"You Paid WHAT?!" Or, How Echo Chambers Distort Prices and the Way We Think
Wildly inflated prices abound in the creator economy and online business space. What gives?
I’m about to write the most journalistic thing I’ve ever written:
I received a tip.
I wish I could say it was an “anonymous tip” because that sounds even more journalistic. But it wasn’t anonymous, though I won’t say who it was. Anyhow, my source told me about a small business owner—someone who sells online courses and does quite well—paying an outrageous sum for a fairly standard service.
This, of course, was not an isolated incident. I didn't really need a tip. I know all about this kind of thing. Wildly inflated prices grace all manner of products and services within the creator economy, coaching industry, and "online business" space in general.
‘What’s going on?’ my source wanted to know. ‘How do people get caught paying so far above market rate? And why do people charge prices so out of whack with the market?’ Ok, I totally paraphrased all that. Here's what my source really asked about: "the gaslighting inflationary online pricing bubble." That's not a technical term—but maybe it should be one?
Actually, give me one second.
The Gaslighting Inflationary Pricing Bubble Online, or GIPBO.
That's GIPBO with a hard-g, the way GIF should be pronounced, IMHO.
At first, I was sure there was some economic principle that would explain GIPBO. And there is. But it doesn't explain the whole issue. Economics tends to look for rational explanations—while this seemed to be a distinctly irrational occurrence. It didn't take long to realize this isn't an economic phenomenon per se.
It's an epistemological one.
Epistemology is the study of how we know what we know. It concerns itself with how we evaluate truth claims, what we deem authoritative, and how we reason—among other questions about knowing.
By chance, as I was thinking about GIPBO, I happened on a paper by philosopher C. Thi Nguyen that piqued my curiosity. In the paper, Nguyen describes what he calls “hostile epistemology.” “Hostile epistemology,” he writes, “is the study of the ways in which environmental features can exploit our cognitive vulnerabilities and weaknesses.” An epistemically hostile environment is one in which our usual tools of critical thinking and curiosity are disarmed, intentionally or not.
For example, I think back to when I was pregnant (over 15 years ago now!). Like many new parents, I devoured all of the information I could get my hands on. I was desperate to feel prepared for bringing a tiny, helpless human into the world.
My desire to feel prepared was a cognitive vulnerability because it made me more susceptible to specious claims that my critical thinking would have otherwise rejected. The overwhelming amount of information on pregnancy and parenting created an epistemically hostile environment that preyed on my cognitive vulnerability. Add to all that the exploding online parenting forums of the late oughts, and I was lucky the epistemic rabbit hole I fell into was benign (cloth diapering), and I avoided most of the alt-wellness corners of that world.
Nguyen points out that succumbing to conspiracy theories, or get-rich-quick-schemes, or black-and-white pseudoscientific medical advice is often attributed to epistemic vice. That is, it’s seen as an individual failing of the knower. From the outside, we want to write off those who believe as gullible or just plain stupid. But hostile epistemology invites us to step back and consider the environmental factors that make it easier for people to believe what they believe. “Some of our vulnerabilities might be our fault,” he explains, “the result of carelessness, laziness or other vices. But I am particularly interested in thinking about our unavoidable cognitive vulnerabilities…”
Me too, Thi, me too.
So what hostile environments might lead to someone agreeing to pay an exorbitant rate for a fairly commodified service?
Why might they even prefer to pay more? What is the epistemic structure of GIPBO—Gaslighting Inflationary Pricing Bubble Online?
First, I'll examine how markets themselves are unreliable epistemic structures. Second, I'll show how factions within the creator economy and online business markets act as echo chambers. Then, I'll detail three of the epistemically hostile conversations common to these echo chambers. And finally, I'll show that these echo chambers create the conditions for indirect monopoly rents that continually drive prices up.
Strap in. Here we go.
“The market” isn’t as reliable as we’d like to think.
Neoclassical economics (today's prevailing theory) attempts to explain market activity through the principle of supply and demand. It assumes that all stakeholders in a market have the necessary information to make a rational decision. And it assumes that consumers will maximize the benefit they receive from an exchange, while businesses will maximize the profit they receive. As a result, the prices in a free market should offer a decentralized epistemic system for allocating resources.
