Messing with Market Forces: the evolution of competition.

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BlaiseP

BlaiseP is the pseudonym of a peripatetic software contractor whose worldly goods can fit into an elderly Isuzu Rodeo. Bitter and recondite, he favors the long view of life, the chords of Steely Dan and Umphrey's McGee, the writings of William Vollman and Thomas Pynchon, the taste of red ale and his own gumbo. Having escaped after serving seven years of a lifetime sentence to confinement in hotel rooms, he currently resides in the wilds of Eau Claire County and contemplates the intersection of mixed SRID geometries in PostGIS.

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20 Responses

  1. Avatar Roger
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    says:

    Adding on to Blaise’s eloquent and thought provoking essay…

    I’ve offered the view before that there are certain paradigms that interfere with progress. One is the zero sum paradigm, a second is the Big Kahuna paradigm. The first view ignores the possibility of positive sum interaction, the second ignores the potential for bottoms up rather than just top down solutions.

    The third paradigm that interferes with our understanding is the view that competition is always destructive. The point is that there are constructive and destructive forms of cooperation. An example of the former is the scientific method. Another example is a well functioning market, and what makes it well functioning is significantly affected by how constructive the competition works.Report

    • Avatar BlaiseP in reply to Roger
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      says:

      What, then, is progress? Some state of affairs where shiny happy people with better ideas go from writing software in their bedrooms straight to the boardrooms on the top of office buildings like a lucky turn in Snakes and Ladders? It doesn’t work that way. Getting an idea to market these days means surviving a run through the gauntlet of patents and capital formation.

      Competition might not be destructive, seen from outside the ring. Competition isn’t the only force at work. Someone stole one of my best bits of code, went off and started a company with it. Is that competition? Do you Force ‘n Fraud Libertarians have any consolation or redress for me in those circumstances? I don’t think so. I gave up trying to make money on the sale of software after that: I write open source stuff now. I consulted for many years, making money in other ways. They can’t steal my mind or my experience and they can’t steal what’s free. But every contract I ever signed reserved all the innovations which arose from my work to my client. I’m not sure you have the complete picture here.

      I have no idea how the Scientific Method fits into competition models. I know how capitalism works. It works mostly by the seller hiding the true price of goods from the buyer.Report

      • Avatar Roger in reply to BlaiseP
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        says:

        I am broadly agreeing. I would suggest the system is degrading into bad rules and destructive rather than constructive competition.Report

        • Avatar Roger in reply to Roger
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          says:

          As for ” what is progress?”. The best answer I can give is progress is best described as a process of accumulated or cumulative problem solving. If we can solve more problems than the universe throws at us, we can progress. The challenge comes because sometimes we create other problems as we solve them. One key to progress is to not create more problems than you solve.Report

  2. Avatar North
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    says:

    Certainly one takeaway from this is that the patent/IP system desperately needs an overhaul and modernization. Unfortunately with so many intensly interested parties it’s beyond me how such a thing could be done.Report

    • Avatar BlaiseP in reply to North
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      says:

      The overlap between patent law and property law is the biggest problem. Software defies patent-ability for a variety of reasons. In re Bilski reveals the extent of the irrelevance of the current laws.

      Software’s what I know, so this cobbler will stick to his last. I am no lawyer. The graphic symbol for this essay is the Copyleft. While some folks scoff at Richard Stallman for his quixotic (and often irrationally hostile) opinions, the basic tenet of all open source licensing started with his copyleft licence.

      Consider video drivers, the current Problem Children in the world of Linux. Drivers connect (patentable) machinery with an operating system. Most, if not all free software licenses prohibit patent retaliation. Now TiVo faces problems upgrading its Linux kernel: they ran afoul of the GPL3.

      The Linux kernel developer community will develop a driver for your hardware for free. But if you insist on writing your own closed-source implementation, Linux will simply set the TAINT flag in the kernel and won’t deal effectively with bugs in your problematic driver.

      Intel’s new Clover Trail Atom chip “won’t support” Linux. It only supports Windows 8. What does this tell the world? That Microsoft and Intel are digging a trench. Their long era of hegemony is coming to an end. Apple’s killing them — with a freight of BSD free software at the heart of its operating systems. IBM’s backed Linux in a big way: now it’s paying off in spades as their amazingly versatile hardware can host a galaxy of Linux clusters.

