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kilobug comments on Science Doesn't Trust Your Rationality - Less Wrong
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It comes from two different main reasons to me.
The first one is asymmetry of information in economics : the information on price in much easier to have, and with more confidence, than the information on quality. So customer have a more complete information about pricing (when we speak of bread at least, it may not be the case with complex debt schemes) than on quality, which makes competing on the price more efficient (in term of dragging customer) than competing on the quality.
The second one is in economies of scale : by fixing the price of bread to a value low enough for people to afford it, but high enough for bakers to not go bankrupt, it'll increase the demand for bread, decreasing the production cost of each single bread. Economies of scale can often counterbalance the law of supply and demand (or more exactly, they violate the hypothesis on which the law of supply and demand is built, making it inapplicable), and are badly underestimated in the usual formulations of economical liberalism.
My understanding is that France at one point (Paris in charge) fixed the price of bread artificially low, to benefit Paris at the expense of the peasantry, with utterly disastrous consequences (famine, urban riots, and terror against the peasantry), and much later, after the Paris commune was overthrown and the leadership of the rural militias was in charge, fixed the price of bread artificially high, to benefit the farmers at the expense of the city folk.
I conjecture that it is this latter regime that produced competition on quality.