Rational Criminals and Profit-Maximizing Police
15 Oct 2014 Leave a comment
in David Friedman, economics of crime, entrepreneurship, law and economics Tags: David Friedman, economics of crime, Gary Becker
Speaking of natural monopolies and predatory entry – Netscape is 20 years old today!
15 Oct 2014 Leave a comment
in entrepreneurship, industrial organisation, law and economics Tags: browser wars, law and economics, Microsoft anti-trust trial, Richard McKenzie, Robert Bork, scourge of lower prices, William Shugart
You show your age when you remember that people used to pay $49 to download the Netscape Navigator browser.
Yes,people used to pay for browsers until nasty Microsoft came along in act of predatory entry started giving its Internet browser away from free in the hope of monopolising the market once Netscape went out of business when it would jack its price up again to recoup the intervening losses.
After the first browser war, the usage share of Netscape had fallen from over 90 percent in the mid-1990s to less than one percent by the end of 2006.
During the 1990s, Microsoft competitors — Netscape, IBM, Sun Microsystems, WordPerfect, Oracle, and others —pressed the Justice Department to sue Microsoft for tying Internet Explorer to Windows even though only one of them, Netscape, had a browser.
The demise of Netscape was a central premise of Microsoft’s antitrust trial, where the Court ruled that Microsoft’s bundling of Internet Explorer with the Windows operating system was a monopolistic and illegal business practice.
After losing on appeal , the Department of Justice announced in September 2001 that it was no longer seek to break up Microsoft and would instead seek a lesser antitrust penalty. Microsoft decided to draft a settlement proposal allowing PC manufacturers to adopt non-Microsoft software.
As William Shughart and Richard McKenzie observed:
Microsoft’s critics have advanced a number of economic theories to explain why the firm’s behaviour has violated the antitrust laws.
None of those critics has articulated why or how consumers have been harmed in the process.
Instead, the furious attacks on Microsoft have focused on the injuries supposedly suffered by rivals (on account of Microsoft’s pricing and product-development strategies) and by computer manufacturers and Internet service providers (on account of Microsoft’s “exclusionary contracts”).
Before former Judge Robert Bork became a lobbyist for Microsoft’s rivals, he said in The Antitrust Paradox:
Modern antitrust has so decayed that the policy is no longer intellectually respectable.
Some of it is not respectable as law; more of it is not respectable as economics; and … because it pretends to one objective while frequently accomplishing its opposite … a great deal of antitrust is not even respectable as politics.
A simple rule for a complex world: the moment that evidence is tended to a court about what happened to the competitors in a lawsuit under competition law, that court must dismiss the suit out of hand.
Too many lawsuits under competition law are designed to protect the consumer from the scourge of lower prices!
The best proof that a merger or other business practice is pro-consumer is the rival firms in that market are against it. Why would a firm be against a merger or other business practice that raises the prices of their business rivals?
HT: HistoricalPics
A tale of two cities – Hong Kong’s and Singapore’s different paths to prosperity
13 Oct 2014 Leave a comment
in development economics, entrepreneurship, industrial organisation Tags: Alywn Young, development economics, Hong Kong, industry policy, industry targeting, rent seeking, Singapore, tale of two cities, tyranny of numbers
Hong Kong and Singapore had different paths to prosperity. Alywn Young found that Hong Kong had made real productivity gains, but Singapore grew by a massive dose of savings and investment, including foreign investment.
For most of the post-war era, the Hong Kong government adopted a policy of minimal intervention. the government of Singapore has pursued maximalist policies involving widespread state participation in economic activity and aggressive industry targeting policies.
The share of investment in Singapore’s GDP rose from 9% in 1960 to 43% in 1984, while Hong Kong’s remained steady at about 20%. Productivity growth in the aggregate non-agricultural economy was a miserable -0.3% in Singapore and 2.3% in Hong Kong.
What does this mean in practical terms? Real consumption, real consumer spending, per capita in Hong Kong is 20% or more higher than in Singapore!
Hong Kong actually enjoyed their prosperity. Robert Barro explains this in a comment on Young’s paper:
In 1985, when Singapore’s per capita real GDP was 102% of Hong Kong’s, the consumption was only 70% of Hong Kong’s. To put it another way, Hong Kong’s per capita real consumption grew by 5.9% per year from 1960 to 1985, about the same as for GDP, whereas Singapore’s grew by only 2.8% per year, much less than GDP.
