I do find market segmentation to be morally wrong (at least, it's against free market principles, even though I don't agree with those always).
Why shouldn't everyone deserve access to the best tools, and by extension, best things? (Taking the production costs into account.) Best tools save time and make everybody more productive, which should be in everybody's interest.
Imagine you would say something like that in education - that some children do not deserve the best education, simply because they may never use it. How do you know they will not find some use for it?
Yet, when it comes to tools (and stuff in general), it is readily accepted as a principle (that it is OK to intentionally cripple someone else's productivity). Neither the fact that there are business models around market segmentation doesn't make it a good choice.
You will probably now follow with the standard argument about how they need to make profit and recoup their investments and so on. Guess what - the investment was already made, and it can't be undone! And frankly, I am sick of this lazy ass market god which requires investors to get return on profit so they would do something at all. (It's kinda like you're probably not a very good human if you need threat of hell and promise of heaven to make you not bad!) Just like everybody else, an "investor" should get a good salary (for the work done in decision-making) and that's it.
Also, the argument "if they didn't do it this way, they'd do it some other way" is interesting. In this nebulous form, it's often used to justify something morally fishy. Note that you can also use it other way around: Why should there be laws to protect DRM, if people who want to break will find some other way? The correct answer is, of course, the laws and regulations (legal system) are the correct resolution of this argument - we have them to steer people away from "other ways".
>and recoup their investments and so on. Guess what - the investment was already made, and it can't be undone!
You've got the sequence of motivations and expectations of investments & revenue backwards.
A more accurate timeline is that before the product is built, the businesses will segment the potential markets. They estimate the various price curves of price-sensitive and price-insensitive customers and then use that to determine how much to allocate to each feature. Some features are valuable to price-insensitive customers. Some features are useful to all customers.
To say the above was "investment already made" is flawed because that perspective depends on reversing the timeline around in a way that businesses don't actually think. Instead of "sunk cost", it's actually a "before-we-build-it calculated investment" based on "future revenue projections".
Likewise, when a pre-med student considers going to medical school, he may envision a future where he provides medical care for free in Africa and at the same time earn a $200k+ salary as a hospital surgeon. Those future market segments affects his current decision to spend (go into debt) $150k+ for his medical degree. When the doctor is 40-something, we, as patients can't say that he should give us medical care for minimum wage because we morally deserve his services and his medical school tuition 10 years ago is a "sunk cost" anyway.
As for how a business delivers that segmentation of product to a customer, that is a separate issue. Some methods are perceived as more distasteful than others. The tig welder with a software config switch causes more outrage than a different physical chassis.
Yeah, that paragraph was just an aside, but anyway.
> Those future market segments affects his current decision to spend (go into debt) $150k+ for his medical degree.
I think the problem here is that we let him make the decision which should be really responsibility of the whole society to make. If he didn't go to debt (and got a salary instead while is he studying), it would be IMHO perfectly OK for society to say "we changed our minds, now you have to work for minimum wage" (and he would have replied "F Y" and perhaps got a better arrangement). This is normal acceptable order of business (that things change). And in sane countries, degrees are for free (well obviously you have to work, and you can even get a stipend) for that very reason.
So in case of market segmentation, we are trading off some efficiency in the future for the fact that the whole society doesn't bear the risk of the investment. But is it really needed, to make this trade-off? What is wrong with society bearing that risk as a whole? That's what I was questioning in that paragraph.
I think the real problem though is that the whole idea of investment is not very compatible with the theoretical description of the free market (perfect competition). So to recoup investment, you need to introduce some inefficiency. And it can be abused - you can produce more inefficiency than is needed to recoup it.
What principle is it against? A buyer and a seller make a mutual agreement or they don't.
Due to one time expenses, some kinds of goods cannot exist without discriminatory pricing. (Where the total income from both low volume high price and high volume low price is required to make the good worth producing.)
I find your exchange of comments very nice because it so perfectly illustrates a pet peeve of mine.
The assumption "free market = good" is so widely spread and deeply rooted that anything which is identified as "bad" is then assumed to be against "the free market", when really, it is often perfectly aligned with "the free market", and the truth is that "free market = good" is naive. Free markets have good and bad sides; the good tends to significantly outweigh the bad, but unless you recognize that there is some bad in there as well, you're not going to end up with a very good policy mix.
One can try to excuse the naive way of thinking by pretending that one is merely using a shorthand, but really, I'm doubtful that that's anything more than an excuse.
