounds like a good candidate for a sticky price scenario.

edit: After thinking about this a little bit, let me go further. The parent's statement is veering into efficient market theory dogma territory. Causality is much more difficult to determine in macroeconomics than in sciences that have the benefit of controlled experiments. There are significant competing theories to efficient market theory that have things to say about scenarios like this, so a straight declaration of cause without caveats is misleading, particularly since efficient market theory clearly does not hold in many observed scenarios. Above, I'm not saying that sticky prices necessarily are the cause of the results that the gp is describing (or even corroborating that the scenario is something that necessarily happens), I'm just showing that the problem probably isn't as clear cut as the parent suggests.

until because of the profit you are tempted to support the continuation of the problem

Profit is from the remaining monies after wages have been paid. Profit is the excess the market will bear above the cost of delivering the services. It is largely unrelated to sustainability; if it weren't that way then giving shareholders/owners the profit would break the company.

Its not a question of profits or not, but about the risk of rent-seeking.

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