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This means that capitalism, at its core, is somewhat flawed. Surprisingly and scarily in tune with Zeitgeist Moving Forward [1] 1. http://www.youtube.com/watc

This means that capitalism, at its core, is somewhat flawed. Surprisingly and scarily in tune with Zeitgeist Moving Forward [1] 1. http://www.youtube.com/watch?v=QYLLFpNn4lM http://www.youtube.com/watch?v=QYLLFpNn4lM

rcthompson 15y ago
I don't think that conclusion is justified, at least not directly. A more conservative conclusion might be "capitalism requires buyer flexibility in order to function correctly" (where "correctly" means that prices accurately track the intrinsic value of the goods being sold).
- funthree 15y ago
  The article clearly describes a study performed in diligence (from the looks of it) which reveals a perhaps serious flaw that permeates (or can permeate) in all markets. The conclusion being that cartels emerge as a product of the system, not as a product of immorality or deceit. I guess I understand why people would not want to see it put so bluntly (capitalism is flawed. full stop.) but even you in so many words said the same thing. It is in part inherently corrupt and the silent hand of the market is sometimes a sinister one.
  - dingfeng_quek 15y ago
    The paper is a study of a particular mathematical model and simulation. The suggested association of the mathematical model to the model of markets (with many suppliers) where the buyer has a "slow reaction time" results in a price that would, in some sense, be analogous to the price generated by cartels. The implication is likely that such a market doesn't reach the perfectly competitive price, which is what a simpler model that doesn't consider the buyer's reaction time would predict. Neither the article nor the paper claims that this emergent phenomenon occurs (can occur) in all, or even the majority of, markets. Quote: "Under certain market conditions, cartels arise naturally without collusion. This raises important questions over how the behavior should be controlled" Neither the article nor the paper claims that cartels always "emerge" as "a product of the system". No systems were mentioned, and no definition of product was given. Neither the article nor the paper claims that cartels do not emerge "as a product of immorality or deceit". It seems plausible that people might not enjoy a misrepresentation of the authors, who did put in effort (authoring such a paper is never done in a night).
  - rcthompson 15y ago
    Just to make sure, do you agree with the definition I alluded to in my comment (where "correct" means that market prices track intrinsic value, and "flawed" is anything else)? In any case, we already know that there are cases where capitalism fails, the best-known probably being the monopoly. We even know that there are certain market conditions that encourage these failure modes (for example, economies of scale encourage monopolies and oligopolies). Recognizing another possible failure mode (non-collusive cartels) and the conditions that trigger it doesn't push capitalism over the line from desirable to flawed. Maybe you already believe that capitalism is flawed, but I don't think that this by itself pushes it over the line.
  - yummyfajitas 15y ago
    If you read the study, you'd realize the flaw doesn't permeate all markets. It permeates markets with perfectly inelastic demand (all consumers are obligated to buy), where the sellers all use a particular pricing strategy, and where sellers have considerably better information than buyers (i.e., when K=1, ~60% of price updates must be seller price updates before cartel behavior begins).
joshAg 15y ago
would you mind expanding on why you think this result means capitalism is flawed?
- Daishiman 15y ago
  Why wouldn't it? It's an unrealistic expectation that the fact that we have ideas for certain econopolitical models and that they're superficially consistent in normal discourse should mean that, in practice, they exhibit multiple negative behaviors. All systems are flawed and unfair to some level, and there are tons of examples for capitalism in particular. The question is to what extent we can mitigate some of the negative effects and which ones we're willing to accept.
  - joshAg 15y ago
    don't get me wrong, i agree that there's tons of flaws with capitalism, but i was curious as to why the natural emergence of cartels is considered a flaw.
    - dingfeng_quek 15y ago
      Cartel-like (monopoly/oligopoly) pricing leads to a non-optimal outcome (the loss is usually called the deadweight loss). The price is set higher than the socially optimal price - some consumers who would have benefited overall from the good (benefit from good > production cost of good) would not buy and consume the good because the price is higher than the production cost (price of good > benefit from good). If your curiosity is strong enough, you can find a more detailed outline of the concept in an introductory economic text.
- _delirium 15y ago
  A more limited way of putting it would be that (neo-)classical economic theory has some flaws, in that it assumes prices will track supply/demand balance and maximize market participants' utility (as expressed via price preferences), in the absence of state distortion of markets, which appears not to always be true, since markets can be self-distorting. Not surprising given that most complex systems have strange pathologies in the form of feedback loops, local attractors, etc., but interesting to see this study nonetheless. Whether that means capitalism is flawed depends on the extent to which you consider the neoclassical utility-maximization explanation of how markets work to be an important part of the justification for capitalism. It probably undermines the utopian libertarian vision of a laissez-faire, unregulated economy in which everything is free and everything is perfectly allocated, more than it undermines the U.S./European brand of pragmatic market economies.

