[tlug] Economics lessons [was: HDD Reliability]

["Stephen J. Turnbull" <stephen@example.com>]

>>>>> "Lyle" == Lyle Saxon <Lyle> writes:

    Lyle> That's actually what I had in mind - that, as part of the
    Lyle> equation, it can't help that a company is overcharging
    Lyle> everyone - the manufacturers, companies, individuals, etc.

What do you mean by "overcharging"?  Actually, they're _undercharging_
almost everybody, since almost everybody would be willing to pay more
than they actually did.  (Think about how you feel about selling a
used car, say.  Did you ever overcharge anyone?  Of course not!)

In every voluntary trade, the value of the thing received is more than
the value of the thing given up.  The difference between the seller's
cost and the buyer's maximum willingness to pay is "social surplus";
how that is split is basically irrelevant to how well the economy works.

Of course, fairness matters, but in the brave new world of software,
where some of Microsoft's customers (mostly corporations) pay very
high prices, some (individuals) pay middling prices, some (those who
buy it as part of their system) pay fairly low prices (ie, OEM cost),
and some don't pay at all (so-called "pirates"), "fair" is really hard
to define.  Remember that the median prices paid for most Microsoft
products over their market lifetimes are probably well under the
average cost including the overhead of development, partly because of
cross-subsidies from early adopters (usually big corporations) and
partly because of cross-subsidies from more profitable products (such
as the compilers).  What's "fair" about that?  Damned if I know.

    Lyle> If there is a certain price that the computer is to sell
    Lyle> for, overcharging by one company hurts the profits of the
    Lyle> others?

Nope.  In competition, companies make enough profit to pay back loans
and dividends at the market rate of interest, plus a little (to a lot)
of extra dividend (or capital appreciation) to compensate investors
for the risks they take.  If they're making more than that, then it
pays one company to grab the others' customers by charging lower
prices.  (This is a matter of definition; if it doesn't work that way,
you either have monopoly, oligopoly, or something like the medical
industry or taxicabs where the government guarantees excess profits.)
In other words, the assumption that there is a "certain price" is
incorrect.  Haven't you noticed?  The only things more spectacular
than the way computer prices have dropped in the last 20 years you
don't _ever_ want to see up close.

The only way for one company's profits to hurt the profits of another
is "iterated monopoly", where the supplier monopoly not only grabs its
monopoly profit, but a share of the customer monopoly's profit, too.

However, the "monopoly" that makes the most out of iterated monopoly
is, of course, unionized labor.  Again, I don't know if that's "fair"
or not, but that's what modern unions are all about: exploiting the
monopoly power of their employers to grab more than a competitive
share of consumers' expenditures.


-- 
Institute of Policy and Planning Sciences     http://turnbull.sk.tsukuba.ac.jp
University of Tsukuba                    Tennodai 1-1-1 Tsukuba 305-8573 JAPAN
               Ask not how you can "do" free software business;
              ask what your business can "do for" free software.