What are you buying?
My recent post on buying a new bubble-jet printer led catsidhe to post a comment linking to a graph that purports to show the HP bubble-jet ink is considerably more expensive than blood or booze.
But, when you buy bubble-jet ink cartridges, you are not buying ink, you a buying ink packaged in a form that your printer can use. It is said packaging that operates in a restricted market. You may buy a printer, but you only rent the ability to keep it functioning.
Given Moore's law leading to declining IT prices due to expanding capacities, the only bit that gives printer manufacturer's any market power is packaging the ink and so they leverage that for all it's worth.
Which reminds me again of why I like Yoram Barzel's analysis of property rights so much. Thinking of things as bundles of attributes helps explain so much.
Consider lottery tickets. Mathematicians and logicians are fond of pointing out that, actuarially, they are bad investments. But what lotteries are selling are licenses to dream.
Or, to use examples Barzel discusses revealingly, insurance and warranties -- they are ways of handling negative attributes (tendency to catch fire, tendency to break down, etc).
Even better is Barzel's point that what matters is who controls the attribute -- who has the use rights, regardless of what the law may say. The law says that the Commonwealth government owns the ABC as agent of the Australian people. But the ABC is insulated from control by the Government of the day, so its staff control the use of the attributes. Which leads to internal fighting over control of attributes and use of said attributes to buttress a sense of belonging to a moral (and intellectual) elite (something the staff can agree on): which then provides for a loyal audience who consume said sense and persistent critics who are affronted by same. Hence the endless arguments over bias: since if you are consuming a sense of belonging to a moral and intellectual elite, any suggestion of systematic bias devalues the product. So suggesting the ABC shows bias becomes itself a status failure: a sign of a lack of moral and intellectual character. And any suggestion that the persistent complaints are a sign the ABC is not being a national broadcaster gets ruled out: being a virtuous broadcaster selling status is precisely why it is valued. (The same points then apply to the BBC, the CBC, etc.) Which works all the better since part of the status being sold is simply high levels of interest in the world around us -- which is why those who also have said high level of interest but don't accept the particular set of status-assumptions being sold get particularly affronted.
Consider narcotics. The law does not protect ownership of narcotics. So private violence becomes the standard method to protect control (i.e. economic property rights) over the product. One cannot sue, so incentives to care about quality are weak. Due to the risks of violence and state confiscation, the profits are high. Said profits can then be used to reduce the risk of state confiscation by purchasing protection from state officials. Which then leads to further measures to try and reduce the ability of police to sell said protection by reducing their discretionary control over the ability to confiscate. Such as by recruiting older police deemed less likely to be "tribalised", oversight bodies, etc.
Consider corruption in the developing world. Selling official discretions is fundamental to much developing world politics. Big discretions on the part of top officials, little discretions on the part of minor officials. Tell folk that it would be much better if such discretions did not exist (i.e. that property rights had clarity and flexibility), and much of the way their politics is run would collapse. Particularly if, as in Latin America, having the connections and wealth to influence the operations of said discretions in one's own favour is a central advantage of the elite. (And then generates that sad Latin American radicalism which holds that the problem is not official discretions but just that they are not held by good people for good purposes.) A lot of developing countries stay poor because what is required for them not to be poor is not in the interests of the dominant decision-makers. (Something pouring in foreign aid generally makes no difference to -- in fact can make worse -- which is why foreign aid has generally been an abject failure.)
What are the markets in the developed world where official discretions are most profitable? Housing, narcotics and Japanese capital markets. Which markets have the most corruption? Land markets, drugs and Japanese financial exchanges (most of the major international financial scandals of the last 30 years have been intimately connected with Tokyo financial markets).
The questions "what is really being sold here?" and "who really controls the use of this attribute?" are good ones. Bill Gates's real genius, after all, is to zero in on what are the crucial attributes and how they can be structured to generate the most market power so the most revenue can be extracted from them.
But, when you buy bubble-jet ink cartridges, you are not buying ink, you a buying ink packaged in a form that your printer can use. It is said packaging that operates in a restricted market. You may buy a printer, but you only rent the ability to keep it functioning.
Given Moore's law leading to declining IT prices due to expanding capacities, the only bit that gives printer manufacturer's any market power is packaging the ink and so they leverage that for all it's worth.
Which reminds me again of why I like Yoram Barzel's analysis of property rights so much. Thinking of things as bundles of attributes helps explain so much.
Consider lottery tickets. Mathematicians and logicians are fond of pointing out that, actuarially, they are bad investments. But what lotteries are selling are licenses to dream.
Or, to use examples Barzel discusses revealingly, insurance and warranties -- they are ways of handling negative attributes (tendency to catch fire, tendency to break down, etc).
Even better is Barzel's point that what matters is who controls the attribute -- who has the use rights, regardless of what the law may say. The law says that the Commonwealth government owns the ABC as agent of the Australian people. But the ABC is insulated from control by the Government of the day, so its staff control the use of the attributes. Which leads to internal fighting over control of attributes and use of said attributes to buttress a sense of belonging to a moral (and intellectual) elite (something the staff can agree on): which then provides for a loyal audience who consume said sense and persistent critics who are affronted by same. Hence the endless arguments over bias: since if you are consuming a sense of belonging to a moral and intellectual elite, any suggestion of systematic bias devalues the product. So suggesting the ABC shows bias becomes itself a status failure: a sign of a lack of moral and intellectual character. And any suggestion that the persistent complaints are a sign the ABC is not being a national broadcaster gets ruled out: being a virtuous broadcaster selling status is precisely why it is valued. (The same points then apply to the BBC, the CBC, etc.) Which works all the better since part of the status being sold is simply high levels of interest in the world around us -- which is why those who also have said high level of interest but don't accept the particular set of status-assumptions being sold get particularly affronted.
Consider narcotics. The law does not protect ownership of narcotics. So private violence becomes the standard method to protect control (i.e. economic property rights) over the product. One cannot sue, so incentives to care about quality are weak. Due to the risks of violence and state confiscation, the profits are high. Said profits can then be used to reduce the risk of state confiscation by purchasing protection from state officials. Which then leads to further measures to try and reduce the ability of police to sell said protection by reducing their discretionary control over the ability to confiscate. Such as by recruiting older police deemed less likely to be "tribalised", oversight bodies, etc.
Consider corruption in the developing world. Selling official discretions is fundamental to much developing world politics. Big discretions on the part of top officials, little discretions on the part of minor officials. Tell folk that it would be much better if such discretions did not exist (i.e. that property rights had clarity and flexibility), and much of the way their politics is run would collapse. Particularly if, as in Latin America, having the connections and wealth to influence the operations of said discretions in one's own favour is a central advantage of the elite. (And then generates that sad Latin American radicalism which holds that the problem is not official discretions but just that they are not held by good people for good purposes.) A lot of developing countries stay poor because what is required for them not to be poor is not in the interests of the dominant decision-makers. (Something pouring in foreign aid generally makes no difference to -- in fact can make worse -- which is why foreign aid has generally been an abject failure.)
What are the markets in the developed world where official discretions are most profitable? Housing, narcotics and Japanese capital markets. Which markets have the most corruption? Land markets, drugs and Japanese financial exchanges (most of the major international financial scandals of the last 30 years have been intimately connected with Tokyo financial markets).
The questions "what is really being sold here?" and "who really controls the use of this attribute?" are good ones. Bill Gates's real genius, after all, is to zero in on what are the crucial attributes and how they can be structured to generate the most market power so the most revenue can be extracted from them.