The Creation of Ritual Goods
By Arnold Kling
If you think that entrepreneurs can easily find a cheaper way to certify worker quality, why can’t entrepreneurs easily find a cheaper way to reinforce membership in the “upper and/or upper-middle class tribe”?
The context is that we are speculating on the real value of college education. The issue is that if college costs much more than the “true” value of the education provided, how does it survive competition from other sources?
I think that it is difficult for an entrepreneur to compete in the signalling market, because it is hard to establish the credibility of your signalling mechanism.
However, it is probably even more difficult for an entrepreneur to create a “status good” that every affluent parent believes is a necessity for their children. By their very nature, status goods involve network effects. You, the entrepreneur, can advertise all you want that my kids will fall behind if they don’t have their own computers, but until I see my neighbors’ kids with computers, I won’t pay much attention.
It took several decades for private education at elite colleges to emerge as a key ritual of affluence. Most entrepreneurs don’t have decades worth of capital to invest.
But within their limited resources, businesses try all the time to position their products and services as rituals of affluence. Take the credit-card ads, for example–the ones with the “priceless” theme.
I would argue that every entrepreneur’s dream is to have a product or service that wealthy people deem essential for their identity. Elite colleges are in the rare position of having realized that dream.