All Commentary
Monday, January 14, 2013

Headphones: Paradigm of Market Progress

We had headphones when I was a kid. They were nothing special, just speakers with puffy foam to fit around your ears and a plastic piece to secure them on your head. They sounded fine. They kind of made your ears sweaty. Others could hear a bit of what you heard. You could hear what was going on outside the headphones. Mostly, they just made the scratches and pops on the vinyl records sound louder in your ears. Otherwise, they didn’t matter much in the scheme of things. 
Somehow, over the last few years—and especially over the last twelve months—everything changed. Total headphone mania has broken out. It seems like everyone under a certain age wants a pair. The quality makes the ones I had when I was a kid seem like stone-age relics. Forget the pops and clicks of vinyl. The purpose of the new headphones is to reveal a universe of sound no human being has ever experienced. 
In my opinion the sound is sometimes better than you can get in a physical space. It is better than real life for me, sometimes, because headphones can block all outside noise and really target your ears. 
Crucially, they have become status symbols. What brand you own and use says something about who you are or who you want to be. They are worn with pride, attached only to tiny boxes that contain thousands of songs—a tiny box that is also a phone, GPS, blood pressure checker, musical instrument, and tens of thousands of other things.
In the beginning of the headphone craze, there was Bose, a company that somehow manages to keep reinventing its products and defying every expectation that it is old hat. It was founded in 1964, long before the digital age, and only just after audio equipment became common in every American home. Bose distinguished itself by innovating with the changing times. 
As for its headphones, they were first made only for specialists in industry. Only in the last ten years did the company begin pushing the idea of stellar sound for average consumers. Its most popular models hit the market in 2010 and they changed the market forever. They took a throwaway item and turned it into a must-have.
Meanwhile, a competitor was waiting in the wings. Beats Electronics was founded in 2006 by hip-hop artist Dr. Dre. He was not only the owner but he personally promoted its products as the best way to hear all of the sound. His personal credibility mattered. This product quickly found a niche among a group of buyers who had no interest in Bose’s stuffy/scientific approach. By 2010, the mass craving for the perfect headphone experience had entered the mainstream. 
Bose and Beats entered a titanic struggle in the midst of a market that was growing ever larger. Bose started working with new designs to make their product more hip, even as Beats started working on new designs for professionals. These companies were learning from each other while invading each other’s market niches. Emulation—or observing and copying the successes of one’s competitors—was an important part of the competitive process in the headphone market. 
The profit signals worked as they should, inviting ever more enterprising attempts to capture the buying attention of a newly attentive consumer. New companies flew into the market. By 2012, every shape and size became available. The price ranges widened, with makers such as Beats able to sell their wares for $250 and up. 
As of this writing, Bose is asking $350 for its top-of-the-line set. Other companies compete with each other in the $200 price range, variously struggling to charge the highest price while still undercutting each other for market share. A new language has emerged: in-ear, on-ear, and over-ear. You have to choose. 
At my last visit, my local Best Buy had about 20 feet of shelf space devoted to them. Amazon has dedicated an entire online store to them, featuring dozens of brands, from old audiophile standbys to highly specialized earbuds designed to be worn during athletic training. And within a few weeks after observing this, the market expanded out further to the point that imitators of the high-end models showed up at very reasonable prices at drug stores. 
The luxury good had become the standard product over time. And if you find even these products to be too expensive, you can also buy lookalikes in dollar stores, products that are not as good but that allow people on a budget to at least look like they are using high-status items. 
They all sound great to me, and I would be hard pressed to discern the difference between them apart from their colors and shapes. And by the way, they all look spectacular, very much unlike the headphones I had when I was a kid. 
A few observations about the market bear repeating in light of this case. 
This whole craze illustrates the unpredictability of the marketplace. If someone had told me ten years ago that an explosive industry would emerge in which companies would sell headphones to average kids for hundreds of dollars, I would have said: no way. But, surprise, there it is. And the phenomenon has all the elements of market success: substance, style, and intense competition rooted in emulation and the drive to develop and improve.
No one planned this large outcome in any of its particulars; it emerged from the actions of entrepreneurs, producers, sellers, and buyers, and it involves the division of labor working all over the globe. The producers are profiting, surely, but how? Through service to the common person, and the common person is the one who determines such success and failure.
Some people look at this situation and think: what a gigantic waste. It shouldn’t matter what headphones you own or whether you own them at all. Plus, this duplication is pointless. Dog eats dog eats dog, and what do you have in the end? 
Well, here is what you have in the end: a grand and glorious and productive new industry that gets us closer to experiencing better lives. The products do in fact open new worlds to us. Whether you listen to hip hop or Schubert, whether you thrill to the punch of a bass drum or the delicate balance of an oboe and violin duet, the music is taking on a new meaning in people’s heads, hearts, and souls.
All this so-called materialism ends up feeding a nonmaterial end of letting us experience joy. Poets, philosophers, and theologians have told us since the ancient world of the magical properties that music can have on civilization. But it took the capitalists to make their dreams real and universalize them. 
As for the supposed duplication of product availability, this is only evidence of how the marketplace is fully capable of serving the infinite diversity within the human family. 
Consider too that all of these undertakings must constantly face the grueling test of the balance sheet. If it works economically, we know that it is not a waste of resources. When it stops working for one company, or all, that too is a sign that the activity must stop. 
This is a system that works for everyone. It is filled with surprises and opportunities for both producers and consumers, the product of an unplanned order that no one in particular controls in full. If we could bring the dynamism, economics, element of surprise, and relentless creativity and innovation to other sectors of life that are dominated by State imposition, we would see the emergence of new types of social service that we can’t today even imagine.
In other words, the right way to fix health care, education, transportation, and justice—or any sector that is bogged down in bureaucracy and rules—is right before our eyes, or perhaps right in our ears. For sectors dominated by the State, the music has stopped. For those controlled by market forces, it has just begun.