Tech: Links for 25th June, 2019

I have linked to some of these piece in the past, but this set of posts is still useful in terms of creating a common set of links in one place for you to understand how to think about Aggregation Theory. If you can afford it, I heavily recommend Stratechery!

  1. “What is the critical differentiator for incumbents, and can some aspect of that differentiator be digitized?
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    If that differentiator is digitized, competition shifts to the user experience, which gives a significant advantage to new entrants built around the proper incentives
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    Companies that win the user experience can generate a virtuous cycle where their ownership of consumers/users attracts suppliers which improves the user experience”
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    Begin here: this piece explains what aggregation theory is all about, and why it matters.
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  2. “Super-Aggregators operate multi-sided markets with at least three sides — users, suppliers, and advertisers — and have zero marginal costs on all of them. The only two examples are Facebook and Google, which in addition to attracting users and suppliers for free, also have self-serve advertising models that generate revenue without corresponding variable costs (other social networks like Twitter and Snapchat rely to a much greater degree on sales-force driven ad sales).”
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    Aggregators on steroids: what exactly makes Google and Facebook what they are? This article helps you understand this clearly. Also read the article on super aggregators itself.
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  3. “There is a clear pattern for all four companies: each controls, to varying degrees, the entry point for customers to the category in which they compete. This control of the customer entry point, by extension, gives each company power over the companies actually supplying what each company “sells”, whether that be content, goods, video, or life insurance.”
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    This article explains the FANG playbook, and how they became what they are today: Facebook, Amazon, Netflix, Google.
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  4. “To explain why, it is worth examining all four companies with regards to:Whether or not they have a durable monopoly
    What anticompetitive behavior they are engaging in
    What remedies are available
    What will happen in the future with and without regulator intervention”
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    Ben Thompson states just above this paragraph that he is neither a lawyer nor an economist. But the last two questions in the list above show that he’d make a pretty good economist. He is, in essence, asking what is the opportunity cost of breaking up these firms. As the song goes: with the bad comes the good, and the good comes the bad.
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  5. “All those apps are doing is providing an algorithm that lowers search costs and makes booking easy. Expedia didn’t design, build and maintain the airplane that flew him to Sydney; build or operate the airport; train pilots; or find, produce, refine and transport the necessary jet fuel to power the plane over its continental voyage. Uber didn’t design and manufacture the car used to transport him to his hotel; find, produce, and process the raw materials that go into it (such as steel and aluminium); or actually drive him from the airport to his hotel. AirBnB didn’t design, build, maintain, or clean the house he stayed in, nor supply it with electricity. UberEats and OpenTable didn’t grow and process any raw foodstuffs, or use them to cook a meal, and TripAdvisor didn’t design, manufacture or operate any of the tourist attractions he visited.In fact, all these companies did was write some pretty simple code that made matching buyers with sellers easier and more efficient, and the real question that should be being asked is whether these platform companies are extracting too much value from the supply chain relative to their value-add, and whether that is likely to be a sustainable situation in the long term, or will invite potential disruption and/or an eventual supply-side/regulatory response.”
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    BUT, on the other hand, perhaps this is just old wine in a new bottle?

Links for 3rd May, 2019

  1. “So in the end what we get for policy to decide is whether the Indian aviation business should comprise large, medium or small oligopolies. If resolved sensibly it yields a solution to the problem of cross-subsidisation: the larger the number of firms, the greater will be the need for intra-firm cross-subsidisation as firms focus on a variant of the Ramsey Rule which says that network firms must maximise revenue instead of profits.This is best achieved via a public monopoly which far from reducing output, raising prices and making excessive profits as monopolies are expected to, can do the opposite just as Air India and Indian Railways do. In short, if we want to avoid a return to public sector transport monopolies, we must decide on the size of the oligopolies in the sector.”
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    A very short article, but an immensely interesting one, talking about airlines, India, monopoly, oligopolies, and regulation and policy in India.
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  2. “All that said, zero is still the best price. I think it’s appropriate for foundations or other funding sources to support a multiplicity of free textbook options. (I’m not looking at you, Bill Gates.) INET has done this with its CORE project, but no one else. I don’t think funding is the whole story, however. Economics needs to regard pedagogy as one of its central missions. This is not only a matter of having more panels about it at the national meetings; there needs to be more disciplinary reward for putting one’s time and energy into the development of strategies and materials for the classroom. This means promotion, prizes and esteem, and it would require a substantial cultural shift. Where to begin? I suspect we have a vicious circle that could well become virtuous. Today we have a bleak landscape of minimal innovation in pedagogy and little institutional recognition for those who do this work. In a world well-populated with innovative experiments in teaching and learning, it would be natural to reward the most successful or even just provocative projects. So again the next step seems to belong to the funders.”
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    A fairly interesting take on textbooks (econ textbooks, to be clear), what they cover, what they should cover, and what the price should be. Meta, but out of necessity.
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  3. “We find that the probability of seeing an outcome within 180 days from the date of admission is less than 5%. However, it picks up once the 180 day deadline is passed. Within 270 days, the chances of case closure are between 10 to 30% depending on the bench and case characteristics (e.g., creditor type). We observe high closure rate just past the 270 day period. Within 360 days of admission, the probability of seeing an outcome is significantly higher (30 to 70%). Quicker outcomes (liquidation or resolution) are observed for resolution proceedings triggered by the debtors themselves. Similarly, proceedings triggered before some benches result in resolutions speedier than those before some others.”
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    On the impact of the IBC on dealing with bankruptcies in India. Visit the link to find a link to a fairly good data-set pertaining to the issue being discussed.
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  4. “So buying shares of an IPO could be rational or irrational depending on your time horizon…and how lucky you are with what happens on the first day of trading.”
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    An interesting analysis on IPO’s and why they tend to be oversubscribed. Fairly well known, I’d say, if you’re a student of finance – but interesting nonetheless.
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  5. “The estimated cost of NYAY is substantial – Rs. 3.6 trillion a year. It would be broadly six times what has been allocated to MNREGA (Mahatma Gandhi National Rural Employment Guarantee Act) in the interim budget presented in February 2019. It is also nearly 13% of total central government expenditure for the fiscal year 2020. It is hard to see how such a large incremental spending programme can be funded through cuts in other expenditure items alone, including non-merit subsidies. That will be a very difficult political economy call, given that non-merit subsidies mostly benefit vocal interest groups. There thus has to be either fiscal expansion or an increase in tax collections. The latter could – but need not – entail higher tax rates. India could be at an inflection point at which its tax-GDP (gross domestic product) ratio begins to grow rapidly, but that is a guess rather than a hard fact. In short, there is ample reason to worry about the fiscal burden of NYAY. ”
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    Niranjan Rajadhakshya on the economic feasibility of NYAY. Students of public finance especially should read this to get a sense of how to judge questions such as the ones put forth in the interview.