Monthly Archives: March 2018

Why consolidation?

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In my latest essay, More or Less Competitive?, I discuss the very important question of what accounts for the apparent consolidation within industries, with a few winners taking large market shares. I think that the role that software plays in the competitive environment is a big factor.

The strategic utilization of software becomes crucial when software is eating the world, as Marc Andreessen put it. Firms led by executives who quickly grasp the business implications of software and the Internet will win, and other firms will lose.

Read the whole thing (so far, not many people have).

Xprize for robotic telepresence avatar

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A press release announces,

Sponsored by ANA, Japan’s only 5-star airline, the winning team of the ANA Avatar XPRIZE will combine state-of-the-art technologies to demonstrate a robotic avatar that allows an untrained operator to complete a diverse series of tasks, from simple to complex, in a physical environment at least 100km away. Avatars must demonstrate the ability to execute tasks across a variety of real-world scenarios. In the future, avatar applications could help provide critical care and deploy immediate emergency response in natural disaster scenarios, stretching the boundaries of what is possible, and maximizing the impact of skill and knowledge-sharing.

Pointer from Peter Diamindis’ Abundance Insider email list, which I recommend.

I really like the robotic avatar idea.

Barriers to competition

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Commenter Handle writes,

That is, there is a kind of natural selection at work, and corporations – especially those in expensive developed countries – without some special insulation from upstart competition, or benefiting from barriers to entry, will not be able to stay strongly profitable, because some cheaper copycat abroad will be able to arbitrage and eat their lunch.

So, the survivors will all have a special something. A good and classic candidate for one of those special somethings is “positive economies of scale / scope” which includes matters related to “network effects.”

Another commenter writes,

In addition, we should consider the “social norms” multiplier effect on networks.

By this I mean, not doing things because of connections/compatibility (network effects) but doing things (buying particular products) because your community, peer group, etc. do. Or using a particular service out of habit (see amazon prime…)

Girard would say that we want things because our peers want them. The trick for the business offering X is to convince you that all of your peers really want X. Tesla has been successful at that among the tech crowd.

Also, I think that high-quality management is a source of competitive advantage. And that tends to promote concentration, because the firms that are less well managed fall by the wayside.

Carl Shapiro on anti-trust for tech

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The abstract says,

This article discusses how to move antitrust enforcement forward in a constructive manner during a time of widespread and growing concern over the political and economic power of large corporations in the United States. Three themes are emphasized. First, a body of economic evidence supports more vigorous merger enforcement in the United States. This can and should be done in a manner consistent with sound economic principles. Tighter merger control can be achieved by utilizing the existing legal presumption against highly concentrating mergers and by reinvigorating the potential competition doctrine to block mergers between firms that may well become important direct rivals in the foreseeable future. Second, close antitrust scrutiny is appropriate for today’s largest and most powerful firms, including those in the tech sector. However, the coherence and integrity of antitrust require that successful firms not be attacked simply because they obtain dominant positions. Proper antitrust enforcement regarding unilateral conduct by dominant firms should continue to focus on identifying specific conduct that harms customers or disrupts the competitive process, especially conduct that excludes pesky, disruptive rivals. Third, while antitrust enforcement has a vital role to play in keeping markets competitive, antitrust law and antitrust institutions are ill suited to directly address concerns associated with the political power of large corporations or other public policy goals such as income inequality or job creation. Campaign finance reform, tax policy, labor, education, and other policies are far better suited to address those critical public policy goals.

My emphasis. Pointer from Timothy Taylor.

I think that a lot of problems with the dominant firms in tech would go away if somebody were to come up with a subscription model that can displace the advertising model. With subscriptions, the interests of the consumer and the service provider are better aligned. Anti-trust is ill suited to fixing that.

Too much political identification

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Rebecca Newberger Goldstein writes,

I’m no fan of postmodernism, but I somehow doubt that this obscure academic ideology is responsible in any meaningful way for our post-truth woes. For one thing, the writings of postmodernists are so opaque and filled with jargon that I’ve often wondered whether the authors themselves have any idea what they’re trying to say. It’s hard to see how they could exert much influence outside of their own small coterie.

