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Intangible investment behaves differently

gatesnotes.com

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Re: Intangible investment behaves differently

#71

Post by JackFr »

pjc50 wrote: post #52
sonnyblarney wrote: post #21

1) The first two paragraphs about 'assumptions' are essentially false. There are no assumptions in supply and demand, it's not a dynamic equilibrium, it's a snapshot. Yes - over time supplies tend to change due to demand, of course, but that's 'long run' stuff ... not in that chart. The author is kind of misinterpreting the chart. 2) It's not 'sunk cost' that's the issue, this is about 'fixed' vs. 'unit' cost. Softwa…

> There are no assumptions in supply and demand, it's not a dynamic equilibrium, it's a snapshot. It absolutely is an equilibrium in normal economics: https://en.wikipedia.org/wiki/History_of_microeconomics

I think the issue is that the prose isn't clear about what 'an increase in demand' means. It can mean either a movement along the current demand curve due to a shift in the supply curve, or it can mean a shift in the demand curve, and those changes correspond to different things in the real economy.

Re: Intangible investment behaves differently

#72

Post by techopoly »

interfixus wrote: post #49
LeifCarrotson wrote: post #34

Earlier quoted context omitted.

https://i.ebayimg.com/images/g/azAAAOSwD99av12v/s-l1600.jpg There's a shrink-wrapped cardboard package that contains Windows 98. It's the size of a cereal box, and at least as colorful. Today, I'd be intensely annoyed if I had to wait for and pay for a large box to ship - I'd much prefer an instant download, but the box was much more tangible than an email with a download link and license key.

At the time of Windows 98 you probably wouldn't have wanted to download the damn thing. If you are of a younger generation, you may not believe it, but many of us in those days made do with something called dial-up connections to the internet. I well remember downloading the StarOffice - precursor to LibreOffice - suite in the days before it was taken over by Sun, meaning 1999 at the latest. Took a little over five h…

Ah yes, the memories of those agonizingly slow (and noisy) Internet connections. Ironically, software, particularly games, still can take 5 hours to download. It's just that they're inordinately huge now. Battlefield 1 with its patches can run over 110 GB.

Re: Intangible investment behaves differently

#73

Post by sonnyblarney »

pjc50 wrote: post #52
sonnyblarney wrote: post #21

1) The first two paragraphs about 'assumptions' are essentially false. There are no assumptions in supply and demand, it's not a dynamic equilibrium, it's a snapshot. Yes - over time supplies tend to change due to demand, of course, but that's 'long run' stuff ... not in that chart. The author is kind of misinterpreting the chart. 2) It's not 'sunk cost' that's the issue, this is about 'fixed' vs. 'unit' cost. Softwa…

> There are no assumptions in supply and demand, it's not a dynamic equilibrium, it's a snapshot. It absolutely is an equilibrium in normal economics: https://en.wikipedia.org/wiki/History_of_microeconomics

Assumption 1 from article:

"demand for a product goes up, supply increases, and price goes down"

Assumption 2 from article:

"The second assumption this chart makes is that the total cost of production increases as supply increases. Imagine Ford releasing a new model of car. The first car costs a bit more to create, because you have to spend money designing and testing it. But each vehicle after that requires a certain amount of materials and labor. The tenth car you build costs the same to make as the 1000th car"'

In assumption 1 - he's not describing how equilibrium works at all. Equilibrium is the price the market will clear at given a supply and demand curve. If 'demand goes up' - given a fixed supply demand curve ... 'price goes up'. So what the author must be referring to is some kind of market response, i.e. if demand is increasing for something, more suppliers will come along and build it, create more competition, and drive prices down. This has little to do with the Supply/Demand curve.

I don't even know what assumption 2 is about, I get what he is saying but it has nothing to do with supply and demand curves.

Anyhow - even if there is logic in his statements, neither assumption is drawn from the Supply and Demand curve he is showing.

Re: Intangible investment behaves differently

#74

Post by noahl »

crazygringo wrote: post #62

Who exactly isn't paying attention? Gates never says. I don't know anyone who is reasonably educated in business/economics who doesn't understand the software/publishing business model, which is taught... literally everywhere. I seriously have no idea what he's arguing against. Even with the supply curve, real-world commercial software virtually always has unit costs. It generally takes marketing and/or sales to acqu…

He seems to be arguing that policymakers aren't paying enough attention to this. He specifically calls out intellectual property laws, tax policy, and competition laws as three areas that have not yet adapted to this trend.

