Re: Fear of Life (was Microsoft, Automation)

Dan Fabulich (
Wed, 06 May 1998 15:00:31 -0400


ChuckKuecker wrote:
>For me, profit = income - costs. Before I can get an income, I have to be
>able to present a product for sale. The costs of doing that must be covered
>by my income from sales before I see any profit. If I can't sell enough
>product to cover costs, I am bankrupt.

Too true, and thus I misspake. I maintain that your costs are covered by
your increase in revenues. (The area inside the trapezoid.)

>I believe the DRAM problem arose because someone forecast a much too rosy
>increase in demand, which never occurred.

Maybe. This happens sometimes. I don't see how this applies, however,
unless you're trying to intimate that the increases in demand which I am
referring to are "too rosy."

>Therein lies the rub - who can tell if the costs will be less than the
>revenuse. It's always a gamble. Sometimes you lose. C'est la vie..

Indeed... This IS one of those facts about life.

>>When there's lots of competitors, however, you can't set your price that
>>way. The market sets your prices in perfect competition, because if you
>>raise your prices at that quantity then nobody would buy from you;
>>meanwhile if you lower your price at that quantity you'll take a loss.
>>Thus, your price is the same price as the entire market, and thus your
>>marginal revenue is given by the simple demand curve.
>I begin to see where some of our disagreement may lie. I am talking about
>the real world, not theory.

I'm not suggesting that the real world acts like perfect competition.
However, the sales of copies of something is about as close as you get to
it. Entry into the market is negligible. A copy from one firm is
perfectly substitutable with another firm. It is unlikely that one firm
would be able to have any control over prices in a market like this.

So to this extent, while the market for copies may not be PERFECT
competition, it's damned close.

>Fully satified, in my mind, is there is no one left who wants the product at
>the moment, all have been served. Until this happens, there is still demand.

You can't do that, and don't want to. I might want an ultrasound sensor,
too, if it only cost me $1. I would presume you aren't catering to my
price range, however, so you have to stop satisfying somewhere and choose a
price. And if you're a monopolist, that price will be higher than if you
were in competition.

>In the absence of any controls, how do you prevent a monopoly, given
>somebody with the will to do it and no scruples?? A free market should be
>free of government handouts and special favors, but should also be free of
>coercion and use of force..

Competition. If you're trying to jack up the prices in a nasty way, and
I'm offering an equivalent good at the lower price, you'll fail; the
consumers will all (freely) buy from me.

Indeed, many economists believe that it's nearly IMPOSSIBLE to create a
(non-natural) monopoly without government support. Once the monopoly tries
to jack up the prices, it creates a window between the actual marginal cost
of the product and the market price, a window which competitors can make a
profit filling. So if you're really looking at someone to blame, look to
the government, which has a history of corrupt corporate welfare. It's
"good for American businesses." Heard that one before?

>Agreed. That I need to be 'competitive. I still don't agree that I should
>have to allow others to take my devlopment as is without compensating me.

Returning to my original point, when you create something without monopoly,
it's a good with positive externalities. Your profits increase (given by
your trapezoid minus the cost of invention) and all other firms in the
industry gain as well (each of their individual trapezoids). But when you
create a monopoly, you deliberately cut off those externalities, and
instead create an economic BAD: higher prices at a lower quantity.

I put forward that the cure, in this case, is worse than the "disease,"
loathe though I am to call positive externalities a disease.

>Look at it this way. I make ten widgets and put them on the market. I get
>people offering to buy them. Someone comes along and steals five, exerting
>some effort to convey them to his plant. I should allow him to keep and sell
>them, because he took the effort to transport the product? The same thing
>holds if I produce an idea, convert it to workable plans, and someone takes
>the plans and builds my gadget. I have been the victim of a theft either
>way. Ideas are the property of the thinker, until that person gives the
>rights away.

This isn't comparable AT ALL. When someone takes five of your widgets, you
can't sell them. You reap no trapezoid. When someone makes five widgets
just like yours however, you can sell them, all of them, in a free and
competitive market, and you ALL get a trapezoid.

You can't compare information to widgets; the transmission of information
is a SERVICE, not the sales of goods. When I give you a backrub, I do you
a service. I have not made a "backrub unit" and sold it to you. I have
scratched your back, and you have paid me for it.

Rather than thinking of services like widgets, try thinking of them like
fire, a far more apt simile. If you have fire, and I stick wood in your
fire and "take" your fire, is your fire darker? What have you lost,
precisely? The reason this is so tricky is because the distribution of
fire is a service, not a widget. If I WERE to sell you fire, it would not
be because I have made a fire unit and I am selling you one. If I were to
sell you fire, I would be doing you the SERVICE of igniting your wood. And
BECAUSE services aren't like widgets, I can reasonably expect that someone
else will be able to emulate my service; in this case, probably the person
I sold it to.

The difference between a service and the sale of goods is not semantic;
neither is the sale of goods a service. They are distinct non-colliding
entities (unless someone has an example to the contrary; this isn't one)
which represent very different transactions.

>All we need is someone who will put up the money to the inventor for the
>rights to the product, knowing that as soon as he produces the thing, twenty
>knockoff plants will be making the identical thing, and at less cost, since
>this poor fellow had to pay the inventor. The theft is now one person
>removed from the inventor, and he does not suffer directly. Since there is
>no property rights in an idea, the first plant owner can't recover from the

The investor does not buy the RIGHTS from the inventor; he pays for the
service of being told the information. And reasonably, if that investor
wants to sell that service to others, he must expect that others will be
able to emulate his service.

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