Brand names are another way of economizing on scarce knowledge.
Brand names are not guarantees. But they do reduce the range of uncertainty. If a hotel
sign says Hyatt Regency, chances are you will not have to worry about whether the bed
sheets in your room were changed since the last person slept there.
Like everything else in the economy, brand names have both benefits and costs. A hotel
with a Hyatt Regency sign out front is likely to charge you more for the same size and
quality of room, and accompanying service, than you would pay for the same things in
some locally—run independent hotel if you knew where to look.
Both Kodak and Fuji film have to be better than they would have to be if boxes simply
said “film,” without any reference to the manufacturer.
McDonald’s not only has to meet the standards set by the government, it has to meet the
standards set by the competition of Wendy’s and Burger King. If Campbell’s soup were
identified on the label only as “soup” (or “Tomato Soup,” “clam chowder,” etc), the
pressures on all canned soup producers to maintain both safety and quality would be less.
One of the reasons for the great success of McDonald’s in Moscow—the largest in the
world, with lines of people waiting to get into it—is that it was being compared to the
previous band quality of service in Soviet restaurants, not to Wendy’s or burger King.
Whatever the merits or demerits of various political proposal, what must be kept in mind when evaluating them is that the good fortunes and misfortunes of different sectors of the economy may be closely related as cause and effect - and that preventing bad effects may prevent good effects. It was not accidental that Smith Corona was losing millions of dollars on its typewriters while Dell was making millions on its computers. It was not accidental that Safeway surged to the top of the grocery business while A&P fell from its peak to virtual oblivion. The efficient allocation of scarce resources, which have alternative uses, means that some must lose their ability to use those resources in order that others can gain the ability to use them Typewriters were no longer what the public wanted after they had the option to achieve the same end result and more with computers. Scarcity implies that resources must be taken from some places, in order to go to other places.
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