Comments on: Waldfogel’s “Tyranny of the Market” http://organizationsandmarkets.com/2007/11/05/waldfogels-tyranny-of-the-market/ Economics of organizations, strategy, entrepreneurship, innovation, and more Sun, 27 Jul 2008 02:37:57 +0000 http://wordpress.org/?v=MU By: Twofish http://organizationsandmarkets.com/2007/11/05/waldfogels-tyranny-of-the-market/#comment-58000 Twofish Sat, 10 Nov 2007 16:59:07 +0000 http://organizationsandmarkets.wordpress.com/2007/11/05/waldfogels-tyranny-of-the-market/#comment-58000 It would be interesting to see how this idea interacts with time and entrepreneurship. If the fixed costs have already been sunk, then there is no economic barrier to go after small groups. It's also interesting to see how this works with concepts of risk. It almost seems as if the economically optimal thing to have happen is to have an large investment in fixed cost platform with the mistaken belief that it will be profitable. Once that investment is made and it turns out not to be profitable, then this reduces the cost to marginal cost. This seems to be the story of the internet. The other question which is missing is what the impact is of including "diversity" as a economic good. It would be interesting to see how this idea interacts with time and entrepreneurship. If the fixed costs have already been sunk, then there is no economic barrier to go after small groups. It’s also interesting to see how this works with concepts of risk.

It almost seems as if the economically optimal thing to have happen is to have an large investment in fixed cost platform with the mistaken belief that it will be profitable. Once that investment is made and it turns out not to be profitable, then this reduces the cost to marginal cost. This seems to be the story of the internet.

The other question which is missing is what the impact is of including “diversity” as a economic good.

]]> By: Peter Klein http://organizationsandmarkets.com/2007/11/05/waldfogels-tyranny-of-the-market/#comment-57411 Peter Klein Wed, 07 Nov 2007 03:29:45 +0000 http://organizationsandmarkets.wordpress.com/2007/11/05/waldfogels-tyranny-of-the-market/#comment-57411 Shawn, I think you are right. On the other hand, the standard model might characterize this as an example of time-inconsistent preferences. In other words, before investments are made, I estimate a marginal cost, including a share of the fixed costs, of $x per unit. Once the fixed cost is sunk, however, my willingness to sell drops to the marginal cost less the fixed cost. I.e., unless I have buyers under contract before I invest, my ex post preferences are different from my ex ante preferences. Shawn, I think you are right. On the other hand, the standard model might characterize this as an example of time-inconsistent preferences. In other words, before investments are made, I estimate a marginal cost, including a share of the fixed costs, of $x per unit. Once the fixed cost is sunk, however, my willingness to sell drops to the marginal cost less the fixed cost. I.e., unless I have buyers under contract before I invest, my ex post preferences are different from my ex ante preferences.

]]> By: Shawn Ritenour http://organizationsandmarkets.com/2007/11/05/waldfogels-tyranny-of-the-market/#comment-57213 Shawn Ritenour Mon, 05 Nov 2007 18:11:09 +0000 http://organizationsandmarkets.wordpress.com/2007/11/05/waldfogels-tyranny-of-the-market/#comment-57213 Isn't it also true that the decision to invest at all is a marginal decision. BEFORE any investment the marginal cost of production includes fixed cost. Looking for inefficient outcomes only AFTER the capital has already been invested and hence fixed costs are already being incurred strikes me as taking a too narrow view of the production alternatives and hence a too narrow view of the welfare analysis. Isn’t it also true that the decision to invest at all is a marginal decision. BEFORE any investment the marginal cost of production includes fixed cost. Looking for inefficient outcomes only AFTER the capital has already been invested and hence fixed costs are already being incurred strikes me as taking a too narrow view of the production alternatives and hence a too narrow view of the welfare analysis.

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