I would say instead that the downgrading of truth, both within the academy and without, shares a common cause—namely, the promotion of political ends above all else. We have lost the capacity to limit the reach of our ideologies and the identities that go with them. Perhaps modern life has so unsettled traditional identities that many of us have nothing better to fall back upon than the crude claims of politics. And it is certainly the case that new media bear some of the blame, with their unprecedented capacity to distort and heighten every point of ideological disagreement and to disseminate it far and wide.

My emphasis. I wish that politics would retreat. Instead, if we look at how businesses are feeling impelled to take stands on political issues, politics seems to be advancing.

Yuval Levin and I were speculating the other day that perhaps our society just wasn’t prepared to handle the media environment that has emerged. Maybe as we adjust and learn, the political tribalism will die down.

Not your 1960s protests

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Barton Swaim writes,

a walkout is supposed to be an act of rebellion, of resistance. It involves risk. Like a strike at a factory—if you participate, you might get what you want or you might lose your job. The Enough! walkout was a safe gesture, honored by our governmental and cultural authorities. The national news media—consider the lavish coverage in the New York Times—practically begged the kids to go through with it and heaped praise on them when they did.

Pointer from the WSJ. The way I would put it is that a real protest is an act of disagreeableness. It is not an act that primarily attracts the agreeables.

Let me reminisce a bit.

1. Around 1966 or so, my middle school in the tony suburb of Clayton, Missouri invited a performance by a group called “Up with People!” Their songs were upbeat and patriotic. They were trying to steer young people away from becoming hippies or war protesters. I hated the assembly, and I let other students know that I didn’t like having an agenda thrust on me like that. It was traumatic for me because a beautiful female classmate sneered at me, “Arnold, you have no soul.” It was an episode that marked me as a disagreeable.

2. The biggest cause for protest at my high school was the demand by students for a smoking lounge. It was not my cause, but lots of students fought for it, and they won. So if you think that the 60’s was all about peace and civil rights, think again. At Clayton High School, it was about a smoking lounge.

3. I remember writing a long editorial in favor of gun control for the high school newspaper, but it’s hard to pinpoint when. I want to say it was after Robert Kennedy was assassinated, but that would have been the end of my freshman year, and I don’t think I became involved with the newspaper until at least a year later.

4. It was actually during high school that I peaked as a radical. I lost my radical edge when I went to college. The Swarthmore radicals scared me, because they either seemed cult-like (this was when Lyndon Larouche called himself Lyn Marcus and was a Marxist and he recruited heavily at Swarthmore) or just not very logical in their thinking. I wanted them to be more intellectually sophisticated than I had been in high school, and it seemed more like the opposite. The bottom line is that I just didn’t connect on a personal level with any of the campus radicals.

One factor in my de-radicalization is that I arrived on campus prepared to re-think my entire personality. I had become aware that my high school persona wasn’t working well for me socially, and I made a conscious effort to be less sarcastic and hard-edged.

The group of friends I fell in with as a freshman had very left-wing views, but politics was not their focus. They were more into folk dancing (and I was not–that came later) and classical music (again, I did not really share that interest, but what little classical music I own goes back to chamber music that I saw my friends perform). If I had been more agreeable, I might have at least joined them for dancing.

Come to think of it, my freshman-year friends were very strongly on the agreeable end of the spectrum. In hindsight, I think I fell in with them because unconsciously they represented the direction I wanted to take myself, and it was exciting because they made me feel like it was working.

In my junior year, I took the first of several economics seminars with Professor Bernie Saffran. Bernie was not out to champion any one political view. He wanted to be friends with everyone in the economics profession, and in that he was very successful. He did his graduate work at Berkeley, where he be-friended many young liberals who later achieved very high status within the profession, including Peter Diamond, Laura Tyson, and George Akerlof. Yet his own views were mildly conservative, and in class he had more praise for Milton Friedman than for Paul Samuelson. Although many of his students went on to become prominent left-of-center economists, more than one of us ended up differently. Jeff Miron comes to mind.

On the whole, my memories of my political self in high school are more negative than positive. The Vietnam War was stupid, but the protest movement was stupid in its own way.

Health care prices and quantities

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Irene Papanicolas, Liana R. Woskie, and Ashish K. Jha write,

The United States spent approximately twice as much as other high-income countries on medical care, yet utilization rates in the United States were largely similar to those in other nations. Prices of labor and goods, including pharmaceuticals, and administrative costs appeared to be the major drivers of the difference in overall cost between the United States and other high-income countries.

