Tag: monopoly

The Five YO Trilemma

Explain, Samrudha says, the difference between perfect competition and monopoly to a five year old. Not, mind you, an ELI5. To a five year old.

And not just any old explanation, he goes on to add. Explain it as a joke. Again, to a five year old.

And having decided that this is not enough (Samrudha takes his local non-satiation very seriously), this has to be done within the length of a tweet.

So: explain the difference between two economic concepts to a five year old, in humorous fashion, and within the length of a tweet.

This is what those general purpose transformers were invented for, no? Summon forth a knight of the large language realm, and command it to oblige us!

And verily it was summoned, and verily it laid an egg:

So can we leave CRISPR editors, protein folding and spreadsheets-on-steroids to those knights of the l.l.r, and have them leave Samrudha’s trilemmas for us?

I volunteer to step up for team human, if volunteer is the word I’m looking for:

Here are the rules of engagement:

  1. I will not ask Claude/ChatGPT/Gemini to help me draft my tweet length microecon theory joke for a five year old.
  2. I can refer to Google/textbooks if I wish to for academic references, and to source and modify jokes (but this is optional, not mandatory)
  3. My explanation cannot be more than 280 characters in length (and thank god the world has doubled in quality since Peter registered his complaint)
  4. The tweet should be accurate from the point of view of theory and it should elicit a response that lies somewhere on the Groan-Chuckle-LaughUproariously scale.
  5. I can ask C/C/G to evaluate my work of art

If you wish to step up and do battle, please be my guest. But these rules listed here are sacrosanct, mind you!

With that being said, here’s my thought process:

  1. I want to emphasize (to the five year old) the fact that there are “goods” out there that are very similar to each other in terms of quality, and that they “cost” the same.
  2. One ought to be indifferent about who one “buys” this good from among the many sellers offering it.
  3. So in effect, many sellers | same price | homogenous good are the three features of perfect competition I am choosing to focus on.
  4. I also want to emphasize that the five year old can choose to “spend” their “endowment” somewhere else too.
  5. This somewhere else must be a good that is different in the eyes of the five-year old, in terms of quality. It must be available from a single seller, and at a higher price than the perfectly competitive “goods”.
  6. And of course, this point must be made as a joke that is comprehensible to a five year old, and both the point and the humor must be appreciated.
  7. And, of course, in 280 characters.

Why are “goods”, “cost”, “buys”, “spend” and “endowment” in inverted quotes? Because these concepts (and others too – price, for example) matter, but must be used/explained in such a way that a five year old “gets” them.

Since money is a difficult concept to explain to a five year old, what is scarce in a five year old’s life? I’m a parent to a ten year old, and I can confirm that some things haven’t changed since the 1990’s:

Source: https://www.gocomics.com/calvinandhobbes/1990/02/14

So let’s say the five year old has fifteen minutes to “spend” before bedtime, and she can “buy” whatever video she wants to watch. Whatever she watches by definition implies that she can watch nothing else, and let’s assume that only whole units can be consumed – she can’t start to watch a video and discard it as boring twenty seconds into it.

(Not a realistic assumption? You don’t say. But cut me some slack here, dammit!)

So should she watch three random ChuChu TV videos, or a Peppa Pig episode?

What, you ask, is ChuChu TV? And, you ask, what is Peppa Pig?

Jon Snow knows more than you do.

There’s no end to ChuChu TV videos (trust me, I know), and there’s no end to clones of ChuChu TV videos (again, trust me). They all look the same, sound the same, and for all I know and care, are the same.

And while you’d be right to say that there’s no end to Peppa Pig videos either, there’s no clones of Peppa Pig videos. I mean, folks may have attempted cheap knock-offs, but as with the iPhone so with Peppa Pig. If you don’t have it, well, you don’t have it (and yes, once again, trust me. I know).

And so here’s my tweet length joke, understandable where a five year old is concerned, that explains the difference between perfect competition and monopoly:

You have only fifteen minutes until you go to bed. Do you want to watch three ChuChu TV videos, or one Peppa Pig episode?

Not bad, you might say. But how’s this funny?

As I was saying, Mr. Not-Even-Snow.

Every single parent (and kid) reading that bit got it.

You have only fifteen minutes, it seems.

Hahahahahahaha.

Links for Friday, 23rd Oct, 2020

Human evolution produced gossip. Cultural anthropology sees gossip as an informal way of enforcing group norms. It is effective in small groups. But gossip is not the search for truth. It is a search for approval by attacking the perceived flaws of others.

http://www.arnoldkling.com/blog/gossip-at-scale/

Arnold Kling writes an excellent essay about gossip and (as he puts it), the ISS. That, to be clear, stands for Internet, Smart Phones and Social Media. Excellent essay, well worth your time.

Low level of CRAR not only hampers bank health but also restricts smooth transmission of monetary policy. Injection of capital by the Government of India in public sector banks is likely to increase the credit flow to the real sector and help in smoother transmission of monetary policy.

https://rbidocs.rbi.org.in/rdocs/Publications/PDFs/RBIWPS12.PDF

How much of this paper is signaling/laying the groundwork, and how much of it is a genuine addition to what we already know about monetary policy? The link comes via Amol Agarwal

This is exactly why I am so pleased to see how narrowly focused the Justice Department’s lawsuit is: instead of trying to argue that Google should not make search results better, the Justice Department is arguing that Google, given its inherent advantages as a monopoly, should have to win on the merits of its product, not the inevitably larger size of its revenue share agreements. In other words, Google can enjoy the natural fruits of being an Aggregator, it just can’t use artificial means — in this case contracts — to extend that inherent advantage.

https://stratechery.com/2020/united-states-v-google

The concluding paragraph from this blog post by Ben Thompson is even better, and I was tempted to go with it, but this works too! Please read the whole thing – excellent writing, as always.

If you’re looking to get an iPad right now and can afford it, the new $599 iPad Air is the best tablet for most people. Apple has taken the design from the more expensive iPad Pro and brought it down to a more reasonable price point. It’s $100 more than it was last year, but in return this year’s iPad Air has a bigger, better screen and a faster (and very intriguing) processor.

https://www.theverge.com/21525780/apple-ipad-air-2020-review

Dieter Bohn’s review of the iPad Air (2020). If I could, I would!

Miniature paintings are among the most beautiful, most technically-advanced and most sophisticated art forms in Indian culture. Though compact (about the same size as a small book), they typically tackle profound themes such as love, power and faith. Using technologies like machine learning, augmented reality and high-definition robotic cameras, Google Arts & Culture has partnered with the National Museum in New Delhi to showcase these special works of art in a magical new way.

https://blog.google/around-the-globe/google-asia/india-miniature-masterpieces

This is a must have app on your phone. I mean, it was always a must-have app on your phone, this latest collection only makes the argument stronger!

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.