Free market = non-compulsory, voluntary choice. As things go, it's not a bad place to start. Also, what does your comment have to do with the specifics of this discussion?
Not sure if "principle" is the best word, but I wanted to keep the post short. Better would be to say that it's against assumptions which make free markets at least theoretically efficient.
The other response to you is correct, and on top of that:
When you have discrimination, you're effectively making multiple different "equilibria" on the demand curve (instead of one intersection with supply curve). Once you admit multiple equilibria, all the bets about efficiency (and also fairness) are off.
Alternatively you can look at it as follows: The free market can be characterized by existence of market price, on which the participants converge... If you have discrimination, they won't converge on market price and so you don't really have free market (free as in speech).
> Due to one time expenses, some kinds of goods cannot exist without discriminatory pricing.
I don't think it's true. Linux does exist, for instance.
Cheap airline tickets wouldn't exist without discriminatory prices, your ticket for $50 bought eight weeks in advance is subsidised by the business traveller who paid $400 the day before travel.
Without the discriminatory pricing the flight may not exist for either traveller. With it both travellers are satisfied, you because you get a cheap holiday, the business traveller because he gets to close a big deal.
>Why shouldn't everyone deserve access to the best tools, and by extension, best things? (Taking the production costs into account.) Best tools save time and make everybody more productive, which should be in everybody's interest.
I agree with this in principle.
>Imagine you would say something like that in education - that some children do not deserve the best education, simply because they may never use it. How do you know they will not find some use for it?
Sure, but the other side of this is that the guy who wrote the education curriculum ought to be paid, in order to encourage the development of further artistic works.
Absent some kind of taxpayer-funded way of compensating artists, how are they supposed to get a reasonable amount of money without denying non-payers access to their works?
>Also, the argument "if they didn't do it this way, they'd do it some other way" is interesting. In this nebulous form, it's often used to justify something morally fishy. Note that you can also use it other way around: Why should there be laws to protect DRM, if people who want to break will find some other way? The correct answer is, of course, the laws and regulations (legal system) are the correct resolution of this argument - we have them to steer people away from "other ways".
I agree that it's often used to justify something morally questionable. However, there's a distinction here, because the "other ways" that we're trying to steer manufacturers away from are not a clearly delineated set of behaviors. If you prevent people from crippling their products in software, they'll cripple them in hardware. If you prevent people from crippling their products in hardware, they'll make two different products with different features at two different prices, and costs will be higher all around. If you prevent someone from selling a less-featured version of another of their own products, they'll just make one of the two products, and some competitor will make the other.
That's the argument for not preventing manufacturers from crippling their products in software.
> the guy who wrote the education curriculum ought to be paid
He absolutely should be!
> how are they supposed to get a reasonable amount of money without denying non-payers access to their works
Good question! But I don't think there is a good answer to it that doesn't involve society at large, in one way or another. Why is enforcing DRM in order to protect some monopoly by society at large better than community investment into the technology by society at large?
> the "other ways" that we're trying to steer manufacturers away from are not a clearly delineated set of behaviors
I think that's case with all laws and all human behaviors. That's why we have judges, to make judgements.
> they'll cripple them in hardware
I think they should try that. So far they didn't - that's why they are doing it in software, because they now can.
> two different products with different features at two different prices
Yep, and if that happens, it's bad for economy overall, that's what I argue.
> I think they should try that. So far they didn't - that's why they are doing it in software, because they now can.
I heard it's common in computer parts manufacturing - they just add an additional production step where a laser cuts through some traces on the PCB to disconnect the part they don't want you to use in the cheaper model. Apparently customers got too good at reversing the softer methods of market segmentation.
Yes, you're right, it was the case in Intel 486 SX/DX.
All I am saying here that this is of course a waste of resources, even though I don't know how to prevent this sort of waste in our society.
(IMHO, bigger problem is for example throwing out foods by restaurants and supermarkets, which is also OK by doctrine of economic liberalism, yet wasteful.)
I think it's morally wrong to demand that people who build things should be expected to share the thing they build in a particular way just because the thing they've build is easy to reproduce.
Market segmentation generally allows producers to expands downwards in to lower market segments without cannibalising their full-price customers.
Crudely speaking, the alternative to a $5,000 full-featured device and the same device with a smaller set of features ("crippled") at $1,500 isn't a full-featured device at $1,500, it's a no device at $1,500.
