I recently asked why people hate dating apps so much. In response, 80% of you emailed me some version of the following theory:
The thing about dating apps is that if they do a good job and match people, the people matched will leave the app and stop paying. So they have an incentive to hook people up with them, but not to actually help people find long-term relationships.
Can I explain why I don’t find this kind of theory very useful?
I’m not saying I think it’s wrong, mind you. Rather, my objection is that while the principle is expressed in the context of dating apps, the same basic pattern applies to basically anyone who is trying to make money doing anything.
For example, consider a pizza restaurant. Try these principles on for size:
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Pizza: “The thing about pizza restaurants is that if they use expensive ingredients or labor-intensive pizza-making techniques, it costs more to make a pizza. So they have an incentive to use low-cost ingredients and labor-saving shortcuts.”
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Pizza II: “The thing about pizza restaurants is that if they have good tables spaced comfortably apart, they can’t fit as many customers. So they have an incentive to use smaller tables and cramming people in one by one.”
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Pizza III: “The thing about pizza restaurants is that if they sell larger pizzas, people will eat them and stop being hungry, which means they don’t buy extra pizzas. So they have an incentive to serve smaller lower-calorie pizzas.”
see what I mean? You can create similar principles for other domains as well:
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Cars: “The thing about automakers is that it’s expensive to make cars safe. So they have an incentive to make unsafe cars.”
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Video: “The thing about video streaming is that higher-resolution video uses more expensive bandwidth. So they have an incentive to use lower-resolution.”
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Blogging: “The thing about bloggers is that research takes time. So they have an incentive to be careless about the facts.”
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Durability: “The thing about lightbulb, car, phone, refrigerator, cargo ship manufacturing is that if you make a lightbulb, car, phone, refrigerator, cargo ship that lasts a long time, people won’t buy new ones. So there’s an incentive to make lightbulbs, cars, phones, refrigerators, cargo ships that break down quickly.”
All of these theories can be thought of as examples of two general patterns:
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Make Product Defective, Get Money: The thing about selling goods or services is that it costs money to make the goods or services better. Therefore people have an incentive to produce worse goods and services.
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Raise Price, Get Money: “The thing about selling goods and services is that if you raise prices, you get more money. So people have an incentive to raise prices.”
Are these theories wrong? no way. But it definitely feels like something is missing.
I’m sure most pizza restaurants would be thrilled to sell lukewarm 5cm cardboard discs for $300 each. In fact they have an incentive to do so, as predicted by these theories! Yet, in reality, pizza restaurants usually sell pizzas that are made from food. So clearly these theories are not telling the whole story.
Let’s say you have a lucrative business selling 5 cm cardboard discs for $300. I’m likely thinking, “I like money. Why don’t I just sell pizza.” mostly Cardboard, but also partly made of dough? And why don’t I sell them for $200 so I can steal Valued Reader’s customers?” But if I did that, someone else would probably set prices just $100, or even offer cardboard-free pizzas, and this would continue until some kind of equilibrium was reached.
Sure, manufacturers want to charge infinite dollars for things that cost them zero dollars to make. But consumer Want to pay zero dollars for stuff that is infinitely valuable. It is in the struggle between these desires that all interesting theories survive.
This is why I don’t think it would be useful to point out that people have incentives to make their products worse. Of course they do. The interesting question is why are they able to escape from this?
cause the item is defective
The number one reason why goods fail: people are cheap
Why are seats so tight on airplanes? Is it because airlines are greedy? Sure. But although they may be greedy, I don’t think they are stupid. If you do a little math, you can calculate that if airlines were to remove a row of seats, they could add maybe 2.5 cm (1 inch) of extra legroom for everyone, while reducing the number of paying customers by about 3%. (It’s based on the single-class 737, but you get the idea.)
So why don’t airlines eliminate seat queues, raise prices by 3%, and enjoy lower fuel and customer service costs? The only answer I can see is that people, on average, are not willing to pay 3% more for 2.5 cm more legroom. We want a bad but cheap product, and so that’s what we get.
I think this is the most common reason for stuff to go “bad”. This is why Subway sandwiches are so soggy, why video games are so dirty, why Ikea furniture and Primark clothes fall apart so quickly.
It’s good when things go bad for this reason. Or at least, that’s the premise of capitalism: “When companies cut costs, there’s an invisible hand that redirects resources to maximize social value”, or whatever. Companies may be motivated by greed. And you may not like it, because you want to pay zero dollars for infinite value. But this market is working as designed.
Another reason for spoilage: information asymmetries
Why is it that almost every book/blog/podcast about longevity is so much garbage? Well, we don’t really know many things that will reliably increase longevity, and those things are mostly boring/difficult/non-fun. And even if you do all this, it probably only adds a few years to the hope. And telling people these facts is not a good way to find useless people who will give you lots of money for your unproven supplements/seminars/etc.
Truth! But that doesn’t explain why all the longevity stuff is so bad. Why don’t honest people tell the true story and drive all the fraudsters out of business? I suspect the answer is that unless you have Very scientific training and do one Very According to research, it is basically impossible to know how fraudulent all the fraudsters really are.
I think this same basic phenomenon explains why some supplements contain heavy metals, why some foods contain microplastics, why restaurants use so much butter and salt, why rentals often have substandard insulation, and why most cars seem safe only according to dimensions included in crash test scores. When consumers cannot distinguish between good and bad, evil wins.
Third reason for spoilage of goods: People have bad taste
Sometimes things go bad because people don’t appreciate what you think is good. Examples are certainly controversial, but I think they include restaurants in cities where all the restaurants are bad, North American tea, and travel pants. The reason for this is a blurred boundary with reported oddities, as seen in ultrasonic humidifiers or products that use sucralose instead of aspartame for “safety”.
The fourth reason goods are bad: pricing power
Ultimately, sometimes things go bad because markets aren’t working. Sometimes a company is selling a product but has some kind of “moat” that makes it difficult for someone else to compete with them, for example because of some technological or regulatory barrier, control over some key resource or location, some intellectual property, some beloved brand, or network effects.
If this is true then those companies don’t have to worry much about someone else stealing their business, and so (because everyone is axiomatically greedy) they will find ways to make their product cheaper and/or raise their prices until it equals the full value provided to the marginal consumer.
conclusion
Why is food at sporting events so expensive? Yes, people have no choice. But people know that food at sporting events is expensive. And they don’t like it. Instead of selling water for $17, why don’t venues sell water for $2 and raise ticket prices instead? I don’t know. Possibly something complex, like expensive food allows you to extract extra money from rich people without losing business from non-rich people.
so Absolutely Dating apps would rather stick with people for years than find long-term relationships, so they keep paying money every month. I’ll bet some people at those companies have really thought, “Maybe we should stick with people for years instead of finding long-term relationships with them so they keep paying money every month. I love money.”
But if they are actually doing this (which is unclear to me) or if they are bad in some other way, how can they get away with it? Why doesn’t someone else create a competing app that is better and thus steal all their business? It seems like the answer should be either “because it’s impossible”, or “because people don’t really want it”. This is where the mystery begins.