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A Beautiful Theory Falls to Ugly Data

marginalrevolution.com

51–60 of 73 posts

Re: A Beautiful Theory Falls to Ugly Data

#51
post #2

I had to look up “MC” to be able to understand this. It means Marginal Cost. EDIT I still don’t understand it, I think. My read is: someone named Coase theorized that monopolists of durable goods will actually sell their products at marginal cost because of some weird mind game with their customers (the obvious unwritten corollary being that monopolies are fine ). This is obviously untrue and we all know plenty of ex…

You're not the first person with... an opinion on economic "science".

Paul Krugman: https://www.princeton.edu/~pkrugman/interstellar.pdf

"This paper, then, is a serious analysis of a ridiculous subject, which is of course the opposite of what is usual in economics."

Re: A Beautiful Theory Falls to Ugly Data

#52
post #5

Earlier quoted context omitted.

Some aspects of the conjecture make sense and are observable: Consider e.g. Steam (digital video games): Prices are discounted over time because of "greed" (=> desire to sell the same product to customers that value it less than the first wave). Customers do adapt to this, and expect future discounts (sales) at release date already, and defer their purchase accordingly (despite valueing it higher!). But in reality, c…

> Consider e.g. Steam (digital video games): Prices are discounted over time because of "greed" (=> desire to sell the same product to customers that value it less than the first wave). Steam doesn't have actual monopoly. Their position is caused wholly by competition consistently shooting themselves in the foot by either offering inferior product or just annoy the customers For example let's take EGS: "We will take…

Well yeah. Challengers of a (quasi-) monopoly need to be better, but they behave like they are the monopoly who can piss on its users and Steam doesn't. The situation is completely ridiculous.

Re: A Beautiful Theory Falls to Ugly Data

#53
post #47

Earlier quoted context omitted.

I think the biggest (and, in my opinion, obvious) problem with this argument is that it relies on time having no value in the eyes of the consumer (or, equivalently, that the seller believes this to be the case). A consumer 5 years after a game's release may only purchase said game at marginal cost, but the consumer 1 day after release is willing to pay a premium to receive the product. There really doesn't seem to b…

Maybe that's what "durable" means in economic jargon? A good that does not (or only very slowly) lose value over time? If that what it means, Steam would not apply, because games were by that definition very much not durable.

Games don't lose value over time though (barring exceptions like live service). A game now is just as fun as later.

Re: A Beautiful Theory Falls to Ugly Data

#54
post #32
post #22

Idk the obvious answer seems to be that buying now vs buying later isn't the same? Seems like a preposterous assumption; or rather an assumption that obviously never holds for any market ever so this theory is unfalsifiable by empirical data (and also irrelevant to the real world).

This. The full set of constraints (monopoly, durability, constant MC, timelessness) can hardly ever be fulfilled. So it is not falsifiable by empirical data. But nobody has questioned the logic conjecture itself here, even the article doesn't try. It seems pretty plausible, doesn't it?

I agree it does seem pretty plausible as some kind of iterated / timeless theory divorced from reality, but especially the assumption that time is irrelevant to the buyer seems completely fanciful. I am usually all for theories that make idealized assumptions and think there's merit to approximations, but this is so egregious--there will never be any market or situation that is anywhere close; and the theory completely breaks down if the assumptions aren't utterly fulfilled. That makes it not even of academic interest, it's completely useless even as a theory.

Re: A Beautiful Theory Falls to Ugly Data

#55
post #2

I had to look up “MC” to be able to understand this. It means Marginal Cost. EDIT I still don’t understand it, I think. My read is: someone named Coase theorized that monopolists of durable goods will actually sell their products at marginal cost because of some weird mind game with their customers (the obvious unwritten corollary being that monopolies are fine ). This is obviously untrue and we all know plenty of ex…

"I don't know who any of these people are, or what the theory is, but it's obviously wrong."

- Classic HN commentor

Re: A Beautiful Theory Falls to Ugly Data

#56
post #2

I had to look up “MC” to be able to understand this. It means Marginal Cost. EDIT I still don’t understand it, I think. My read is: someone named Coase theorized that monopolists of durable goods will actually sell their products at marginal cost because of some weird mind game with their customers (the obvious unwritten corollary being that monopolies are fine ). This is obviously untrue and we all know plenty of ex…

A common misunderstanding, this. Economists in theory don’t focus on starting with the right set of assumptions, like any gentleman they instead focus on starting with the right set of conclusions. They then, in theory, argue passive-aggressively over why their model is The Right One using increasingly obtuse game theoretic models, usually with a drawing of two lines intersecting. The rest of the world? We simply shrug and ignore them.