Or, in a free market, prices should mean something. What someone charges for a commodity and what someone is willing to pay for a commodity should find a happy equilibrium.
Philosopher Lisa Herzog, who works at the intersection of political theory and economics, details how she was trained on mathematical neoclassical economic models in an essay for The Raven. These models, while sound in theory, rarely account for the complexity and irrationality that pervade markets. Price isn't a perfect epistemic tool. Decisions about what we buy and how much we spend are rarely neat and tidy. Herzog explains that what might look like efficiency and logic on the "front stage" of the market actually requires a "whole epistemic apparatus" backstage to make it work. She writes:
So, this is another way in which the epistemic argument misleads: that the market process appears spontaneous does not mean it happens all by itself. The reason why it works in the way intended is that it is propped up by a whole set of supporting structures, without which it does not function well.
The front stage is our day-to-day economic activity. We put money in the bank, buy goods from a store, pay our rent or mortgage, go to work, and earn an income. It seems so straightforward on the surface. But in the wings, a backstage of regulations, watchdogs, and government-run institutions provide the scaffolding to make it all (relatively) easy to navigate. Of course, there are those who argue that the backstage is the problem—markets would work everything out for the best if the government just got out of the way. I'm not one of those people, and I believe the evidence is clear that "less regulation" is not the solution to market failures. But that's an argument for another day.
This distinction between the front stage and the backstage of the market can be helpful in our investigation of GIPBO. In order for wildly exaggerated pricing to appear like the natural result of market forces, there must be that whole epistemic apparatus functioning in the shadows. There is a "set of supporting structures" that allow exchange to happen on these inflated terms.
I love to pick apart the strange systems that shape our lives and work. You too? Join me:
What is the nature of those supporting structures?
At this point, I'd like to draw on another essay by Nguyen—this one in regard to the difference between echo chambers and epistemic bubbles. An epistemic bubble is an information environment in which "relevant voices" have been left out of the discourse. Information is limited, and that changes the nature of how someone inside the bubble acts. On the other hand, an echo chamber is a "social structure from which relevant voices" have been purposefully excluded and devalued.
"An epistemic bubble," writes Nguyen, "is when you don’t hear from people on the other side. An echo chamber is what happens when you don’t trust people from the other side." Markets are full of epistemic bubbles. We have to make economic decisions based on limited information all the time. Parts of the backstage structure are tasked with remedying this (e.g., financial disclosures, advertising regulations, insurance for our bank accounts, etc.).
But markets often contain echo chambers, too. Within an echo chamber, agents collude to suppress information and sow distrust of voices from the outside. If you've ever seen Representative Katie Porter grill a bank CEO, you've seen what happens when one of the market's echo chambers gets exposed.
The first example of this that comes to mind for me is the real estate bubble that created the 2008 financial crisis. Institutional investors, mortgage lenders, and the real estate industry all had a hand in limiting the information that homebuyers had access to in regard to the property they bought and the loans they took on. These groups all told a similar story: homes always appreciate in value, mortgages are cheap, and mortgage debt is a safe investment. Anyone who countered this narrative couldn't be trusted—they were worry-warts, curmudgeons bent on smashing your McMansion dreams.
The result? Millions of people lost their homes and their retirement savings. And the government swooped in from backstage to avert a complete collapse of the global banking system.
Now, let's get back to the question at hand: GIPBO.
As in the general economy, the creator economy and its markets contain both epistemic bubbles and echo chambers.
In some corners of peer-to-peer exchange, participants are simply missing out on relevant information. Those corners are epistemic bubbles. But in other corners of peer-to-peer exchange, participants are subject to information environments in which relevant information is excluded and devalued. These corners are echo chambers.
Within the creator economy or online business space, there are many factions. Each faction is led by a business "guru" or small network of "gurus." Sometimes these factions are explicitly organized in this way. Others are ad hoc—someone attracts a large audience and either informally deputizes people from within the audience or teams up with other influential figures for mutual benefit. Practically speaking, if you watch the gurus' podcasts, email marketing, or affiliate promotions, you can tell how these factions configure themselves.