rcthompson 15y ago

I don't think that conclusion is justified, at least not directly. A more conservative conclusion might be "capitalism requires buyer flexibility in order to function correctly" (where "correctly" means that prices accurately track the intrinsic value of the goods being sold).

funthree 15y ago
The article clearly describes a study performed in diligence (from the looks of it) which reveals a perhaps serious flaw that permeates (or can permeate) in all markets. The conclusion being that cartels emerge as a product of the system, not as a product of immorality or deceit. I guess I understand why people would not want to see it put so bluntly (capitalism is flawed. full stop.) but even you in so many words said the same thing. It is in part inherently corrupt and the silent hand of the market is sometimes a sinister one.
- dingfeng_quek 15y ago
  The paper is a study of a particular mathematical model and simulation. The suggested association of the mathematical model to the model of markets (with many suppliers) where the buyer has a "slow reaction time" results in a price that would, in some sense, be analogous to the price generated by cartels. The implication is likely that such a market doesn't reach the perfectly competitive price, which is what a simpler model that doesn't consider the buyer's reaction time would predict. Neither the article nor the paper claims that this emergent phenomenon occurs (can occur) in all, or even the majority of, markets. Quote: "Under certain market conditions, cartels arise naturally without collusion. This raises important questions over how the behavior should be controlled" Neither the article nor the paper claims that cartels always "emerge" as "a product of the system". No systems were mentioned, and no definition of product was given. Neither the article nor the paper claims that cartels do not emerge "as a product of immorality or deceit". It seems plausible that people might not enjoy a misrepresentation of the authors, who did put in effort (authoring such a paper is never done in a night).
- rcthompson 15y ago
  Just to make sure, do you agree with the definition I alluded to in my comment (where "correct" means that market prices track intrinsic value, and "flawed" is anything else)? In any case, we already know that there are cases where capitalism fails, the best-known probably being the monopoly. We even know that there are certain market conditions that encourage these failure modes (for example, economies of scale encourage monopolies and oligopolies). Recognizing another possible failure mode (non-collusive cartels) and the conditions that trigger it doesn't push capitalism over the line from desirable to flawed. Maybe you already believe that capitalism is flawed, but I don't think that this by itself pushes it over the line.
- yummyfajitas 15y ago
  If you read the study, you'd realize the flaw doesn't permeate all markets. It permeates markets with perfectly inelastic demand (all consumers are obligated to buy), where the sellers all use a particular pricing strategy, and where sellers have considerably better information than buyers (i.e., when K=1, ~60% of price updates must be seller price updates before cartel behavior begins).

joshAg 15y ago

would you mind expanding on why you think this result means capitalism is flawed?

Daishiman 15y ago
Why wouldn't it? It's an unrealistic expectation that the fact that we have ideas for certain econopolitical models and that they're superficially consistent in normal discourse should mean that, in practice, they exhibit multiple negative behaviors. All systems are flawed and unfair to some level, and there are tons of examples for capitalism in particular. The question is to what extent we can mitigate some of the negative effects and which ones we're willing to accept.
- joshAg 15y ago
  don't get me wrong, i agree that there's tons of flaws with capitalism, but i was curious as to why the natural emergence of cartels is considered a flaw.
  - dingfeng_quek 15y ago
    Cartel-like (monopoly/oligopoly) pricing leads to a non-optimal outcome (the loss is usually called the deadweight loss). The price is set higher than the socially optimal price - some consumers who would have benefited overall from the good (benefit from good > production cost of good) would not buy and consume the good because the price is higher than the production cost (price of good > benefit from good). If your curiosity is strong enough, you can find a more detailed outline of the concept in an introductory economic text.
_delirium 15y ago
A more limited way of putting it would be that (neo-)classical economic theory has some flaws, in that it assumes prices will track supply/demand balance and maximize market participants' utility (as expressed via price preferences), in the absence of state distortion of markets, which appears not to always be true, since markets can be self-distorting. Not surprising given that most complex systems have strange pathologies in the form of feedback loops, local attractors, etc., but interesting to see this study nonetheless. Whether that means capitalism is flawed depends on the extent to which you consider the neoclassical utility-maximization explanation of how markets work to be an important part of the justification for capitalism. It probably undermines the utopian libertarian vision of a laissez-faire, unregulated economy in which everything is free and everything is perfectly allocated, more than it undermines the U.S./European brand of pragmatic market economies.