Does brand differentiation lower prices?

Over at the Demos dot org slash blog, I discussed this Bernie Sanders quote:

If 99 percent of all the new income goes to the top 1 percent, you could triple it, it wouldn’t matter much to the average middle class person. The whole size of the economy and the GDP doesn’t matter if people continue to work longer hours for low wages and you have 45 million people living in poverty. You can’t just continue growth for the sake of growth in a world in which we are struggling with climate change and all kinds of environmental problems. All right? You don’t necessarily need a choice of 23 underarm spray deodorants or of 18 different pairs of sneakers when children are hungry in this country.

The media seemed to have missed the point of the bolded part in which Sanders makes fun of those who say egalitarian policies will cut down on innovation. This was the subject of my Demos post.

In the aftermath of this comment, there was another less important thread that I also want to comment on. Multiple people (again in media) tweeted at me that this market of 23 brands of deodorants competing with each other brings prices down and therefore makes people less poor (adjusted for the cost of deodorant). Like most Econ 101 truisms, this is not exactly right.

If things are working according to design, the way you would get the cheapest possible deodorant prices is by commoditizing deodorant and then having firms compete to provide it in its commoditized form. By commoditize deodorant, I mean make deodorant akin to soybeans and corn, where one train car of deodorant is totally indistinguishable from any other train car of deodorant. In a world with commoditized deodorant, firms competing in the deodorant space will only be able to compete on price because there is no other way to distinguish deodorant units from one another.

The major point of brand differentiation is to fight commoditization. The goal is to make it so that you do distinguish between Speed Stick on the one hand and Old Spice on the other, instead of just categorizing them at Deodorant.jpg. If you can successfully pull off the marketing and branding, you don’t have to compete absolutely on price anymore, and so you can charge more (and make more profit) than if you were dealing with a pure commodity. The teen boy who has seen your slick ads must have Axe, regardless of whether it’s actually physically distinguishable from other deodorants, and so you can score extra margin out of that marketing-induced consumer preference.

So, in fact, extreme brand differentiation of the sort Bernie jokes about is not about driving prices down, but rather driving prices up by getting people to spend more on deodorant for brand premiums. Now, of course, defenders of this would say there must be something of true value in the extra money you can charge for a brand. Don’t they feel better for buying the cool deodorant than otherwise? Is that psychological feeling not real hedonic value? And, maybe it is, maybe it isn’t. However the point is that this sort of thing is not about competition driving down prices, but rather competition pushing innovation to give people different deodorant experiences at different price levels.

Ultimately, I really just could not care less about this whole topic (except insofar as I think its at least somewhat funny to mock “innovation” as inherently good). But if you are going to lose your shit over it and prove how smart you are on the internet about it, pretending as if deodorant brand differentiation is premised upon some vicious price war is not the way to do it.