Richard Langlois on Dynamic Competition

This is probably the clearest explanation of the differences between the concepts of dynamic and static competition I've ever read. In his written testimony to the British Parliament in December 2015, Richard Langlois explains the differences between these two ways of understanding competition in the context of technological innovation and competition in electronics. While he focuses on electronics, many of the concepts can be applied to agricultural innovation. One especially interesting application to agriculture is the increases in the features seed companies provide to their customers (e.g. crop scouting for a relatively small fee). This testimony would be a very good addition to the reading list of any IO course.

The document is pretty short and is certainly worth reading. Here are a few of my favorite paragraphs:

Nobel Criticism and Agricultural Economics

This year's winner of the Prize in Economic Sciences in Memory of Alfred Nobel went to Princeton economist Angus Deaton. The internet was abuzz with commentary all day, so this post is a bit late.

I would wager that most ag economists who took PhD consumer demand after 1980 used "Economics and Consumer Behavior" by Angus Deaton and John Muellbauer in that course. For those of us who don't work in development, Deaton's work on the Almost Ideal Demand System was probably our introduction to him. The blog posts I read today (here, here, here, and here) brought me up to speed on his tremendous contributions and I certainly recommend reading them.

As the title suggests, I read another commentary on the Econ Nobel that was notable for its negativity toward the prize and (at least the author seems to think) to economics in general. The article, written by anthropologist Joris Luyendijk, excoriates the Sveriges Riksbank (the Swedish central bank behind the Econ Nobel and its $1 million cash prize) for failing to present the award to social scientists in different fields, and the economics profession in general for its inability to live up to its claimed status as a science.

Certainly there's a lot packed into the article, but I just want to respond to a few things. First, no one is stopping any organization interested in sociology, anthropology, or political science from establishing an annual prize for contributions to those fields.

Perfect Markets and the Beauty of B School Economics

Don Boudreaux at Cafe Hayek has written several posts recently that are related to some of the themes I've been focusing on lately. (See his posts here, here, and here.) I'll quote from the first one and provide some of my thoughts.

The market process is chiefly one of entrepreneurs spotting market failures and sub-optimal situations – spotting problems that have yet to be ‘solved’ adequately by market (or non-market) forces – and then experimenting with actions to address such problems.  The discipline to ensure that such experiments work as well as possible over time is supplied by (1) the fact that those who do the experimenting in private markets put their own money and effort on the line (rather than money and effort forcibly commandeered from others), (2) consumers’ freedom to buy or not to buy the resulting products, and (3) the actual and potential competing experimenters who do, or might, arise along side of the initial entrepreneurial experimenter.  And this on-going process is indeed just that: a process that, as much as it improves market performances over time, never comes close to creating any situation that deserves the name “perfect market.” 

The Benefits of Free Market Monopoly

For most politically-minded people, the term "monopoly" typically brings to mind an image of greedy corporate executive laughing as he counts his wads of cash. They likely think of unjustifiably high prices and industries dominated by one or a few firms. Certainly most people view monopoly as a bad thing.

The primary reason economists consider monopoly to be a bad thing is deadweight loss. Deadweight loss refers to the loss in consumer and producer surplus due to lower optimal output relative to the outcome in perfect competition. This deadweight loss is problematic because it represents value that is never created. It's not such a concern who would have captured that value (i.e. whether it would have been consumer or producer surplus), but that the value is never created in the first place. Even if the appeal to perfect competition seems problematic, doesn't it still seem sensible to oppose monopoly on the grounds of the deadweight loss it creates?