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Buyer Beware - Caveat Emptor!

THE CONSEQUENCES

These applications are being marketed or pushed to people as something approachable and doable by any regular Joe or Jane. The problem is that when Joe and Jane actually try to use these systems they typically find a large number of errors and problems that they cannot fix by themselves and that the volunteer support system does not address. This means that these people end up spending enormous amounts of time trying to fix software that is hopelessly beyond their technical capabilities.

It is these effects that make absolutely clear the very high cost of free software. There is a disconnection between the motivations of the programmers, who are interested in technical wizardry, and the users, who are interested in actually being able to use the software. These differences are not something that a regular person would see. In order to see them a person would have to be part of the IT world. However, their implications and their effects have a huge impact on everybody else. There is a large difference between how a technologist looks at a machine, in this case software, and how a user wants to use the machine.

The cost of free software is an extreme example of the hidden cost of a product; and if this is true, how much more difficult may it be to find the true cost of a for-profit product? A product where the seller has all the motivation to hide flaws?

CAVEAT EMPTOR

We started this article stating that in a free market it is entirely up to the purchaser to satisfy him or herself of the qualities of the product. However, the problem is that in many cases the product has hidden qualities (or lack of thereof) that are very hard to see, even by seeking them on purpose. One such classic example is free Open Source software, where quality is indeed job number two. This example demonstrates that even the gauging of product qualities is time consuming and as such, this isn't a free lunch either.

Government imposed warranties

Typically governments regulate implied warranties in the sense that the seller of any product can only sell a product if the product is "fit for purpose". This ensures that buyers should not "caveat emptor" that much. This seems like a good system, why are we against it then?

The first reason is that it interferes with our freedom. The government is telling a seller what this person may or may not sell. This is unacceptable in and by itself as a matter of principle.

The second reason is that the concept of "fitness for purpose" is indeed subjective and therefore impossible to determine. This is so because this concept is based on economic transactions which are all subjective. The definition of "fit" for person "A" is "not fit" for person "B". The courts always apply the fitness rule based on a theoretical common sense person. But a theoretical common sense person does not exist! This is so because we cannot "average" common sense, and even if we could, the point is that we are all different! There is no such thing as "the" common sense.

Let's say that the pill XYZ is being sold as a weight-loss "magic" solution. The pill is a hoax and it does not work. Does this mean that it is not "fit for purpose"? For the majority of the people who are expecting miraculous results, it is not. However, there are always people who will drop weight because of the placebo effect or perhaps because they are improving their diets along with the pill or for a myriad of other reasons. Therefore for the second group, the answer is that the product is fit for purpose.

The question is not what the product does or does not do but what is in the contract. Does the contract specifies that a user will drop X amounts of kilograms in Y number of weeks or does it not? Does the contract contain a measurable, quantifiable product property? If it so specifies and it is a hoax, it is a fraud and buyers can mediate the seller for breach of contract. If the contract does not so specify, then the buyer has no recourse. However, in either case, the "fitness for purpose" is not part of the consideration. What is in the consideration is the black letter of the contract.

This process is far superior to government interference because it forces the buyer to become very critical of products. This in turn forces manufacturers to improve quality so that they may actually add these product qualities in the contract without the fear of financial repercussions. And why would manufacturers add product qualities in the contract when they could just easily add disclaimers? Precisely because of the enhanced disbelief of buyers due to "caveat emptor" conditions. People want results of they will simply buy a different product if they can't get them. It's that simple.

Again, this is not economic theory. Consider how many products nowadays have written warranties. Why would a company do so? Because if the product actually does what it is supposed to do, there is no downside but only upside! It is a fantastic marketing strategy which, serves its customers.

Product quality again

The concept of "caveat emptor" is one of the driving forces of product quality. When people are forced to actually pay attention to products, they realize that they are spending time doing so. Nobody is paying their time back to them. As so, they become much more demanding; deliver results or go broke!

Caveat emptor is no a market nuisance from which we must be "protected" by the government. It is this "protection" that creates all kinds of problems because it is preventing the free market from operating. It is this "protection" that actually decreases product quality, not to mention the fact that most of the time it is not financially viable to recover money spent on a non-fit-for-purpose product! When was the last time that you heard that somebody got financially compensated because of soggy bread? Or uncomfortable shoes? Insufficient street light? Or bad education?

As it turns out, the process of "fitness for purpose" is not only unworkable, financially ineffective but also counterproductive!

Innocents

This is all fine and great, but what happens with those that cannot protect themselves? What happens to those that cannot "caveat emptor" sufficiently? Well, not much. It is true that such people would be easy prey for con artists, but they are also today! However, there will be a critical difference. Since the vast majority of the people will "caveat emptor" properly, most products will provide results, which these "innocent" people will also benefit from!

Good enough

But… but… but… what happens with a product with low quality?

Well… what's with them?

How exactly are they a problem?

The free market does not deliver the best product at the lowest price. What it delivers is a good enough product at the lowest price. What "good enough" means is subjective but it is also determined by the price point. This is the old story of Apple versus Microsoft. For most people, Microsoft products are "good enough" at their price point. However, for some people, only Apple products are "good enough" at a higher price point.

Many people get upset when markets do not deliver the absolutely best at a low price. Well… they are not supposed to. They are supposed to raise our standards of living, but they can only do so if most people benefit from their products. For that, these products must be affordable or else we would not be able to purchase them. But affordability means lower quality. This is a balancing act that each free market member executes in every transaction throughout their life.

And so in a free market there are no sub-quality products, they are only good-enough products for different price points. Some products will indeed be low quality, but they will be "good enough" for poorer people. In this manner, even poorer people can benefit from free market mechanisms.

The opposite, the imposition of government standards on products only ensures that price points will be above certain mark, which will make them unaffordable for many people.

Again, this is yet another example of government action that backfires. What a surprise… not!

CONCLUSION

The free market concept of "caveat emptor" is a natural property of markets. It is a property that helps ensure higher quality and widespread affordability. Tampering with it ensures lower standards of living for a great deal of people.

And now you know, it is up to you to make a decision, caveat emptor!

Note: please see the Glossary if you are unfamiliar with certain words.

 

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