Guest Lecture by Professor Gerrit De Geest: 'Rents – How Marketing Causes Inequality'

The driving force behind this evolution? More sophisticated marketing! Although marketing is meant to improve markets by bringing products to the right customers, De Geest explains how it often does the opposite—creating “value” to businesses by making prices less transparent, splitting informed and noninformed consumers, making products incomparable, locking in consumers, exploiting psychological biases, creating network externality effects, or preventing price wars. Over the time span 1970–2015, the impact of marketing on the economy has steadily increased. Today, there are few markets left that have not been turned into less competitive ones by marketers, trained at modern business schools. This has increased the amount of artificial profits in the economy—called “rents” in economic jargon. The result? Using a novel  method, De Geest estimates that rents now amount to 35 percent of the economy. This means that out of every $100 you spend, on average $35 goes to profits that could not have been made in perfectly competitive markets. That was only $20 in 1970. Rents shows how getting wealthy has become less a matter of working hard than of capturing artificial profits in distorted markets.