Source: Bet On It
by Bryan Caplan
“One common complaint about markets is that profit-maximization leads to low-quality products. The populist version is just, ‘They cut corners to save money.’ But the populist version doesn’t explain why firms don’t offer a full menu of price-quality combinations. Firms could just offer ‘copper,’ ‘silver,’ ‘gold,’ and ‘platinum’ quality levels, with suitable upcharges for each quality tier. Textbook asymmetric information models have a response. Namely: While sellers know what quality level they’re producing, customers can’t easily tell. So while they might be happy to pay $500 extra for a product that costs $400 extra to produce, unregulated businesses will try to take advantage of their cluelessness.” (09/15/26)