Mutual Self-Interest

One of the most fundamental premises of economics is that in a free society, an exchange or transaction only takes place when it benefits both the parties.  Unfortunately, given how simple this axiom is and how easy it is to prove, it is either not accepted or not understood by a huge number of Americans.  Thus we get any number of variations of the zero-sum wealth fallacy, and we get this, from Overlawyered:

A reader writes: "Am I wrong to believe that businesses and
consumers are natural enemies in that their economic interests are
diametrically opposed?"

Yes, you're wrong. Transactions don't occur unless both parties are
better off. Businesses thus only profit if they can create consumer
surplus"”the ability to sell a product at a price that is less than what
a consumer values the good or service. Businesses' interests are thus
aligned with consumers who seek consumer surplus. Businesses more often
prosper by creating satisfied consumers who become repeat customers who
promote the business's reputation rather than trying to extract every
last ounce of wealth from them in a single transaction. This is why
brand names and advertising are so important, because they are market
signals of long-term commitment to customer satisfaction. It's not
profitable to invest in creating a brand name if one intends on having
a bad reputation. (Note the key word "intends" there; no doubt one can
intend to have good customer service and fail to achieve it, and I'm
looking at you, Comcast.) And one will note that businesses that tend
not to have repeat customers or rely on word of mouth are more likely
businesses that have reputations of indifference about customer
satisfaction: tourist traps, traveling carnivals, etc.

A while back a made a purchase of a number of modular cabins for one of the campgrounds we operate.  After the delivery, the sales person called me to thank me for my business.  My reaction was "Thank me?  I should be thanking you."  The cabins are a huge boost to my business -- already I am getting great customer feedback -- and the modular technology saved me a ton of money on construction.  See?  Both the buyer and the seller were thrilled, because we were both better off.

  • dearieme

    I don't think it's enough to say he's wrong. Anyone who can reach the age of majority in a country like yours (or like mine) and still believe that is, for practical purposes, stupid.

  • CRC

    "Am I wrong to believe that government and citizens are natural enemies in that their economic, political and liberty interests are diametrically opposed?"

    There, that seems more correct.

  • la petite chou chou

    Yes!! I have used this same argument so many times:

    "Businesses more often prosper by creating satisfied consumers who become repeat customers who promote the business's reputation rather than trying to extract every last ounce of wealth from them in a single transaction."

    It's so plainly simple that I've been often baffled that it isn't common knowledge to everyone.

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