Chatalas Shrugged

Week 2 of class provided a nice overview of the economics basics, explained in a fairly easy-to-understand manner. This baseline should be helpful as we delve further into the subject matter. However, as I become re-acquainted with Adam Smith, I’m not overly impressed with how some of his theories have played out.

It’s clear that the economics of information varies greatly from the time-worn economic approaches applied to industry. And my reading of the first few chapters of Free support this. Scarcity doesn’t apply to information, and distribution costs are minimal. Information is, indeed, the epitome of high fixed costs, low marginal costs.

From our discussion, Adam Smith isn’t getting too many plaudits from me. His definition of  “perfect competition” is elusive in reality; it’s far too narrow a definition to give the competitive markets credibility in this context. There is just too much product differentiation for this type of competition to apply.

Going further, society and economy these days are far too diverse to be governed any more by the standard economic dogma and theories. I’m guessing that all the books we read this term are likely to reinforce this. In particular, “externalities” are challenging the premise that all market decisions are based on money. Instead, we are seeing externalities such as reputation playing a much larger role in the economics of information. We regularly see people creating and sharing for free to enhance their standing, rather than working within a typical market relationship. And as we review more of Adam Smith’s theories, I’m willing to bet that he has some corollaries that do apply to the present.

Lastly… we spoke about it briefly, but the topic of whether online content will find a paying audience is very interesting to me, too. I’ll be focusing on this subject in my discussion/presentation for class next week. See you then.