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Rents: How Marketing Causes Inequality
A surprising new explanation for the radical growth of income inequality—and a new strategy for stopping it.
Income inequality has risen dramatically since the 1970s. But why, exactly? In Rents, Gerrit De Geest argues that the main cause is advances in marketing. Marketers have become better at causing and exploiting market distortions in legal ways. The legal system tries to prevent the deliberate creation of market failures, but it has not evolved at the same speed. Business schools have outsmarted law schools.
Over the time span 1970–2015, the impact of marketing on the economy has steadily increased, transforming competitive markets in less competitive ones by making prices less transparent, splitting informed and uninformed consumers, making products incomparable, locking in consumers, or exploiting psychological biases. 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. The book shows how getting wealthy has become less a matter of working hard than of capturing rents.
A book that will explain both why your boss makes many times your salary and why the prices you pay for groceries keep changing.
“If you have a favorite brand of cars, airlines, aspirins, or smart-phones, then you are part of the problem of income inequality. This is the startling message of Gerrit De Geest’s remarkable book. It will change your view of consumerism, the source of wealth, and the uneasy role of business schools in the modern economy. It is a book that will also make you a more interesting dinner companion!"—Saul Levmore, William B. Graham Distinguished Service Professor, University of Chicago Law School
“This is one of those rare books that fundamentally change the way you look at the world. Marketing professors, De Geest argues, teach businesses how to exploit consumers. As a result, you pay too much for virtually every product and service you purchase. Once the book makes you see the problem, you cannot unsee it, and it is everywhere! A provocative new theory of what goes wrong in the modern economy and why some people make so much more money than others.”—Giuseppe Dari Mattiacci, Professor of Law and of Economics, University of Amsterdam
“Could the rising inequality in our society be the result of clever marketing ploys taught in business schools? Gerrit De Geest has written an original and powerful work on how so much creative and entrepreneurial effort is aimed at destroying the forces of competition, raising prices, and diverting value from people to firms. A law professor’s indictment of the law’s ineptitude in defending against greed, Rents sheds important new light on one of the biggest policy challenges of our time.”—Omri Ben-Shahar, Kearney Director of the Coase-Sandor Institute for Law and Economics, University of Chicago
"An important book that will have you frantically scribbling notes in the margins. You'll never shop—or think about how law and inequality have shaped one another—the same way after reading. Funny and easy to read, De Geest draws you in until you find yourself caring deeply about things like standard-term contracts and tax policy. Buy this book and command the Thanksgiving dinner-table conversation.”—Brian Galle, Professor of Law, Georgetown University
Gerrit De Geest is the Charles F. Nagel Professor of International and Comparative Law at Washington University School of Law. Before moving to St. Louis with his family, he was a professor at the Utrecht School of Economics and president of the European Association of Law and Economics.
Income inequality has risen dramatically since the 1970s. But why, exactly? In Rents, Gerrit De Geest argues that the main cause is advances in marketing. Marketers have become better at causing and exploiting market distortions in legal ways. The legal system tries to prevent the deliberate creation of market failures, but it has not evolved at the same speed. Business schools have outsmarted law schools.
Over the time span 1970–2015, the impact of marketing on the economy has steadily increased, transforming competitive markets in less competitive ones by making prices less transparent, splitting informed and uninformed consumers, making products incomparable, locking in consumers, or exploiting psychological biases. 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. The book shows how getting wealthy has become less a matter of working hard than of capturing rents.
A book that will explain both why your boss makes many times your salary and why the prices you pay for groceries keep changing.
“If you have a favorite brand of cars, airlines, aspirins, or smart-phones, then you are part of the problem of income inequality. This is the startling message of Gerrit De Geest’s remarkable book. It will change your view of consumerism, the source of wealth, and the uneasy role of business schools in the modern economy. It is a book that will also make you a more interesting dinner companion!"—Saul Levmore, William B. Graham Distinguished Service Professor, University of Chicago Law School
“This is one of those rare books that fundamentally change the way you look at the world. Marketing professors, De Geest argues, teach businesses how to exploit consumers. As a result, you pay too much for virtually every product and service you purchase. Once the book makes you see the problem, you cannot unsee it, and it is everywhere! A provocative new theory of what goes wrong in the modern economy and why some people make so much more money than others.”—Giuseppe Dari Mattiacci, Professor of Law and of Economics, University of Amsterdam
“Could the rising inequality in our society be the result of clever marketing ploys taught in business schools? Gerrit De Geest has written an original and powerful work on how so much creative and entrepreneurial effort is aimed at destroying the forces of competition, raising prices, and diverting value from people to firms. A law professor’s indictment of the law’s ineptitude in defending against greed, Rents sheds important new light on one of the biggest policy challenges of our time.”—Omri Ben-Shahar, Kearney Director of the Coase-Sandor Institute for Law and Economics, University of Chicago
"An important book that will have you frantically scribbling notes in the margins. You'll never shop—or think about how law and inequality have shaped one another—the same way after reading. Funny and easy to read, De Geest draws you in until you find yourself caring deeply about things like standard-term contracts and tax policy. Buy this book and command the Thanksgiving dinner-table conversation.”—Brian Galle, Professor of Law, Georgetown University
Gerrit De Geest is the Charles F. Nagel Professor of International and Comparative Law at Washington University School of Law. Before moving to St. Louis with his family, he was a professor at the Utrecht School of Economics and president of the European Association of Law and Economics.
325 pages, ebook
Published September 6, 2018
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Displaying 1 - 2 of 2 reviews
November 14, 2020
This book has three parts: One part shows how businesses have gotten better at creating “rents” (an economic term for monopoly profits or artificial profits created through market failure). They do this through lock-ins, information asymmetries (hiding information or being dishonest), and subtle cartels. Anyone who buys goods or services should read this part to be a better informed consumer. Another part shows how the increase in rents has increased inequality, since it tends to be business owners who benefit the most from economic rents. The author shows that the percentage of the economy that goes to rents has increased from 20% in 1970 to 35% now. Anyone who is interested in a fair society should read this part. Finally, the third part shows how reasonable changes to the legal system can reduce rents in the economy. For instance, the government could require all businesses to post their prices in a standard form on the Internet. It could require businesses to issue standardized quality reports. It could impose a fidiciary duty on salespeople who pretend to give honest advice. It could require salespeople to publicly disclose how their commission system works. It could expand anti-lock-in rules. And more. Anybody who is interested in public policy should read this part. The book is well-written, entertaining, and thought provoking. I strongly recommend that you read it.
January 19, 2019
This is a strange but remarkable little book, one of the more searing critiques of business schools and marketing that you'll ever see. I don't agree completely with the author, but he makes a cogent argument: inequality has risen because of rents, i.e. excessive profits caused by market distortions. And those rents are caused by increased marketing. And the way to get rid of them is to, among other things, ban marketing. Or at least ban the trend of deceptive marketing that we see in the United States.
You won't approach any purchase quite the same way again.
You won't approach any purchase quite the same way again.
Displaying 1 - 2 of 2 reviews