In terms of output per capita and output per worker, the growth of Hong Kong and Singapore are equally impressive. Hong Kong does much better in terms of productivity growth.
Hong Kong did not require as rapid capital accumulation as Singapore. Since capital accumulation is financed either by domestic saving or foreign saving, people in Hong Kong can afford to save less or borrow less from foreign economies. Saving less now means more consumption now.
In the case of Hong Kong, their living standards are far superior to Singapore’s. The government of Singapore wasted a good 20 to 30% of national income on industry targeting and compulsory savings.
Hong Kong experienced rapid total productivity growth, while Singapore experienced no improvement whatsoever in total productivity during its East Asian Tiger years. Young (1992, 1994, 1995) demonstrated that from 1967 onward total factor productivity growth in Singapore was next to nil, and for significant parts of the period most likely negative. Only productivity allows a nation to support and enjoy high wages.
The share market speaks: the boom in marijuana shares
03 Oct 2014 Leave a comment
in applied price theory, economics of crime, economics of regulation, entrepreneurship, financial economics, industrial organisation Tags: marijuana decriminalisation, marijuana legalisation
Over the past two years, investors bid up penny stocks, which are stocks that trade for less than $5 a share, for marijuana from a $500,000 market to more than $7 billion.
The sale and use of marijuana is now approved for medical purposes in 22 states and the District of Columbia and is legal for recreational sales in Colorado and Washington state.
Among those will have to put their money where their mouth is, their entrepreneurial forecast is marijuana legalisation is only going to spread and the legal marijuana market is going to grow. Florida will vote on legalizing medical marijuana, and recent polls suggest the measure has the support needed to pass.
In February 2014, President Obama signed a law that allows states to experiment with industrial hemp. In response, 17 states have removed barriers to hemp production.
HT: Vox.com/marijuana-legalization-maps-charts-facts and https://twitter.com/business/status/479287579263524864
Many doubts have been raised about all types of ultrasonic pest repellers
02 Oct 2014 Leave a comment
Consider the sheer number of transactions and people involved in economic arrangements
30 Sep 2014 Leave a comment
Environmental and Urban Economics: Professor Stavins’ Climate Change Piece in the NY Times Today
25 Sep 2014 Leave a comment
in climate change, entrepreneurship, environmental economics, global warming Tags: climate change adaptation, global warming
He makes the following points:
- Global GHG emissions continue to rise
- The UN’s goal for sharply reducing emissions over the next few decades will be a very difficult target to reach
- It will be very costly to reach this goal
- He cites current cost estimates of what we would have to sacrifice to achieve the carbon reductions…
To my deep surprise, he never mentions climate change adaptation. That a very serious Harvard economist is not willing to even mention this topic says something on several levels.
The IPCC has only made a small investment in investigating the possibilities for adaptation to help us to minimize several of the threats we will face from climate change.
In my humble opinion, too many economists are working on the economics of climate change mitigation in part because there is so much demand by policy makers (and private consulting) for such studies. But from a research perspective, we have hit sharp diminishing returns.
In contrast, we need active researchers to more fully explore the politically incorrect topic of climate change adaptation.
via Environmental and Urban Economics: Professor Stavins’ Climate Change Piece in the NY Times Today.
Barriers to entry alert: do late entrants have a chance
22 Sep 2014 Leave a comment
in applied price theory, Austrian economics, economic history, entrepreneurship, industrial organisation, liberalism, technological progress Tags: Austrian economics, barriers to entry, creative destruction, Israel Kirzner, market process
September 21, 1999 – Google came out of beta; the 17th search engine to officially enter the market.
Kirzner defines a competitive market as a market where no potential participant faces non-market obstacles to entry:
Following a long tradition in economics going back at least to Adam Smith, Austrians define a competitive market not as a situation where no participant or potential participant has the power to make any difference, but as a market where no potential participant faces nonmarket obstacles to entry.
(The adjective “nonmarket” refers, primarily, to government obstacles to entry; it is used to differentiate such obstacles from, for example, high production costs that might discourage entry. These latter do not constitute noncompetitive elements in a market; to be able to enter means to be able to enter a market if one judges such entry to be economically promising-it does not mean to be able to enter without having to bear the relevant costs of production.) That is, a situation is competitive if no incumbent participant possesses privileges that protect him against the possible entry of new competitors.
The achievements that free markets are able to attain depend, in the Austrian view, on freedom of entry, that is, on the absence of privilege.
Utopia, you are standing in it! 
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