These factions can often be loosely defined as cults of personality. The guru or gurus' charisma extends a big tent for people to gather under. Before long, the whole group is performing some version of the charismatic personality.
Some factions organize around a particular business model (e.g., online courses, productized services, agencies, coaching certifications, etc.). These factions are often led by people who once used that business model but have gone meta and now teach others how to use that business model. Other factions are based on interests (e.g., wellness, travel, spirituality, investing, etc.) and are led by people from complementary disciplines or with similar worldviews.
Each faction has its own information system—that is, the leaders' podcasts, social media accounts, online courses, coaching programs, and/or membership spaces. Some people who belong to a particular faction may not consume that media or participate in the leaders' programs, they may not even know the media or programs exists. Instead, they've taken another course, listened to a different podcast, or watched a different YouTube channel created by an acolyte of the leader(s). The knowledge in the information system gets passed on through either directly or indirectly derivative programs.
Whatever epistemically hostile features the original information system contains get passed on, too. Those hostile features become self-reinforcing as more and more people from within the faction utilize them. Anyone who enters a faction either converts to the same beliefs or can't participate fully.
Given all this, the different factions operating within the creator economy could still be either epistemic bubbles or echo chambers. So now we need to turn to the question of trust: does a faction's information system result in distrust of other voices or information systems?
To be clear, this isn't an easy question to answer. And I don't think we can paint all corners of the creator economy with the same brush. However, there are groups that sow distrust of other voices and information systems. I don't think the people leading or participating in these groups necessarily have nefarious intent. They probably believe in what they do and say, passing it on innocently enough. But the effect their beliefs have on their followers is to form a worldview that's distrusting of outside perspectives.
The effect, then, is to create an echo chamber that makes it harder to trust outside information and easier to exploit members' cognitive vulnerabilities.
Okay, how did we get here? Oh, right. Pricing. Outrageous pricing.
"Markets are conversations"
"Markets are conversations," say the authors of The Cluetrain Manifesto, a turn of the 21st-century book examining the changing nature of markets given the emergence of the internet. I've been fond of this statement ever since I first read it. It gets at a truth that economists are generally hesitant to admit: markets aren't nearly as impartial or epistemically pure as they'd like to believe.
There are three ubiquitous "conversations" that help make GIPBO possible and contribute to the echo chambers that make outrageous pricing seem rational. Many of us enter these conversations long before we ever considered starting a business or hiring a service provider. They are conversations we are ushered into when we're shopping with our parents or overhearing adults talk about work. In this way, these conversations are cognitive vulnerabilities—mental shortcuts that help us make decisions quickly based on limited information.
As we come to know ourselves in relation to the market, these conversations take on increased gravity—to the point where it's almost impossible to escape them.
An economic echo chamber has the power to distort these conversations—cognitive vulnerabilities—and change the way we relate to value. We find our cognitive vulnerabilities reinforced and reproduced, while our distrust of anyone who pushes back on their truth grows.
"You get what you pay for"
First, let's consider how price connotes quality and expertise. Think of this conversation as the "you get what you pay for" bias. Most of us have a mental shortcut—a heuristic—for high prices, namely that more expensive goods are higher quality than less expensive goods. More expensive services are performed by more expert providers than less expensive services. We know it’s not a perfect correlation, but it’s generally correct more times than it’s not.
For instance, imagine that you have two images of seemingly identical white t-shirts in front of you. Both shirts appear to be cut well, both are made of 100% cotton. One shirt sells for $10. The other shirt sells for $40. What do you imagine is the difference?
I imagine the cheaper shirt is made from a lower-quality cotton jersey that's more likely to develop holes after a few washes. I also imagine that shirt is produced in bad working conditions and sold through a retailer that doesn't pay its staff well. I imagine the more expensive shirt to be made from organic cotton that's sustainably farmed, cut and sewn in a factory that pays a living wage, and sold through a retailer that takes care of its employees.
Based on my experience with the market, I assume all of that without any evidence—other than price. The price connotes those measures of quality regardless of whatever evidence I have at my disposal. Most of us do the same with all manner of products and services, especially when we lack other information.
