When you shop online, vendors usually give you a bunch of different ways to sort your options. Take Amazon:
One popular sorting option – especially for customers with low income – is “Price: Low to High.” You’ve probably used it yourself many times.
This doesn’t mean, of course, that people who use this option automatically buy the very cheapest item. Everyone knows that the cheapest tends to be low-quality. But starting with the cheapest options is still a great rule of thumb. If the cheapest option has stellar reviews, you can just buy the cheapest. If the cheapest has less-than-stellar reviews, you can scroll down the page to quickly discover how much extra you have to pay to get the quality you want.
So what? Well, imagine that the next time you click on the “Price: Low to High” option, a do-gooder pops up on your screen and starts the following dialog:
Do-Gooder: Sorry, Sorting by Price: Low to High has just been banned. You’re going to have to sort your options some other way.
You: Banned? Why?
Do-Gooder: People who use this option tend to buy sub-standard products. We need to protect them.
You: You aren’t “protecting” anyone. You’re just making it harder for people to find attractive deals.
Do-Gooder: These deals may seem attractive, but they’re not. You buy cheap, you get cheap.
You: But everyone already knows this! People buy the cheap stuff because they value their money more than higher quality.
Do-Gooder: Aha, so you’re one of those dogmatic market fundamentalists. <sarcasm>Let everyone buy whatever they want, and let competition take care of them.</sarcasm> Give me a break.
You: It’s not “dogmatic market fundamentalism.” It’s common sense. Sometimes extra quality isn’t worth it. And sometimes the cheap options are actually high-quality.
Do-Gooder: Yes, sometimes the cheap options are fine. But sometimes they aren’t. What do you propose to do about it?
You: Well, I personally won’t do anything about it. But the market uses reputation to protect people. Vendors who sell junk get bad reviews – and bad reviews hurt sales.
Do-Gooder: But what about people who don’t read reviews?
You: Sooner or later, they’ll get burned. Then maybe they’ll start reading reviews before they buy.
Do-Gooder: <sarcasm>Very compassionate.</sarcasm>
You: Why should everyone have to suffer to protect a few irresponsible people?
Do-Gooder: Well, in that case, why don’t we just get rid of occupational licensing? If reputation works so well, why license plumbers or electricians? Or doctors for that matter?!
You: Well, we don’t want people to hire bad plumbers, electricians, or doctors.
Do-Gooder: Gee, now you sound like me. Whatever happened to “You aren’t ‘protecting’ anyone. You’re just making it harder for people to find attractive deals”?
You: The unlicensed deals may seem attractive, but they’re not. You buy cheap, you get cheap.
Do-Gooder: Deja vu! Whatever happened to, “But everyone already knows this! People buy the cheap stuff because they value their money more than higher quality.”?
You: I see where this is going, and I don’t like it. This conversation is over. [Click. Browser window closes.]
HT: Inspired by Dan Klein’s excellent lecture on occupational licensing.
This article was originally featured at Econlib.org and is republished with permission.