It sounds like your point is that the entire business world understands software in 2018. I don't think that's entirely true, but I'll accept that it's pretty close. However, I don't think Gates is talking about the business world.

Re: Intangible investment behaves differently

#76

Post by mbrameld »

vultour wrote: post #47
pjc50 wrote: post #42

Earlier quoted context omitted.

Games companies often had what they called "feelies": my copy of Ultima 7 came with a cloth map of Britannia and a small black "moonstone". You didn't have this for business software, but you did need something to keep the disks in. I think the largest such thing I saw was 100+ floppy disks; here's Raymond Chen on floppy installs of Windows: https://blogs.msdn.microsoft.com/oldnewthing/20050819-10/?p=...

Well all games used to come as a CD in a box, simply because it wasn't viable to download them from the internet. I still remember the amazing box for GTA:SA that came with a large map and a little booklet to introduce you to the game.

To be a little pedantic, sometimes they came on floppies or even just as source code printed in a magazine you had to copy by hand.

Re: Intangible investment behaves differently

#77

Post by TeMPOraL »

BoiledCabbage wrote: post #30
mathattack wrote: post #6

I think his straw man for supply and demand is off. Higher demand doesn’t create lower prices. Lower prices creates “more quantity demanded” at a given level. If demand increases, then prices and quantity both go up. This may be semantics, but it isn’t like economics completely falls apart. Similarly, economics is able to handle products with high fixed and low marginal costs. (Natural monopolies) I suspect he gave t…

That's bothered me before. It really seems like economists flipped their axes on a basic supply demand curve. They discuss it as if price is the independent variable and quantity (demanded or supplied) is the dependent, and yet any 9th grader would be marked down for putting their independent variable on the "y-axis". It amazes me how something generally accepted as wrong stays that way.

> That's bothered me before. It really seems like economists flipped their axes on a basic supply demand curve.

Given that any Y-X chart is an X-Y chart if rotated 90 degrees and then flipped horizontally, is there any real issue here, other than the axes being the reverse of the standard statistical style?

Re: Intangible investment behaves differently

#78

Post by TeMPOraL »

crazygringo wrote: post #63
losvedir wrote: post #53

There are two assumptions you can make based on this chart. The first is still more or less true today: as demand for a product goes up, supply increases, and price goes down. If the price gets too high, demand falls. Er, no. I guess even smart people like Gates get simple economics wrong sometimes. It's understandable, though, I've always felt the P/Q axes should be switched, since people always speak about the pric…

1) Everything you say is correct, and I have no idea why you're being downvoted. 2) In my experience, the supply+demand curve is one of the most misunderstood concepts in economics, and it took me a long time in college until I found an economics professor who could explain it properly. A lot of really intelligent people I know don't understand it (even though they think they do), and in my experience most business p…

RE 2), could you share your understanding, or point towards some resources that would let me check if my understanding is correct?

Re: Intangible investment behaves differently

#79

Post by mathattack »

MoBattah wrote: post #32
mathattack wrote: post #6

I think his straw man for supply and demand is off. Higher demand doesn’t create lower prices. Lower prices creates “more quantity demanded” at a given level. If demand increases, then prices and quantity both go up. This may be semantics, but it isn’t like economics completely falls apart. Similarly, economics is able to handle products with high fixed and low marginal costs. (Natural monopolies) I suspect he gave t…

>I suspect he gave this book review assignment to an intern that majored in something besides CS, business or Econ. I was under the impression the Gates Notes were written by him, wrong?

So did I. But usually they’re better written. (Though he’s made stats and econometrics mistakes in the past - see his writing on small school sizes)

Re: Intangible investment behaves differently

#80

Post by mcculley »

crazygringo wrote: post #62

Who exactly isn't paying attention? Gates never says. I don't know anyone who is reasonably educated in business/economics who doesn't understand the software/publishing business model, which is taught... literally everywhere. I seriously have no idea what he's arguing against. Even with the supply curve, real-world commercial software virtually always has unit costs. It generally takes marketing and/or sales to acqu…

Bill Gates is claiming that the old men who run the world have not yet internalized this. You are correct that this is taught in colleges now. We have to have a whole generation die off before that knowledge is widely applied.
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