"Know your worth"
Thanks to the self-help industry and neoliberalism, we've also learned to equate financial value with self-worth and actualization. I'll this call the "know your worth" effect. The "know your worth" effect results in assuming that the higher the price someone charges, the more confident and self-actualized the person behind that price is. We believe we can trust them and their prices because of how enlightened they are.
Within the creator economy and online business space, "charge what you're worth" is a common refrain. Hang out in an online community of business owners for more than 5 minutes, and you'll see one member encouraging another to raise their prices because they're not charging what they're worth. To be clear, it's often true that people don't charge enough! But these conversations also serve to inflate prices to levels untethered to reality.
This conversation exploits the kind of cognitive vulnerability that develops from being underpaid and objectified in previous employment scenarios. It also exploits our desire for stability and security amidst chronic precarity. We want to believe that we're "worth" so much more than we've been paid in the past—because what we were paid clearly wasn't enough to solve our existential angst.
"People like me pay this much"
The final conversation I'll highlight here ties success to a willingness to pay more. It relies on the cultural belief that you've got to spend money to make money. This conversation creates a sort of financial halo effect. The "people like me pay this much" bias asserts that the more successful one is, the more one pays for support. But this bias operates retroactively, meaning that we assume successful people paid the rate they pay today before they were actually successful. In essence, paying more when you can't afford it is a prerequisite for success.
Perhaps unintentionally, but often quite intentionally, we're given the impression that the 7-figure life coach has always paid extravagant amounts for their copywriter or bookkeeper. That's how they got to where they are, we can assume.
I see this conversation taking place not only in sales conversations in which people feel pressure to spend money to make money but also in conversations between business owners about how much they should charge for their services.
This "people like me pay this much" bias exploits the cognitive vulnerability that results from confusing causation with correlation. When we notice a pattern, we're more likely to assume that there is a causal relationship between nodes in the pattern rather than merely a correlative one.
The creator economy is an epistemically hostile environment.
Each of these conversations makes it significantly more difficult to know what to charge for a product or service, as well as what to pay for a product or service. But they are just 3 of many more conversations I could point to prove that the creator economy is a hostile epistemic environment. Its features—intentionally or not—exploit our fears, dreams, passions, and social needs in ways that undermine our critical thinking and prevent us from gathering needed information.
'Cause everything is rent.
Finally, let's get back to a bit of economics so that I can show that exorbitant pricing should be an expected consequence of the kind of echo chambers I've outlined thus far. So we need to talk about rent.
"Rent" is a term for capital generated based on property, rather than production. Let's say you have a landowner who holds the property rights to 1,000 acres. Instead of building farms or using the land in other productive ways, that landowner subdivides the property and allows 5 farmers to use the land to build five 200-acre farms. Each farmer produces crops or livestock which they can sell to earn income. Once the production is converted to currency, it is allocated, in part, to the landowner as rent. The farmers earn incomes based on their production, while the landowner generates capital based on how others use their property.
In a previous essay, I looked at how intellectual property generates rents, too.
"Monopoly rent" takes things up a notch.
Now, imagine those 1,000 acres contain an area where the conditions are just right for making the perfect pinot noir, maybe a 50-acre plot. The landowner decides that, instead of renting out the land in five equal plots, they'll rent the land in six plots—five plots of 190 acres and one small plot of 50 acres. But that one small plot is so special that it generates a rent equal to the plots that are nearly 4 times bigger. That's monopoly rent.
"Monopoly rent arises," explains critical geographer David Harvey, "because social actors can realize an enhanced income stream over an extended time by virtue of their exclusive control over some directly or indirectly tradable item which is in some crucial respects unique and non-replicable." Let me translate.
Even a fairly standard commodity if some aspect of it is special enough, can generate outsized returns. The "unique and non-replicable" potential to create a perfect pinot noir allows for an "enhanced income stream" from that small plot of land. Specifically, this is a form of direct monopoly rent.
Indirect monopoly rent, in this case, is the unexpected "extra" profit the vintner makes from the product of that land being "unique and non-replicable" itself.
If you remember your US history or you've been paying attention to what's currently happening with Lina Khan at the FTC, you might recall that we tend to believe that monopolies are bad and competition is good. Monopoly power allows a company to do all sorts of things it couldn't get away with in a competitive environment: charge exorbitant prices, treat customers badly, and exploit workers. On the other hand, when there are a variety of choices on the market, companies compete on price and service to woo customers or wages and benefits to woo workers.
