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The Tobin Q measurement mentioned in the article is also suspect: > But in most industries, economists Germán Gutiérrez and Thomas Philippon believe, this proc

The Tobin Q measurement mentioned in the article is also suspect: > But in most industries, economists Germán Gutiérrez and Thomas Philippon believe, this process has broken down. In a new paper, they attempted to measure how much new business entry responded to the market opportunity available in an industry. Gutiérrez and Philippon used a measure called Tobin’s Q, which represents the ratio of a company’s market value to the book value of the company's assets. When Q is high, it should mean that new competitors have an opportunity to come in and take some of the profits in that industry, thus reducing existing companies’ price premium and bringing Q down. Indeed, the authors found that this was common up until the late 1990s. But after 2000 -- right around the same time that profits started to rise to unprecedented levels -- the relationship broke down. High Q levels no longer seem to attract new market entrants. It's the ratio of market value to book value. Hasn't book value become less reliable in the age of software? They mention 2000 as the somewhat mysterious starting point of unprecedented profit levels. Doesn't seem so mysterious if 2000 was when companies starting adopting technology more intensively.

lancewiggs 7y ago
Yes. Book value does not account correctly for the value of intangible assets. Tobin's Q works if entering the market is about building plants and so on, but not when the moat is an asset that is not measured.
colechristensen 7y ago
I would guess it has something to do with intangible assets linked to fad usage. There are ten thousand people that could made a usable clone of Instagram in a day but none of them would likely come close to competing. Untrue if you're entering say the car repair, grocery stores, heavy machinery, food production, etc etc. So many days business are branded and everything that isn't has had it's margins shrunk to zero. You can't drop in replacements for FAANG or Microsoft or a whole lot of consumer products because they aren't and can't be commodities as they have set themselves up as walled gardens. Good for business, investors, and valued employees. Bad for consumers. Lack of interoperability or replacibility is the monopoly of the 21st century and when we get past it we'll be in the beginnings of a post scarcity economy.
- TheOtherHobbes 7y ago
  They're not just walled gardens - they're choke points on important global data flows, and silos for distilled intelligence that can be abstracted from those flows. Closed Data - controlled by monopolies, and generated by the enclosure and privatisation of user activity - is far more of an issue than Closed Source ever was.

lancewiggs 7y ago

Yes. Book value does not account correctly for the value of intangible assets. Tobin's Q works if entering the market is about building plants and so on, but not when the moat is an asset that is not measured.

colechristensen 7y ago

I would guess it has something to do with intangible assets linked to fad usage. There are ten thousand people that could made a usable clone of Instagram in a day but none of them would likely come close to competing. Untrue if you're entering say the car repair, grocery stores, heavy machinery, food production, etc etc. So many days business are branded and everything that isn't has had it's margins shrunk to zero. You can't drop in replacements for FAANG or Microsoft or a whole lot of consumer products because they aren't and can't be commodities as they have set themselves up as walled gardens. Good for business, investors, and valued employees. Bad for consumers. Lack of interoperability or replacibility is the monopoly of the 21st century and when we get past it we'll be in the beginnings of a post scarcity economy.

TheOtherHobbes 7y ago
They're not just walled gardens - they're choke points on important global data flows, and silos for distilled intelligence that can be abstracted from those flows. Closed Data - controlled by monopolies, and generated by the enclosure and privatisation of user activity - is far more of an issue than Closed Source ever was.