> it's morally wrong to demand that people who build things should be expected to share the thing they build
They don't have to share them! If you want to invent something and keep it secret, by all means, be my guest! This only concerns people who specifically build things for others (i.e. already sharing them).
You're free to share or not, but if you decide to do so, the recipents are free to say whether or not you're being an asshole because of the way you're sharing. That's how I see market segmentation - douchy behaviour. It's purposefully creating waste and/or artificially limiting the value you give to customer in order to profit more.
See what cell phone manufacturers are doing: segmenting the market by launching dozens of different models at the same time (half of them barely usable, but that's a topic for another time), each with a different set of "features" - little less RAM, little more storage, sensor A and B included, sensor B and C included (note that a model with sensors A, B and C is usually missing).
A sane situation would be when they'd be launching a single phone packed with features - powerful CPU, lots of RAM, lots of storage. Or maybe two, second being the "economy version" or basically the previous year's top model. But launching dozens of models a time means a lot of unused cellphones floating around, a lot of incompatibile parts being produced, and a lot of people learning for the first time that you don't go cheap on a smartphone because companies are very happy to sell you crap that barely works at all.
> I do find market segmentation to be morally wrong (at least, it's against free market principles, even though I don't agree with those always).
I completely disagree. Free market principles allow manufacturers to make whatever separate product lines they choose, and sell them at whatever price they can fetch. I see nothing immoral about this, but maybe you do.
> Why shouldn't everyone deserve access to the best tools, and by extension, best things? (Taking the production costs into account.) Best tools save time and make everybody more productive, which should be in everybody's interest.
People deserve what they pay for, what they bargain for. No more and no less.
> Imagine you would say something like that in education - that some children do not deserve the best education, simply because they may never use it. How do you know they will not find some use for it?
That's not the question. The analogous question would be, is it ok to allow them to purchase a more rudimentary education for a lower price? I see no reason why not.
> Also, the argument "if they didn't do it this way, they'd do it some other way" is interesting. In this nebulous form, it's often used to justify something morally fishy.
I was just responding to the idea that this is an "abusive" business practice. My point was that if the law didn't allow for them to segment the market this way, they'd just sell multiple hardware lines--crippled by physically having lower capabilities, etc. In that situation, no one is better off, and the manufacturer is somewhat worse off. So I have trouble swallowing the idea that this is abusive.
Offtopic, but I think it's high time to reverse the discounts - students should have it more expensive than employed people. Right now in my country, as a student you get discounts everywhere - in restaurations, cinemas, in transportation, etc. And the country also suffers from having way too many people with degrees and no job. Those discounts serve as a big incentive for people to stay in "education" (it's hard to call it an actual education) as long as they can.
That's a good and interesting point. I guess I have less moral problem with it if the item in question is a final product (such as work of art) than a tool, and if the price difference is not large (say up to half of order of magnitude).
But I actually think student discounts are wrong for moral reasons, because they discriminate against non-students, but I do find discounts for young people and older people (in most cases) acceptable.
Once you start grouping people into big lumps like "student" and "old", it opens up a rat's nest of unfairness. What about disabled people who aren't old? What about old people who are very rich and healthy? Etc. I think we have to tolerate a bit of unfairness so that a large chunk of needy people can benefit, even if a few outliers miss our or are unfairly advantaged.
Why shouldn't everyone deserve access to the best tools, and by extension, best things? (Taking the production costs into account.) Best tools save time and make everybody more productive, which should be in everybody's interest.
Imagine you would say something like that in education - that some children do not deserve the best education, simply because they may never use it. How do you know they will not find some use for it?
Yet, when it comes to tools (and stuff in general), it is readily accepted as a principle (that it is OK to intentionally cripple someone else's productivity). Neither the fact that there are business models around market segmentation doesn't make it a good choice.
You will probably now follow with the standard argument about how they need to make profit and recoup their investments and so on. Guess what - the investment was already made, and it can't be undone! And frankly, I am sick of this lazy ass market god which requires investors to get return on profit so they would do something at all. (It's kinda like you're probably not a very good human if you need threat of hell and promise of heaven to make you not bad!) Just like everybody else, an "investor" should get a good salary (for the work done in decision-making) and that's it.
Also, the argument "if they didn't do it this way, they'd do it some other way" is interesting. In this nebulous form, it's often used to justify something morally fishy. Note that you can also use it other way around: Why should there be laws to protect DRM, if people who want to break will find some other way? The correct answer is, of course, the laws and regulations (legal system) are the correct resolution of this argument - we have them to steer people away from "other ways".