Competition is supposed to result in a fairer market.
However, time and again, we see that competition "always tends towards monopoly (or oligopoly)." Competition, over time, wears down the companies that don't have the capital to weather the losses required to win. Here, Amazon is a classic example. Amazon used its vast capital to undercut prices and shipping speeds across most consumer industries. Smaller companies had to lower their prices or promise faster shipping to compete. In the process, they took heavy losses, and many went out of business. Now, Amazon, Target, and Walmart are the only companies left standing—each of which offers a nearly identical catalog of goods and promises the same fast shipping and easy returns. Competition brought us new consumer benefits for a short time—but now we have a homogenous marketplace controlled by a few massive corporations.
Now, I'm very sorry to do this to you, but we have to move into more abstract territory because I've got to get back around to the cultural products of the creator economy, somehow. In the abstract territory of cultural products, monopoly rents still exist, but they get a bit weird. Before we get all the way there, though, let's take an intermediate step and talk about leggings. Specifically, let's talk about $100 leggings.
Leggings are an apparel commodity—pants made from stretchy fabric that clings to your legs. Variations in quality absolutely exist, but they don't change the nature of the commodity itself. Yet, there is a wide set of price points for leggings. I can pick up a pair of leggings at Target for, say, $25. If I go to Lululemon or Athleta for leggings, I'm going to pay about $100 or more. The easiest way to explain that price differential is as a monopoly rent. Harvey explains, "...every capitalist seeks to persuade consumers of the unique and non-replicable qualities of their commodities (hence name-brands, advertising, and the like)."Lululemon and Athleta invest in branding and marketing to create the impression that their leggings are unique and non-replicable in crucial ways.
Now, I could give you all sorts of reasons why Lululemon and Athleta leggings are "worth the price." I do buy expensive leggings because they last considerably longer and feel better on my skin.
But does that justify a 4x price multiplier? Probably not.
They're worth the price because I'm willing to pay it—not because the higher quality of the product demands it cost four times more. There is no way to justify that stark price difference without pointing to the positioning of those brands. Case in point, I have a pair of leggings from Everlane that cost about $50. They're super high-quality and very similar to my more expensive pairs. But they're still half of the price I would pay at Lulu.
Here, we can return to the different factions of the creator economy and online business spaces. The information these factions disseminate is fairly standard. While differences exist, rarely can a claim be made that one program or podcast or membership community is "unique and non-replicable." Instead, personal brands and community culture are marketed as unique and non-replicable. You don't buy the information commodity, you buy a certain aesthetic. You don't buy access to knowledge, you buy a status symbol and membership in a group.
Price now is not only a tool for collecting monopoly rents, but also a symbol of the unique and non-replicable qualities of the brand.
Price signifies the assumed special quality of the information or service on offer. It rounds out the aesthetic message communicated through social proof, design, and value proposition. A sky-high price both signals the unique qualities of the commodity and justifies itself through those unique qualities. It’s a circular logic that, for many, doesn’t weaken the perceived value of the commodity but, instead, strengthens it.
To make that all a little more concrete, imagine two 12-week courses on using LinkedIn to grow your network and build an audience. Both courses teach a similar method because—and I hate to break this to you—there just aren’t any proprietary methods for growing a social media account. One of these LinkedIn courses is $800, and the other is $2000.
Put those courses side-by-side and very few people would look at the $800 course and say, “That’s a steal!” Instead, they’d assume it wasn’t as good and didn’t teach anything unique. While the $2000 course conveys a certain mystique. It appears to impart secret knowledge, taught by someone who has achieved great success through proprietary methods. Why do they assume this? Because it’s $2000. The price symbolizes the unique and non-replicable hidden knowledge, while that purported knowledge justifies the price.
Here’s the thing, though: prices normalize.
Fifteen years ago, I would have never been excited about paying $1000 for a phone. But now, I jump at the chance every few years. Inflation only accounts for a tiny part of the jump in price, as does new technology. Instead, someone at Apple decided that when the iPhone X came out, they could charge $1000 for it. And now that $1000 price tag just feels normal.