Much like the the people ignored the idiot savants tucked away in medieval monasteries. At some point they become useful, like when the king needs to know what the nature of God is, who It approves and why it’s him and not the other guy.

Now that we've traded our warrior nobility for economic nobility, the neurodivergent and mildly touched ones are tucked away in academia instead. Pleasantly seperated from their subject of study. To figure out the nature of "The Market", and why it is, in theory, as Rational and Self Organizing as a medieval Thomist Universe.

And we are like the medieval peasantry who cannot understand an iota of what they're scribbling in their intimidating books. But we can see they're still fighting over It, just like they fought over resolving the philosophic contradictions of the faith.

It makes one wonder: what shape and mission will They have next? Will it be in explaining the actions of some sentient supercomputer, which both feeds and spanks us? Or which irradiated plants will take us beyond the Seventh Sphere, in theory? More at eight.

Re: A Beautiful Theory Falls to Ugly Data

#57
post #11

What seems intuitively wrong as a layperson new to this about Coase's theory, is that the "surprising" collapse in prices to marginal cost "in period 1" assumes that consumers have no marginal utility, and thus no price sensitivity, of consuming the good sooner rather than later. If that fails. Coase's argument fails. No?

Yeah, that's what bothered me when I read it, too.

Re: A Beautiful Theory Falls to Ugly Data

#58
post #26

Earlier quoted context omitted.

The elegance of the conjecture seems overstated, and looks like dressed-up ideology. The conjecture requires a theory of time in the form of periods/rounds to reduce price to zero - but wants to ignore time when it comes to information spread and product value. Pinning a variable to any 1 extreme can be very informative, but when the variable has to both exists to justify the presumption, but also be ignored in the m…

Not really. Game Theory (in this iteration at least) is about identifying equilibria, not about the process of reaching them. This is one of several "deviations" of Game Theory from "reality". The fact that equilibria are fixed-points and can be explained in some sort of bargaining process doesn't really mean that's how we should actually imagine them. If we do so, we both overstate the theory (claiming some sort of…

I think you misunderstood my previous comment.

Game theorists, like any academic, prefer models with the least number of assumptions and (transitive) dependencies.

My issue is with thinking this presumed fixed point was created with an elegant model (and thus conclude it's relatively interesting to study).

If you deconstruct the model - i.e. look through its full dependency tree to state the assumptions - It's not simple or elegant.

Other assumptions like modeling without irrational behavior are purer in that sense.

Re: A Beautiful Theory Falls to Ugly Data

#59
post #50

I think E-Books are a bad test subject. Theoretically they are a durable good, but realistically the demand for a single public domain eBook is not a large market and easily satisficed. If you look at real world examples like wheelbarrows (something like 80% of all wheelbarrows sold in the US come from one company) - sure they use a bunch of tricks to charge more for some customers - but the cheapest, basic wheelbarr…

But who has the monopoly on wheelbarrows?

Ames True Temper.

Nearly every brand of wheelbarrow you see at hardware stores is just a white-labelled Ames product. (With the exception of Gorilla Cart and a few niche players).

Re: A Beautiful Theory Falls to Ugly Data

#60
post #5
post #2

I had to look up “MC” to be able to understand this. It means Marginal Cost. EDIT I still don’t understand it, I think. My read is: someone named Coase theorized that monopolists of durable goods will actually sell their products at marginal cost because of some weird mind game with their customers (the obvious unwritten corollary being that monopolies are fine ). This is obviously untrue and we all know plenty of ex…

Some aspects of the conjecture make sense and are observable: Consider e.g. Steam (digital video games): Prices are discounted over time because of "greed" (=> desire to sell the same product to customers that value it less than the first wave). Customers do adapt to this, and expect future discounts (sales) at release date already, and defer their purchase accordingly (despite valueing it higher!). But in reality, c…

These aren’t monopolists, unless you define the market as “that single game” which frankly is a bit ridiculous.
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