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The point being that you get a different price point when you want to maximize societal good or when you maximize revenue. Look at how expensive college textboo
by gizmo 10y ago
The point being that you get a different price point when you want to maximize societal good or when you maximize revenue. Look at how expensive college textbooks and scientific papers are. Clearly making knowledge accessible to more people would be a great thing, but that's not what we optimize for. It's right to stop and ask why.
- rayiner 10y ago> The point being that you get a different price point when you maximize societal good and when you maximize revenue. In a competitive market, the equilibrium price will maximize total social surplus: http://www.colorado.edu/economics/morey/2010/2010BookChapters/KW-Chapter6/KWCh06_3_Consumer_Surplus_Producer_Surplus_and_Gains_from_Trade.pdf http://www.colorado.edu/economics/morey/2010/2010BookChapter.... And as Netflix, Amazon, HBO, etc. are showing, the entertainment industry is highly competitive. They're toppling the giants by creating competitive products (original shows and movies). You have to remember that this is a coupled system. At the margin, lowering price will increase circulation (and thus consumer surplus), but it will also reduce producer surplus, and in the long run the incentive to produce. E.g. Netflix has a 30%+ profit margin. They could cut prices significantly and still make a profit. But that would also dramatically reduce their incentive to invest $5-6 billion per year creating new content: https://www.wired.com/2017/01/netflix-investing-original-shows-finally-pays-off https://www.wired.com/2017/01/netflix-investing-original-sho....
- gech 10y agoAnd then higher prices reduce the incentive for the consumer to consume.
- psyc 10y agoWhat if the producer does something totally insane, and keeps producing, because someone there likes doing it?
- savanaly 10y agoI would interpret that economically in the following way: the cost to that particular producer is lower than other producers because their time spent producing is partly leisure if they enjoy it. To the extent that they have a lower relative cost of production than others then it's their comparative advantage to be in that business and they will turn a nice hefty profit (economic profit that includes how much they enjoy their work, not necessarily an accounting profit).
- gizmo 10y agoVideo streaming is a winner-takes-all market. The party with the most premium content will get the most subscribers which means they make the most money to reinvest in premium content which completes the circle. So they're all racing to acquire market share. This means Netflix, Amazon, and HBO have a very strong incentive to engage in _anticompetitive_ behavior to lock the other players out, because in order for one to win the others must lose. This is not a market where people can pick and choose individual shows they want to watch, no, everything gets bundled. Even if you want to watch just a single HBO show you have to pay for all of them. Nothing about this looks like an efficient market to me. Investors are willing to invest billions in Netflix in the hope that Netflix _wins_ and value can be extracted in the coming decades. This is how it works, and the manic pace at which the different platforms are currently creating premium content isn't meant to be sustainable.
- edblarney 10y ago"In a competitive market, the equilibrium price will maximize total social surplus: http://www.colorado.edu/economics/morey/2010/2010BookChapter... http://www.colorado.edu/economics/morey/2010/2010BookChapter.... A" No, totally not. Totally not. The market clearing price is a function of supply and demand - that is all it is. It has nothing to do with 'maximizing social surplus'. Yes - it maximizes economic surplus, in the narrow context of that transaction, but that economic surplus does not necessarily reflect social good - moreover - supply and demand are functions of other things entirely. The easiest way to see this is to look at Monopolies. Monopoly players of a critical good can extract vast, vast profits. What they actually 'do' with those profits is critical to understanding total social good. Imagine a monopoly provider of gasoline to the US, that takes it's profits and puts them in a room - and does not invest it back into the economy. This is not 'good' for anyone but the owner of that monopoly. The same can be seen in rent-seeking in any number of places. Also - BTW Netflix has about 1% EBITDA [1]. Their gross margins are not that important when you figure you have to pay for 'staff', R&D, 'networking', 'advertising' :). [1] https://www.google.com/finance?q=NASDAQ%3ANFLX&fstype=ii&ei=YP-PWOjjC4Hj2AaT0JS4Dg https://www.google.com/finance?q=NASDAQ%3ANFLX&fstype=ii&ei=...
- dwaltrip 10y agoTextbooks are an slow-moving, entrenched market with unusual incentives. Many students are paying with loan money, teachers require books with little concern to cost, etc. Scientific papers is also not your typical market. I remember reading that university libraries are somewhat compelled to subscribe to the status quo publishers, even if they are disliked. It's an industry where pedigree and tradition is quite important. I fully agree it's good analyze why the system outputs what it does. I would question the idea a lot of the observable dynamics in the system have been consciously chosen for. That's not to say we shouldn't make the effort now though.
- gizmo 10y agoI'm not suggesting that the college textbook market has been designed by moustache-twirling evildoers, just that we should look at, as you say, the observable dynamics in the system. Regardless of market dynamics I think it's immoral to restrict academic knowledge to those who can afford it, when it can be distributed at 0 marginal cost.
- dwaltrip 10y agoDefinitely. I believe amazing things can happen the more we make the collective knowledge of humanity accessible to all. Thankfully, I think we are moving in that direction.