      In short, patents have created an impediment to evolution and nature won’t tolerate it. In response, especially in biology patents, we now see the rise of Patentleft licensing, which may evolve as did copyleft.Report

  3. Avatar Mike
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    says:

    Except that Apple stole the ‘windows’ interface from Xerox via work done at PARC.

    The point is that these ideas weren’t patented by Xerox so they were there for the taking.

    That’s as it should be. Quoting from the Constitution from Wikipedia “Congress shall have power…To promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries;”

    Patents are are secondarily for the inventor. The real purpose is to promote progress.Report

    • Avatar BlaiseP in reply to Mike
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      says:

      The GUI paradigm was inevitable, as surely as the dashboard evolved in the automobile. These days, the progress of science and useful arts is more promoted by people like me who develop interfaces to these things than by patents. You see, we don’t really invent things so much as expose them to other things.

      There’s no hiding from us. You’ll either develop to a standard we like or you’ll become instantly irrelevant.Report

  4. Avatar Major Zed
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    says:

    As my friend Doctroid reminded me this morning, copyright laws are also in sad shape.

    My view on this is that there are 3 ways to deal with consumer surplus: create it (the “better mousetrap”), steal it (robbery and fraud), or harvest it. (OK, a fouorth might be destroy it.)

    Harvesting is where things get interesting. This morning I harvested some consumer surplus for myself by buying a laptop stand. I discovered a web site offering it for $40 less than did the original web site I was almost ready to purchase it from. Usually, though, we are talking about it from the other perspective, of the seller harvesting it from the buyer, typically known as “rent-seeking” by economists. Actually, they are sharing the surplus, but each makes the effort get a bigger share, and businesses go to great lengths to optimize their profits. I like to think that my own work is about creating value, but sometimes I wonder if I am just in the harvesting department. (Aside – I have a similar story about IP stolen from me, but the consequences were more about publication credit than hard dollars, insult rather than injury.)

    Competition is what businesses fight against because it interferes with their ability to harvest consumer surplus. Established businesses are typically not happy about competition, and while they might talk as if they are in favor of it, they prefer to act to limit it. New businesses typically like competition – until they become established businesses. It’s a dynamic that tends to favor the buyers, and the theoretical microeconomic models show with mathematical precision how it works… in the theoretical microeconomic model. In the real world, we have to deal with the messiness of human action.

    Back in the good old days of Mercantilism and Guilds, producers (sellers) locked in their abilities to harvest consumer surplus by forcibly keeping competition at bay. The capitalist revolution took away much of their protection and unleashed method 1 (creating it) on the world, to our profound benefit.

    But as you point out, the desire to build moats around ones franchise is alive and well. Having created a product/service that earns profits in excess of the cost of capital, a business naturally wants to keep harvesting that surplus as long as it can before competitive forces chip away at it. In and of itself, that is not a bad thing. I would argue it is a good and necessary thing, because if businesses instantly went to the steady-state of zero franchise value, no one would bother. It was capital chasing consumer surplus that built up the incredible wealth, and wide access to an incredible variety of products inconceivable 100 years ago, that our society has today.

    But, as you point out, the urge for rent-seeking has its darker side as well, and I think I can speak for most libertarians in saying that efforts to roll back the calendar to the days of royal charters and monopolies must be resisted vigorously.

    Devil in the details of course, but I think we are on the same page.Report

    • Avatar Roger in reply to Major Zed
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      says:

      Plus 1 for ZedReport

    • Avatar BlaiseP in reply to Major Zed
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      says:

      The old product cycle usually gouges on the upswing attempting to recoup development costs, followed by mass production and the economics of commodity on the downswing, eventually leading to irrelevance. I can’t speak to every possible permutation of manufacture but I can speak to software and music. Once it’s created, manufacture and distribution costs are almost nil and delivery damned near instantaneous. The cycle’s turning too fast for the old gouge / discount cycle.

      Mathematics hates infinities. The real world is described by fractal geometries and evolutionary breakthroughs, on adaptations and interdependencies and cooperation. Sometimes a species specialises too far and gets in trouble. Those apex predators who ate our ancestors got their comeuppance as soon as we mastered fire and especially gunpowder.

      Moats confine more than they protect. The Libertarian notions of markets were rendered as irrelevant by free software as castles were rendered irrelevant by cannon. Richard Epstein is a particularly egregious dodo bird in this regard. It’s amazing, what Libertarians say about Free Markets — but let them encounter a market which is truly free, the stupid things they say…Report

      • Avatar Major Zed in reply to BlaiseP
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        says:

        Paragraph 1 – right, these are interesting times for zero-marginal cost production (a growing, but hardly dominant sector of the economy). But efforts to sustain competitive advantage, through innovations in providing the customer with a better experience, or reputation and branding, or government-enabled IP protection, etc., are still relevant.

