Picture if you will three cups on a table. These cups represent each stage of the relationship between a man and a woman. The first is a cheap disposable cup which represents almost complete solitude. The second is a slightly more durable plastic cup and represents a casual friendship. Finally, the third cup is much stronger and made of solid glass; the rim represents an exclusive relationship whilst the inside represents the friend zone. And on hand to demonstrate the progression between the cups is our token male Jamie Lavelle (who I’m going to have to ask you imagine as small enough to fit inside a cup).

photo by Aaron Goselin

JL begins his journey sat inside the disposable cup. He is alone and vulnerable – at any stage a passing female could quite easily crush the cup and destroy any chances he had of moving their relationship forward. But let’s presume the first woman takes a liking to JL. She likes the way he uses the space inside his cup, and appreciates how he has maintained his hygiene levels within it. They begin talking, and things seem to be going well; JL notices that during the course of this conversation that the woman has put down her more durable plastic cup next to his. He tries his luck, and begins climbing up the edge, his eyes set on jumping into the second cup. The lady, let’s called her Merkel Rozzler Sofner (MRS for short), sees and decides that JL isn’t all that bad so assists him on his way into the ‘casual friendship’ cup.

Many conversations follow, and for a while being in this cup doesn’t seem all that bad. Until one day at the bar, JL notices how all the other miniature men look at MRS from inside their cups. He sees how they desperately keep the cups clean and fresh before she arrives and the extra effort they put in to bring out as much shine as possible from the dull yet durable plastic cups. This causes JL to up his game; he begins putting in extra effort, he too starts cleaning his cup and begins to spray it with expensive cologne to catch MRS’s eye whenever she’s around.

One day JL discovers that MRS has a new cup, but this is no ordinary cup – this one is made of solid glass with a thick sacred rim. Legends tell that any man who manages to hold their nerve, climb up and out of their durable plastic cups and sit on this rim of the glass will enter into an exclusive relationship with the glass’s owner. However, the legend continues, if the man tries too hard or loses his nerve he risks falling into the dreaded friend zone. Regardless of the dangers, this greatly excites JL and he swiftly begins planning ways to escape his plastic cup and end up perched on the rim of MRS’s fabled glass.

Weeks turned to months, and JL felt he was making progress, but as he reached the top of his plastic cup, disaster struck. He looked out across the glass and saw hundreds of other men emerging from their own plastic cups. They too planned to be the first to reach the rim, but of course, upon said rim there was only so much space and presumably the rim would lose its meaning if two men reached it at the same time. Which is what eventually happened, some men tried too hard and fell into the dreaded “friend zone” whilst those who sat perched on its rim did not receive any benefits whatsoever, for MRS saw little differences between them all and so decided not to commit exclusively to any of them. Furthermore the men on the edge unbalanced the glass and sent it crashing towards the floor. Game over, the friendship is broken, the opportunity has gone.

But how does this relate to economics? Let me explain.

The cups are about to take on double meanings, they no longer represent the relationship between a man and a women, but the progression of a price war between rival firms. Here the aim is to avoid the “friend zone” (operating at a loss and not receiving the benefits they could have done had they done business more carefully) and sit on the “rim” (profits above those achieved by their competitors). A firm begins so small as to be almost unnoticeable (you might even compare this to a lone disposable cup) and vulnerable to being whipped out of the market by rival firms – but because of their relatively small size, the firm is left alone. That is until one day a group of consumers begin to take an interest in their products. This encourages the firm to improve the standard of their goods, and adjust their price to match that of the rest of the market (the transition between a disposable plastic cup [fragile business model] and a more durable one).

However, as time goes by the firm sees other companies trying to influence consumers and attract their attention using non-price factors (if you’re stuck inside a cup this means cleaning it regularly, if you’re a business this means trying to improve customer service, introducing loyalty card schemes and increased advertising). Eventually though the firm gets fed up of such costly measures and instead decides the best way to reach the “rim” is to lower prices. If the firm is alone in doing this then they will indeed enjoy profits much higher than those of its competitors; but there are two significant potential faults in this plan. Firstly, if the firm cuts their prices too far, they might miss the rim and instead end up sat inside the cup, having to endure a lifetime of lower profits. Whilst the second danger is that if all the firms lower their prices then the rim will lose its exclusivity and the consumers will just accept the new price and not increase their devotion to one particular firm. This may well lead to firms falling into the glass or the glass smashing (firms going bust).

So there you have it. Relationships are like building up new companies: try too hard and you’ll go bust.