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A Beautiful Theory Falls to Ugly Data

marginalrevolution.com

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Re: A Beautiful Theory Falls to Ugly Data

#61

Post by skrebbel »

lrasinen wrote: post #8
skrebbel wrote: 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…

The conjecture assumes durable goods, so it doesn't apply to medicine. Also no resale, so that narrows the scope even more. The gist of the conjecture is that if the customers can wait out for price drops and the monopolist wants to sell their thing, then after a few rounds of "he knows that we know that..." the price ends up to be the marginal cost. Now, real world disagrees with the model, so next steps are to exam…

Sorry but what goods are more durable than a pill and cannot be resold?

EDIT: I now understand “durable” to mean “something that lasts long”, whereas I thought it just meant “non-perishable” (ie not fruit or flowers).

Gotta admit I still don’t understand how the original theory resonated with anyone though. I can’t even come up with an example. What monopolist sells a durable good? Games aren't a monopoly. Most other monopolists sell subscriptions or consumables (eg a train ride).

Re: A Beautiful Theory Falls to Ugly Data

#62

Post by skrebbel »

budsniffer952 wrote: post #55
skrebbel wrote: 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

I honestly asked what I misunderstood. Come on. At least do me the courtesy of explaining where I’m wrong.

Sure, my tone was dismissive but that’s because what I understood the article to mean was clearly, obviously ridiculous and I tried to make that clear.

I also clearly introduced myself as someone not knowing anything about economics, having to google “MC”.

Re: A Beautiful Theory Falls to Ugly Data

#63

Post by scotty79 »

"The Coase conjecture predicts that a monopolist selling a durable good will be forced to lower prices quickly because consumers anticipate future price drops, undermining the monopolist’s ability to maintain high prices."

That reads absolutely like a wishful thinking of people that desperately want you to believe that monopolies have any saving grace.

The best strategy is to delay the sale as much as possible, if your potential customers get more affluent on average (more than safe return on capital). Keep price high and steady, gradually capturing more and more customers at this price. The only thing that could force you to lower prices would be looming effective competition (which means you are about to lose your monopolist status) or your customer base shrinking due to general increase in poverty.

Re: A Beautiful Theory Falls to Ugly Data

#64

Post by xg15 »

satvikpendem wrote: post #53
xg15 wrote: post #47

Earlier quoted context omitted.

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.

It doesn't fall to zero, but for some people, there is still a difference between playing a game directly after release when everyone is figuring out and talking about it vs playing it years later.

It's the same as watching a movie in cinema or following a series or watching it later.

Re: A Beautiful Theory Falls to Ugly Data

#65

Post by Ferret7446 »

mitthrowaway2 wrote: post #43
jdhwosnhw wrote: post #27

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…

Yes, especially for a durable good like a video game, having it now means having it now AND also having it later. It strictly dominates having it later, so I would be willing to pay more. Plus, there's utility in synchronizing with my friend group so we can play through together at the same time, discuss it without spoilers, play multiplayer while our skill levels are similar, etc. And that purchase timing will typic…

This still applies to "non durable" goods. Food is worth more today than it is next year, not least of which because if you starve, you won't get a chance to eat it next year. All goods are worth more sooner than later (relative to when they are needed), which is why people pay a premium for faster delivery.

Re: A Beautiful Theory Falls to Ugly Data

#66

Post by satvikpendem »

xg15 wrote: post #64
satvikpendem wrote: post #53

Earlier quoted context omitted.

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

It doesn't fall to zero, but for some people, there is still a difference between playing a game directly after release when everyone is figuring out and talking about it vs playing it years later. It's the same as watching a movie in cinema or following a series or watching it later.

Sort of, for many the cinema screen itself is the experience. In contrast, games played today vs 5 years from now are largely on the same hardware, whether it be the console or PC driving it and the TV and sound system displaying it. Like I said I make affordances for live service or multiplayer games but not sure there's such a strong connection to playing games as soon as they're out, although it does exist somewhat. That's why I classify games as a durable good.

Re: A Beautiful Theory Falls to Ugly Data

#67

Post by xboxnolifes »

satvikpendem wrote: post #53
xg15 wrote: post #47

Earlier quoted context omitted.

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.

This ignores the cultural/community value of games. Games have more value when other people are also playing the game. They don't lose all of their value over time, but, like watching a TV show as it is airing and having the shared experience of talking about it with others, video games also have a shared experience time frame.

This doesn't just apply to multiplayer games either. There is value in the active community conversation surrounding games like Expedition 33, Elden Ring, Baldur's Gate 3, etc.

Re: A Beautiful Theory Falls to Ugly Data

#68

Post by fsckboy »

dudinax wrote: post #7

How is this theory taken seriously when people have other motivators to buy durable goods early even when they know for certain the price will go down but not when?

the theory is about the asking prices charged by the producer, not the purchases made by consumers. After the people you are talking about buy, for whatever reason, what does the price do in the following months.

Re: A Beautiful Theory Falls to Ugly Data

#69

Post by fsckboy »

thelaxiankey wrote: post #35

Anyone more econ literate know why Coase isn't trivially answered by accounting for corporate time-discounting? Maybe I'm missing something, but this always confused me.

the durable goods in question are not produced in advance, they are sold as they are produced, possibly manufactured in limited quantities to create artificial shortages; so there is nothing to discount. The question is, what pricing pattern is in the seller's interest going forward.

Generally, the assumption is that everybody in the market is aware of what's going on, and can adjust their spending accordingly.

Unless you mean discounted future cashflows of purchases, but that would imply by charging a low enough price all future purchases would move to the present.

I'd consider the case of laundry machines. People buy them every so often and then don't need a new one for awhile. Since they didn't buy them all at the same time in the past, one should not expect they will buy them all at once in the future. It seems profit maximizing to behave like traditional monopoly theory, to keep the price high. Is there an economic pressure that would push a monopolist's prices down?

Re: A Beautiful Theory Falls to Ugly Data

#70

Post by fsckboy »

gregw2 wrote: post #10

There are a limited number of bitcoins and Satoshi started out as a monopolist of them... so Coase expects them to get sold at the marginal cost? There are a limited number of iPhones....? Do either of those examples shed light on where Coase went wrong that agree or disagree with the authors?

bitcoins are sold at marginal cost, that's how much miners are willing to spend to mine them.
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