        Paragraph 2 – um, yeah, sure, huh?

        Paragraph 3 – perhaps you could elaborate, because the only thing that came through clearly was disdain.Report

        • Avatar BlaiseP in reply to Major Zed
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          says:

          So, Zed, where do the Libertarians take a position on property as it relates to these zero-marginal cost items? Do you want to go with Kinsella and Rothbard? Do you want to try Roderick Long on for size? Or the ridiculous Richard Epstein?

          You read correctly. Yes, it is disdain, Zed. The Libertarian concept of property has not kept pace with the times, though in my estimation of things the open source model is the purest example of Libertarianism in existence. When the only route to evolution in software is for people like me to resort to that which costs nothing, inducing an infinity into the marketplace of ideas, every Libertarian notion of markets is proved wrong at once.

          Da Vinci said Although nature commences with reason and ends in experience it is necessary for us to do the opposite, that is to commence with experience and from this to proceed to investigate the reason.Report

          • Avatar Major Zed in reply to BlaiseP
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            says:

            Analogy…? A group of volunteers buy property and build a road in the jungle, the better to connect villages to the best of the world. They own it. They decree that others may use the road, but only under their terms. It’s still private property, just deployed unconventionally. Right?

            Obviously, there are issues here that I have zero comprehension about. I just read the original Epstein piece, Boyle response, and Epstein rejoinder at FT.com and have to say – what are they fussing over? Predictions over what will happen in the future? Epstein’s slur of the open source community? Epstein warning governments away from open source software? Doesn’t seem to be about the ontological status of open source in particular or IP in general.

            The next thing I will do is read Kinsella. Maybe then I will have something interesting to say. Maybe not. Thanks for the pointers, though.Report

          • Avatar b-psycho in reply to BlaiseP
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            says:

            Long makes the most sense on this IMO. By far.Report

  5. Avatar John Howard Griffin
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    says:

    Good post, Monsieur Pascal.

    Here is another conundrum:

    Why is “middle class”, “white”, and “male” a six sigma of being a libertarian?Report

  6. Avatar Pierre Corneille
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    says:

    I know almost nothing about the computer technology you discuss in the post and in the comment thread. But I should comment on two assumptions that seem implicit in this post, namely, that 1. it’s clear what antitrust laws are supposed to do and why they were enacted, and that 2. antitrust laws actually succeed at what they are supposed to do.

    I think it’s at least an open question that American antitrust statutes were really designed to impose or enforce some thing called “competition,” or “free competition.” Competition, or free competition, is sometimes in the eye of the beholder. Was the Sherman Act designed to make cartels illegal? Well, I believe it states so explicitly, but then what is a cartel? What behavior defines it? Are restraints on trade okay as long as they’re reasonable? If all restraints on trade are bad regardless of reasonableness, how do we define a restraint on trade so that we don’t end up outlawing all commercial transactions? The Sherman Act outlaws trusts and monopolies in addition to cartels. What does “monopoly” mean here? Probably not a government contract for exclusive services. What does “trust” mean here? Probably not (necessarily) a holding company. Were antitrust laws meant to apply to unions? Maybe, there’s at least one federal lower court case before In re Debs that suggests the laws might have been meant to apply to workers organizations as well as firms (US v. Workingman’s Amalgamated Council of New Orleans, 54 Fed 994), not to mention the appeals court reasoning in Debs and, later, the Danbury Hatters Cases.

    I think in application, the antitrust laws often stifle competition, or at least redefine it. It is difficult to know if antitrust law necessarily applies to a given action a large firm might engage in. Therefore, the firm that can afford the legal counsel is at a better advantage than one that cannot afford such a counsel.

    As Major Zed alluded to, many businesses favor competition only insofar as it helps them. I will go further and say that price-fixing schemes are not necessarily the exclusive tools of “monopolies” and “monopsonies.” They’re also the tools of mom and pop stores who are organizing against the local branch of the A&P. Pric-fixing is also implicit in the antitrust-ish prohibitions against “predatory pricing.” Maybe what I call price fixing in these cases is at least one step (or several steps!) removed from corrupt, cigar chomping businesspersons meeting in a dark room to set prices, but my point is that antitrust laws are confusing at best and don’t necessarily do what their champions want them to.Report

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