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0 pointsinfogulch4y ago0 comments

I don't know how this can be solved with regulation though. What is "superior" about the better product? Tolerances? Documentation? Customer service? The ineffable reflection of the divine? (...) As soon as you put a target on any of those measures Goodhart's law rears its ugly head. This strategy is like trying to grab a greased ball bearing with a pair of tweezers.

The most efficient way for the customer to compare the relative value of two products is for the quality to be factored into the price exactly, with all externalities realized up front. But how to design such a scheme that isn't instantly gamed into oblivion is unclear to me.

It's like the value we're looking for is the depth of it's "truth", if you grant me poetic license to use that phasing, but that definition is not specific enough to be actionable.

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ChuckMcM4y ago

Regulating warranties and 'fitness for purpose' are both ways in which the state can enforce a level of quality/reliability on the manufacture of goods.

As an example, let's say your jurisdiction decides to make the following requirements on the manufacturers of food refrigerators;

1) The refrigerator must have a working lifetime of no less than 10 years from the date of sale, when maintained per the manual.

2) Repair parts for the refrigerator must be available for 20 years past the date of the last sale of the refrigerator to a resale outlet.

3) Information on the serviceability and repair of the refrigerator must be available to any party for a reasonable and non-discriminatory cost.

Those regulations say nothing about how much you can charge, how you manufacture it, or how you differentiate it from your competitors, they just make a requirement that the person who buys it can rely on it for 10 years and that if it breaks you must repair or replace it to give them the full 10 year lifetime they expected when they bought it.

What that does is force choices in design, manufacturing, and materials that reduce cost at the expense of expected lifetime back on to the manufacturer. As a result they gain no advantage by using cheaper stuff that fails more readily to get a cheaper price to "undercut" the guys who make the 10 year refrigerator.

infogulchOP4y ago

I agree that improvements to general serviceability and guarantees of availability of information and parts for repair would go a long ways to making better products. Perhaps "time" is a good metric that is more difficult to game.

I like your example. So lets consider a refrigerator manufacturer that builds a great refrigerator design, with all the investment in R&D, documentation & service manuals, parts reliability, supply chain and inventory procurement, customer service, continued improvements due to to market and long-term customer feedback, etc that one would expect if they were aiming to make a reliable long-term product as you describe. The business produces a good product and provides good service for a fair price, and they grow a reputable brand and loyalty from their customers as a result.

Consider some scenarios:

Scenario 1: After some time the owners come to retirement age and sell the business to the highest bidder at, for example, $100 million. The new owners promptly 'reorganize' the business, slashing costs, selling assets, eliminating continued investments, and generally cheapening the product. Meanwhile the outside world is none the wiser, and thanks to a buffer of brand loyalty they keep selling the cheaper product but at a massive comparative margin. In 2 years they made back $300 million which they smuggle away by cutting dividend checks or paying themselves for some bogus "consulting" services or something else just as tepidly but still technically justifiable. Another year later the consumer protection agencies finally come knocking (the government isn't fast) and find the whole place either liquidated or dilapidated, clearly unable to fulfill their warranties, resulting in being sued or fined into bankruptcy. The supply chain of parts even for the original product, some only 3 years into their 10 year warranty dries up. The newer cheaper product is in an even worse state. The purchasers are long gone but doing great, having milked the reputation of the business and its customers of a neat, net $200 million in 3 years. Customers get a $10 check in the mail thanks to a class-action. Remaining employees have to find a new job.

How would you describe what happened? And how could it be avoided? I'm skeptical that the regulations you mentioned or similar could help here.

Scenario 2: Using the professionally produced and well-maintained specifications, service manuals, and product design, an international company reproduces the same refrigerator design, but since they can skip all the overhead of creating such a great design and documentation they sell the product with a razor thin or even negative margin at an overall 30% lower price. This drives the original refrigerator manufacturer out of business, enabling the international company to capture the market and raise the price again to extract value out of it. Perhaps they maintain parts inventories but they invest nothing into continued evolution of the design and cut corners on customer service and it dies slowly. Customers of the original design are out of luck, and the new company's product is just slightly incompatible enough with the original design that parts don't work and customers are instructed to just buy a new one.

What happened in this case? Is this even a negative story that we should try to avoid? If so, how?

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