>and recoup their investments and so on. Guess what - the investment was already made, and it can't be undone!
You've got the sequence of motivations and expectations of investments & revenue backwards.
A more accurate timeline is that before the product is built, the businesses will segment the potential markets. They estimate the various price curves of price-sensitive and price-insensitive customers and then use that to determine how much to allocate to each feature. Some features are valuable to price-insensitive customers. Some features are useful to all customers.
To say the above was "investment already made" is flawed because that perspective depends on reversing the timeline around in a way that businesses don't actually think. Instead of "sunk cost", it's actually a "before-we-build-it calculated investment" based on "future revenue projections".
Likewise, when a pre-med student considers going to medical school, he may envision a future where he provides medical care for free in Africa and at the same time earn a $200k+ salary as a hospital surgeon. Those future market segments affects his current decision to spend (go into debt) $150k+ for his medical degree. When the doctor is 40-something, we, as patients can't say that he should give us medical care for minimum wage because we morally deserve his services and his medical school tuition 10 years ago is a "sunk cost" anyway.
As for how a business delivers that segmentation of product to a customer, that is a separate issue. Some methods are perceived as more distasteful than others. The tig welder with a software config switch causes more outrage than a different physical chassis.
Yeah, that paragraph was just an aside, but anyway.
> Those future market segments affects his current decision to spend (go into debt) $150k+ for his medical degree.
I think the problem here is that we let him make the decision which should be really responsibility of the whole society to make. If he didn't go to debt (and got a salary instead while is he studying), it would be IMHO perfectly OK for society to say "we changed our minds, now you have to work for minimum wage" (and he would have replied "F Y" and perhaps got a better arrangement). This is normal acceptable order of business (that things change). And in sane countries, degrees are for free (well obviously you have to work, and you can even get a stipend) for that very reason.
So in case of market segmentation, we are trading off some efficiency in the future for the fact that the whole society doesn't bear the risk of the investment. But is it really needed, to make this trade-off? What is wrong with society bearing that risk as a whole? That's what I was questioning in that paragraph.
I think the real problem though is that the whole idea of investment is not very compatible with the theoretical description of the free market (perfect competition). So to recoup investment, you need to introduce some inefficiency. And it can be abused - you can produce more inefficiency than is needed to recoup it.
You've got the sequence of motivations and expectations of investments & revenue backwards.
A more accurate timeline is that before the product is built, the businesses will segment the potential markets. They estimate the various price curves of price-sensitive and price-insensitive customers and then use that to determine how much to allocate to each feature. Some features are valuable to price-insensitive customers. Some features are useful to all customers.
To say the above was "investment already made" is flawed because that perspective depends on reversing the timeline around in a way that businesses don't actually think. Instead of "sunk cost", it's actually a "before-we-build-it calculated investment" based on "future revenue projections".
Likewise, when a pre-med student considers going to medical school, he may envision a future where he provides medical care for free in Africa and at the same time earn a $200k+ salary as a hospital surgeon. Those future market segments affects his current decision to spend (go into debt) $150k+ for his medical degree. When the doctor is 40-something, we, as patients can't say that he should give us medical care for minimum wage because we morally deserve his services and his medical school tuition 10 years ago is a "sunk cost" anyway.
As for how a business delivers that segmentation of product to a customer, that is a separate issue. Some methods are perceived as more distasteful than others. The tig welder with a software config switch causes more outrage than a different physical chassis.