From: Jim Choate <ravage@einstein.ssz.com>
Date: Tue, 6 Oct 1998 08:15:04 +0800
To: cypherpunks@einstein.ssz.com (Cypherpunks Distributed Remailer)
Subject: Free Market Monopolization Theory...
Message-ID: <199810061319.IAA07486@einstein.ssz.com>
MIME-Version: 1.0
Content-Type: text



Hi,

Here is the note that I made regarding the saturation of free market
economies.

Note that this is several months old and I haven't been diligent in keeping
it fully up to date...

Forwarded message:

> X-within-URL: http://einstein/ravage/free.market.monopolization.html

> This is the theory in its current working version:
> 
> An unregulated (free-market) economy will inherently monopolize when, but
> not necessarily only if, the following are present:
> 
>  -  the commen assumption by current free market models that consumers
>     are rational is irrational. A consideration of succesful marketing
>     mechanisms and human psychology will clearly demonstrate that
>     consumers are at best partialy rational. This is the fault in all
>     anarchy models (eg crypto-anarchy), they assume in an axiomatic
>     fashion that all participants will cooperate for not only their
>     individual best interest but the cooperatives best interest without
>     sufficient recognition that these may in many cases be in conflict.
>     It is the same failing every form of government without a clear and
>     proscribed list of individual and state rights and limits has, the
>     assumption that some minimal set of behaviours or goals will satisfy
>     all participants in all cases. The theory 'What is best for all is
>     best for the one' is false.
> 
>  -  the importance of cooperation for mutual benefit that is axiomatic
>     in current free market theories is false. Mathematicaly the prisoners
>     paradox provides maximum payoff when defection occurs at a relatively
>     high rate and in a random pattern. A primary goal of any business is
>     not to ensure the survival of itself and it competitors but rather to
>     eliminate competition through more succesful strategies. A rational
>     consumer will act irrationaly at times because it is in their long
>     term best interest. Therefore the distinction between rational and
>     irrational consumers is false.
> 
>  -  the market is saturated, in other words the number of consumers at
>     any given time are equal to or less than the service providers ability
>     to provide that service (or resource). This means the long-term survival
>     of firms is a function of retained market share and raw resource share
>     control/ownership.
> 
>  -  the technology and/or start-up costs are high in material and
>     intellectual factors. This minimizes the potential for new providers
>     to start up. Providers will also require non-disclosure and other
>     mechanisms to reduce sharing of information and cross-communications
>     except under controlled conditions. Expect an increase in certifications
>     and implimentation standards required to do business with the more
>     succesful of these providers.
> 
>  -  an individual or small group of service providers have a small but
>     distinct efficiency advantage in technology, manufacturing, or
>     marketing. Over a long-enough time this market advantage will grow
>     and as a result widen the 'technology gap' between firms.
> 
>  -  expect the most efficient firms to share their profit with the
>     critical intellectual contributors. This further reduces the
>     problem of cross-communication and new provider start-up.
> 
>  -  expect to see the more successful providers to join in co-ops with
>     the less succesful providers. This will be under the surreptitous
>     goal of 'developing technology'. It's actual goal will be to cause
>     these smaller firms to commit resources to such enterprises. As soon
>     as it is strategicaly advantagous the primary providers will break-off
>     the co-op. This has the effect of further reducing the ability of the
>     smaller providers to react in a timely manner to market changes or
>     develop new technology due to resource starvation.
> 
>  -  expect to see the less efficient providers to combine in an effort
>     to reap the benefits of shared market share and resources. Unless
>     this partnering provides a more efficient model and there is sufficient
>     time for that efficiency to develop these new providers will eventualy
>     fail or be joined with other providers.
> 
>  -  expect to see the primary provider buy those less efficient providers
>     that don't fail completely. These purchases will be as a result of
>     some new or unexpected technology that will significantly increase
>     the market share of the primary provider -or- it will be with the
>     goal of eliminating this secondary technology and forcing those
>     market shares to do without or use the primary providers technology.
> 
>  -  initialy prices for services will be low to promote purchasing but
>     as providers obtain larger market shares their prices will increase
>     over time and out of step with inflation and other market forces in
>     order to widen the profit gap. The strategy is one of 'use it or
>     starve'.
> 


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