06/29/2005 Archived Entry: "drunken ramblings"
I'm not currently drunk, but I was talking about the following topic while drunk. Seemed like something worth blogging about. Ready? Steady...GO!
The price we pay for goods is not directly proportional to the quality of the goods. That is, a car that's twice as expensive as another car is not twice as good. In fact, I suggest that the cost/quality relationship likely resembles a logarithmic curve. For the less mathematically inclined, you can see a log here. As you can see, the curve rises quickly near the axis but then starts to grow much more slowly as x increases.
So, if we say that the x-axis is price and the y-axis is quality (assuming that there is an objective way of quantifying quality) then our value per dollar is increasingly decreasing after a certain point. I expect that most products have huge increases in quality near the lower price ranges but once you get to the truly expensive, large amounts of money start to make smaller and smaller differences in noticeable quality. The difference between a 10$ wine and a 100$ wine is likely to be huge and noticeble by most people. The difference between 100$ and 500$ wines, on the other hand, will not be appreciated by non-connaisseurs
Personally, I think I stand somewhere on the right of the best value/dollar point. I usually don't mind paying a little bit more for quality.
The logarithm also applies to lots of other things! For example, if you're 50 lbs overweight, it's dead easy to lose the first 30 (just eat less), much harder to lose the next 10 (eat less + exercise!), and insanely hard to lose the last 10 (change your entire lifestyle!).
Replies: 3 comments
there is a quality difference at the high-end, it's just not discernable to the regular joe, per se.
besides, aren't prices determined by supply and demand? and to get higher prices, suppliers just make their product more scarce - and thus more exclusive (eg. debeers with diamonds, rolexes, etc)
heck, a rolex isn't even the best watch you can get. but when you buy some of these luxury goods you aren't buying the good itself, you're buying everything it represents - prestige, power, etc. the product becomes greater than its function. i'd draw you a neat little diagram that i remember from marketing class - but alas, i do not have the skills or tools to do that here.
Posted by melpie @ 06/29/2005 02:14 PM EST
Melpie, you should not forget the information assymetry which leads to adverse selection. Since the consumers do not have perfect information of the quality of the products on th market, they take the price into account as an indicator of quality. For instance, I don't know sushi places that much. I would avoid as hell a place which serves me 20 pieces of sushi for 5$, while I would be willing to go in a 30$/meal sushi place, w/o any further info.
Posted by Étienne @ 06/29/2005 05:32 PM EST
20 pieces of sushi for 5$?! Sign me up! =)
Posted by Mike @ 06/30/2005 03:29 AM EST