The same thing happens in the echo chambers of the creator economy. At first, the $2000 course is a status symbol—both for the person offering it and the person buying it. But then, every online course is $2000 because people want that status symbol for their own. In order to signal the same unique and non-replicable qualities that the $2000 course used to convey, other people raise their prices. Now, the people leading the faction sell a course for $4000. Again, more people start to offer courses for $4000, and that price tag’s status dissolves, forcing an ever-upward price spiral.
The same thing happens with the services that support these creators. Copywriters, accountants, bookkeepers, web designers, virtual assistants—their prices go up and up and up to signal the unique and non-replicable qualities of what they do. They're reinforced by the echo chamber conversations that tell them to "charge what they're worth," and that successful people (and those who hope to become successful) will pay the sky-high fees because "you get what you pay for." Just as with leggings, some variation in quality does exist in these markets, but it hardly justifies the enormous price differential created by the self-reinforcing pressure of the echo chamber.
"Monopoly rent is a contradictory form."
David Harvey teases out the contradictions inherent in the pursuit of monopoly rent. For our purposes, the most salient contradiction is that, to collect monopoly rent, a commodity's value must be based on "uniqueness, authenticity, particularity, originality..." But basing value on those qualities works against the source of profit granted to the commodity form—namely mass production.
In the creator economy, we can see this contradiction play out in stark terms. Business owners try to offer something unique, often by virtue of their own individuality (i.e., personal brand). But they also try to scale that offering in a way that, by the very nature of "scale," removes the claim to uniqueness or non-replicability. The echo chamber conversations try to paper over this contradiction—and may succeed for some time—but ultimately fail.
The market learns that one online course about growing your LinkedIn network is about the same as another online course about growing your LinkedIn network, regardless of the color scheme, salty language, or "brand personality" of the materials it contains. The market learns that most accountants or, hell, podcast producers get the job done in roughly the same way, regardless of their claims of proprietary systems or singular expertise. The echo chamber will slow this realization down—but it can't stop it.
Eventually, those devalued and discredited voices get through. And when they do, the Gaslighting Inflationary Pricing Bubble Online starts to collapse. Fewer and fewer people are able to get away with their GIPBO nonsense. And while the collapse of the bubble is ultimately a good thing for the peer-to-peer market, it leaves a lot of people scrambling.
Alright, I've got to find some way to land this plane.
Well, if you remember all the way back to the beginning of this philosophical joyride, we looked at how the "invisible hand" of the market isn't a perfect epistemic force. In fact, there is a whole epistemic apparatus that serves to correct and mediate the failures the market creates. Then, I explained how factions within the creator economy and online business market operate as echo chambers that reinforce conversations that encourage ever-increasing prices. And finally, I showed how the concept of monopoly rent explains why so many standard products and services go for prices that can only be justified by exceptional uniqueness—and how this contradiction will always ultimately lead to the collapse of the bubble it creates.
Harvey points to the contradictions of monopoly rent as a site for creative struggle. What business structures or market reorganization could we create in lieu of the echo chamber? How could we preserve the uniqueness of what we create without succumbing to the forces that also push toward mass production and scale? Or, how could create things that legitimately scale and are accessibly priced without regard to the echo chamber?
Both Harvey and Nguyen point to the ways that struggling against epistemically hostile environments or rent manipulation can easily be coopted—either through purely capitalistic motivation or through "hostile epistemic actors" who are eager to convert us to their echo chamber. Whether we're talking about outrageous pricing, unfounded health claims, or reactionary politics, our task to return to our own critical thinking again and again. Nguyen writes:
Epistemic life for cognitively limited beings isn’t a quest for some static ideal. It is a dynamic and neverending cycle of response and counter-response—of heuristics, then exploitation of those heuristics, and then new improved, heuristics and better, more advanced exploitation.
If we can embrace that dynamism, even as we tire of the need to constantly adapt, we can see the bubbles and echo chambers for what they are. We can reengage our critical thinking and make learning our way forward.
And if you think you might be paying too much? Ask around—you never know what might be happening outside your epistemic bubble.
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