I tutor on the side for a few extra bucks.  I enjoy the work and an hour or two on an otherwise boring evening can earn me enough for my weekend activities.

This past week, I was working with a regular student.  They proposed going off of Wyzant and paying me via an alternative service like Venmo.  I refused, which surprised them.  They asked “But Wyzant takes a cut of your hourly rate.  This seems like a win-win to me: I pay the same rate and you get to keep more of it.  Isn’t Wyzant exploiting you?”  Me being me saw an opportunity for a discussion on transaction costs.

It is true that Wyzant takes a cut, and a substantial cut at that.  They take 25% of my hourly pay.  I charge $40/hr, They get $10/hr and I keep $30/hr.  Why wouldn’t I want a 25% pay raise and take the student up on their offer?


The reason: Wyzant provides valuable services to me.  Services I value much higher than $10/hr:

-Wyzant provides online meeting capabilities.  Without them, I would have to buy a Zoom account (or something similar)

-Wyzant verifies, handles, and guarantees all payments.  No matter what, I get paid.  They absorb risk and track down delinquent accounts.  Without them, I would have to handle my own accounts payable.

-Wyzant helps match me with students.  They do all the searching and advertising for me.  Without them, I would have to conduct heavy search and advertising costs.

-Wyzant provides calendar software.  Without them, I would have to manage my own appointments.

-Wyzant provides legal security.  They have an entire arbitration process in place in case of complaints or abuse.  Without them, I would have to invest in legal help.

In short, Wyzant dramatically reduces the transaction costs I would face if I were to tutor privately.  They take $10/hr of my wage, yes.  That is the “seen” aspect.  But they save me many more dollars in transaction costs.  That is the “unseen.”  I am wealthier because of Wyzant.  If their goal was to exploit, they are doing a poor job.


I also pointed out that Wyzant reduces the student’s costs as well:

-Wyzant thoroughly vets the tutors who use their platform.  The student doesn’t need to conduct a search to verify tutors or their competency.

-Wyzant prevents payment fraud.  I cannot demand extra money or anything as Wyzant has a whole process for getting paid.

Wyzant makes both the student and the tutor better off by providing a platform to reduce transaction costs of tutoring.

This post may sound like an ad for Wyzant, but it is not.  Wyzant is simply a stand-in for the countless firms and institutions that exist in a market economy.  They exist not because they are exploitative, but because they reduce transaction costs.  If firms do not reduce transaction costs, then they would disappear in the market.

Jon Murphy received his PhD in economics from George Mason University and is an Instructor at Western Carolina University.