Posts from November, 2021
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November 8th, 2021

My first time going skiing was in my 20s. The software engineering job was paying me well at that time already. Why not just hire a private trainer for my ski lesson, I was thinking. Afterall, more money spent and a more focused time from the trainer ought to produce better outcomes, right? I definitely enjoyed the lesson for the first two days, but I cannot ski. The trainer was fun, and we did some practice runs on the beginner’s slope. But no, I cannot even do the pizza stop well.

The next year, I switched to a group lesson. In the first hour, I can ski from the top to the bottom on the beginner’s slope without crashing into someone or falling once. I started to enjoy the green line after two hours. The next day, I enjoyed the slopes for the whole day without any more lessons.

While in theory, if I pay enough, it is likely to find a good trainer that can teach me skiing within an hour privately. In practice, it doesn’t happen. It seems that paying money can monopolize someone’s time, but it doesn’t guarantee a better outcome.

It is not only ski lessons. You can observe this across many service industries. Private 1-on-1 tutoring v.s. public (or private) schooling. Family doctors v.s. public (or private) hospitals. Private nurse v.s. assisted living. Nanny v.s. daycare. There are many more factors in each of these industries for why money cannot buy performance (Gresham’s law etc). But you can see the theme.

The driving force of the theme is the market. In these industries, a good practitioner always makes more money when serving more people than one. When the money pooled together, it is also cheaper for the client. In return, more people can afford it. When the market is large enough, regulations can kick in. That in many cases, can guarantee a basic quality of the service.

But if I am rich, can I pay more money than the aggregate to monopolize better services? Potentially, yes. But the market is not an abstract entity with unlimited depth that can automatically facilitate transactions given a supply and demand curve. People are needed to be in the loop to either standardize the market for low-touch transactions, or to work through high-touch transactions directly.

Unfortunately, for these high-touch transactions, the market is miniscule enough that facilitating such transactions exclusively cannot be a full-time job.

That still opens the door of paying a lot more money, the amount that not only exceeds the aggregate for the best practitioners can get in the market, but also enough for a good broker to make a living.

At the end of the day, people are complicated. Serving one master is always a risky business. There are limited capacities, meaning limited upwards trajectory. People who make a reasonable amount of money for one rich person cannot be guaranteed to make more next year with the same person. Less capacities also means fewer experimentations, fewer exchanges of new ideas, and fewer ways to improve upon. You cannot fight the economy of scale any other way.

All in all, this brings us to two questions:

  1. Are there any service industries that haven’t enjoyed the economy of scale forementioned? We’ve witnessed the rapid industrialization of home-cooking during COVID time. Are there more?
  2. We’ve seen the amazing feat of the internet and software in lowering broker fees in standardized markets (stocks, commodities and housing). Can this be applied to non-standardized / one-off transactions? Can connected softwares help the price discovery and performance evaluation in any meaningful way? Airbnb tried in one specific and highly heterogeneous market. It probably is the most successful story we can tell so far. But many still questioned their performance evaluation metrics.

I don’t know the answer to either. But it will be interesting to ponder.