Sunday, February 16, 2003

Speculative Microeconomics for Tomorrow's Economy

economics :: society

Interesting quotes from the paper here:

"In the information-based sectors of the next economy the use or
enjoyment of the information-based commodity will no longer necessarily
involve rivalry."

"Competition has been the standard way of keeping individual
producers from exercising power over consumers: if you don't like the
terms the producer is offering, then you can just go down the street.
But this use of private economic power to check private power may come
at an expensive cost if competitors spend their time duplicating one
another's efforts and attempting to slow down technological development
in the interest of obtaining a compatibility advantage, or creating a
compatibility or usability disadvantage for the other guy."

"A good economic market is characterized by competition to limit the
exercise of private economic power, by price equal to marginal cost, by
returns to investors and workers corresponding to the social value
added of the industry, and by appropriate incentives for innovation and
new product development. These seem impossible to achieve all at once
in markets for non-rival goods--and digital goods are certainly

Note for OBF: we want to dissavow practices such as these:

"While consumers prefer the ability to comparison-shop and to switch
easily to another product, producers fear this ability--and have
incentives to perform subtle tweaks to their programs to make it
difficult to do so."

This is interesting, given that my observations as an employee of technical corporations and as an entrepreneur led to the OBF:

"The natural place to look is to examine how enterprises and
entrepreneurs are reacting today to the coming of non-excludability,
non-rivalry, and non-transparency on the electronic frontier."

Here is a good thought for the small-time service provider to consider:

"The growth of the bookstore chain put the local bookshop out of
business, just as the growth of supermarkets killed the corner grocer.
Not everyone considers this trend to be a victory, despite the lower
prices. A human element has been lost, and a "personal service" element
that may have led to a better fit between purchaser and purchase has
been lost as well."

An excellent argument for competition:

"One of the biggest benefits of a market economy is that it provides
for sunset. When faced with competition, relatively inefficient
organizations fail to take in revenue to cover their costs, and then
they die. Competition is thus still a virtue, whether the governing
framework is one of gift-exchange or buy-and-sell--unless competition
destroys the ability to capture significant economies of scale."

Information disclosure:

" In the absence of any clear indication of what the optimum would
be, the burden of proof should be on those who argue that any level of
excludability should be mandated. This applies particularly to
information that is not the content being sold but that is instead
about the current state of the market itself. There is a long tradition
that information about the state of the marketplace should be as widely
broadcast as possible. We cannot see any economic arguments against
this tradition."

The future:

"Along a number of dimensions, there is good reason to fear that the
enormous economies of scale found in the production of non-rivalrous
commodities are pushing us in the direction of a winner-take-all
economy. The long-run impact of the information revolution on the
distribution of income and wealth is something that we have not even
begun to analyze."

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