Pointer from Tyler Cowen.

The paper is very readable, and the tables are very clear. For example, the ratio of specialist physician pay to the mean wage in the U.S. is 5.3 in the U.S. compared with 3.9 in the next-highest country. For general physicians, the ratio is 3.6 in the U.S. compared with 3.3 in the next-highest country.

The study contradicts most of what I believe about comparative health care spending. It also contradicts the findings of Random Critical Analysis. I think that the probability that the study is mostly accurate is less than fifty percent, but greater than zero.

A challenge is that data are very shaky in many areas. The authors write,

Even when data were collected from the same source, issues of comparability remain because of fundamental differences in how systems are organized and, in turn, how care is categorized. Two areas of particular concern are outpatient spending and the primary care workforce. We attempted to address limitations in the workforce data by utilizing a functionality-based approach to identifying who provides primary care services in each country and by cross-referencing resulting numbers with country experts.

Random Critical Analysis used different data on the health care work force and got very different results.

TLP makes a cameo appearance

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in a new book by Eunice and Sabrina Moyle, called Be the Change. In the section of the book that discusses political activism, they write,

Arnold Kling says that people tend to act according to a dominant axis–a trade-off between two ideas. On one end of the axis is what you want. On the other end is what you don’t want. When people make decisions, they tend to rely on their dominant axis to make a quick decision.

My remarks:

1. In a book that will appeal primarily to those on the left, it is nice to see an attempt to un-demonize conservatives and libertarians. I hope that readers stop and think about these pages and don’t just skip over them.

2. They cite Jonathan Haidt as well, and in fact they replace the oppressor-oppressed axis with Haidt’s care/harm dichotomy. That is an interesting shift. I think that oppressor-oppressed better describes the loudest voices on the left, particularly on college campuses. On the other hand, care/harm represents a less militant and more tolerant form of progressive expression, but one which is not so prominently on display.

3. Without the discussion of the three-axes model (and perhaps even with it), progressives might be inclined to use the book as a “how-to manual” for political action along the lines of the recent nationwide high school student walk-out to support gun control.

4. As a nitpick, I would prefer to replace “tend to act” with “seek a sense of moral certainty and political tribal solidarity” and I would prefer to replace “make decisions” with “communicate to signal approval and disapproval.”

5. The book has very rich graphic design. It reminds me of the look that many publishers are trying to achieve for “family seder” books for Passover. I guess I should not be surprised that the design is striking, given that this is what they do in their cards and stationery business.

Disaggregating the economy: consumption tribes

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In a paper marked “preliminary and incomplete,” Brent Neiman and Joseph Vavra write,

Our key findings, that household product concentration and cross-household variance are both rising, is pervasive and robust: it holds in every geographic market in Nielsen data and so is not simply the result of growing differences across regions. Similarly, while household concentration levels differ with some observable demographic characteristics, the rise in household concentration and cross-household variance holds within income, race, education, age, and other demographic groups. The pervasiveness of the patterns suggest a key role for marketing, production or search technologies, or broad-based increases in preference heterogeneity. We demonstrate the salience of product innovation and the expansion of available varieties for the increase in concentration and segmentation of consumption: these trends hold within most retailers but are strongest in those with the largest increases in offered UPCs. In addition, when we compute concentration growth separately for existing and new products, we find that household concentration increases much more in the bundle of new products. That is, the products accounting for rising shares of consumption within narrow categories are predominantly new products not previously consumed by the household. Over the last decade there have been large increases in the set of products available within particular retailers, and our results suggest this enhances the scope for households to sort into particular product niches.

Thirty years ago, we already knew that households could be sorted into different consumption groups. Looking at just the period 2004-2015, the authors write,

Increases in household-product Herfindahls are even larger, rising by roughly 10 percent over the same time span. Overall these increases in household product concentration are nearly monotonic across time, highly statistically significant, and robust to a variety of specification changes.

Is personality psychology just a baloney sandwich?

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I say no, although it is not like physics. We are talking about modest correlations, not strict laws.

What made the marshmallow test famous was the follow-up work which suggested that a child’s ability to defer gratification on the test helped predict future outcomes, such as SAT scores. These correlations with longer-term outcomes speak to the usefulness of the test in revealing some important trait.