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Comment by slg | Hacker News Reader

One of the primary flaws of capitalism is that there is little incentive to enter a lower margin business when a similar investment can still yield potential profit in a higher margin business. This is also generally why new housing is almost always "luxury" units instead of affordable units.

The end result is that poorer neighborhoods often don't have the type of service infrastructure that is generally provided by for profit companies. Retail banking and internet providers are two other examples beyond the grocery store example in the article.

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In the age of e-banking, i would be surprised if physical retail bank offices matter that much. Personally, i visit it once a several years.

With regards to ISPs, i often see that richer neighborhoods have wore coverage than poorer neighborhoods, as it is much cheaper to cover big block of flats with fiber than villa neighborhoods (so these are often limited to wireless ISPs).

The poorer you are the more reliant you are on cash. When most of your transactions are in cash you'll go through the quota of free transactions quickly and you'll just be stuck with a lot of cash you're can't deposit anywhere and become a prime target to rob. This also assumes you're paid via check for your income.

Online banking is great for the middle class who might have their paycheck direct deposited into their account, pay their bills online, and have easy access to credit and debit cards. This allows them to be mostly cashless. Poorer people are much more likely to deal in cash and therefore need more access to a brick and mortar bank.

On the issue of ISPs, you are conflating neighborhood density with the economic status of a neighborhood. I would bet that in two neighborhoods with similar density, the wealthier neighborhood generally has the more developed internet infrastructure.

My bank (USAA) is in TX and I live in MA. In 31 years of having my primary bank account there, I’ve literally never visited an office of theirs. I think 4-5 times I’ve needed them to mail/Fedex me an official check.

That flaw is also the root of the "Innovator's Dilemma." The idea is that "best" business practices and especially concern over lower margins and smaller markets, prevent companies from moving downmarket, leaving a gaping hole for an upstart to gain a foothold and eventually mount a fatal attack from the bottom.

I don't think the innovator's dilemma applies as much to a mature markets that aren't growing like is the case for many of these examples. There is not much room to innovate in the low cost urban grocery store industry. Even Walmart has been very slow and cautious to enter that market while taking on almost every other sector of brick and mortar retail in the US.

> One of the primary flaws of capitalism is that there is little incentive to enter a lower margin business when their is still potential profit to be made in a higher margin business

That's quite easily disproven throughout the modern history of market economies. For one relevant large example, low and high margin retail rapidly expanded and evolved simultaneously throughout the US market during the 19th and 20th centuries. Dollar - nickel & dime - stores didn't wait until all the high margin business potential was gone.

Sam Walton didn't decide to go high margin just because there was still some obvious growth left in Macy's business in the 1960s. He saw an opportunity elsewhere.

There is tremendous value in getting there before someone else does, rather than wading into extreme competition just because a segment is higher margin (which does you no good if you die in the fierce competition). Low margin can be a spectacular business thanks to volume. Just ask Walmart, as a low margin retailer they've generated more net income over time than any other retailer that has existed.

Another counter to your premise, is that if you build a successful, high volume, low margin business, it is extraordinarily difficult to compete with. And you can easily end up earning as much as a high margin retailer with lower volume. Walmart and Amazon understand this very well, as do dollar stores.

The myth of profit maximization is perhaps the greatest myth having to do with Capitalism. I'd argue that in fact few businesses pursue max profit, much less profit at all costs. It's a caricature of S&P 500 type companies. It goes along with the commonly espoused myth that there is a legal responsibility to shareholders to maximize profit. Most businesses that stay in business understand there are dangerous, very negative consequences to pursuing max profit, as it pertains to customers, employees, reinvestment, etc.

Your premise is strict on theory, weak on actually being how business founders & operators think and how / why they start a business in the first place. The typical business founder doesn't run a massive analysis of the US market city to city, for years on end at great cost, and decide there's a bit of profit left in high margin, therefore they won't enter low margin. That isn't how a business founder thinks at all. The actual chaos involved is breathtaking, it's high on impulse, gut feelings, 'instinct,' intuition, a sense of opportunity, and low on following some kind of rigid theory and massive market analysis.

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