Accounts payable

Valuable service or exploitation? – Econlib

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

Last week I was working with a regular student. They offered to quit Wyzant and pay me through an alternative service like Venmo. I refused, which surprised them. They asked “But Wyzant is taking a reduction in your hourly rate. It seems like a win-win situation to me: I pay the same price and you keep more. Isn’t Wyzant exploiting you? I, being me, saw an opportunity for a discussion of transaction costs.

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

The reason: Wyzant provides me with valuable services. Services that I value much more than $10/hr:

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

-Wyzant verifies, manages and guarantees all payments. Whatever happens, I get paid. They absorb risk and track delinquent accounts. Without them, I would have to manage my own accounts payable.

-Wyzant helps me find students. They do all the research and advertising for me. Without them, I would incur heavy research and advertising costs.

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

-Wyzant provides legal certainty. They have set up a whole arbitration process in the event of a complaint or abuse. Without them, I would have to invest in legal aid.

In short, Wyzant greatly reduces the transaction costs I would face if I were to tutor. They take $10/hr from my salary, yes. This is the “seen” aspect. But they save me a lot more dollars in transaction fees. It is “the unseen”. I am richer thanks to Wyzant. If their goal was to exploit, they are doing a poor job.

I also pointed out that Wyzant also reduces student costs:

-Wyzant thoroughly checks the tutors who use their platform. The student does not need to perform a search to verify the tutors or their skills.

-Wyzant prevents payment fraud. I can’t demand extra money or anything because Wyzant has a whole process to get paid.

Wyzant enhances both student and tutor by providing a platform to reduce tutoring transaction costs.

This message may look like an advertisement for Wyzant, but it is not. Wyzant is simply a replacement for the countless companies and institutions that exist in a market economy. They exist not because they exploit, but because they reduce transaction costs. If companies did not reduce transaction costs, they would disappear from the market.

Isadore Johnson is a campus free speech advocate, an economics and philosophy major, and a regional coordinator for Students for Liberty.