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The Tyranny of the Market
This new book is by sometimes Slate.com columnist and U. Penn economist Joel Waldfogel, of "Deadweight Loss of Christmas" fame. The subtitle is "Why You Can't Always Get What You Want."
This well-written monograph is the best extant non-technical treatment of fixed costs and how they limit product diversity. On a given night, you can't see a live performance of Samuel Beckett in Topeka, Kansas but maybe you can in the larger New York City; fixed costs are why they won't set up the stage and hire the cast for only five viewers.
But Waldfogel is more pessimistic about the market than I am. The book's opening example is about how hard it is to find radio stations in underpopulated areas; satellite radio is mentioned on p.120 but I would have started with its reach and also its limitations (and here). There is internet radio as well. The first example in the empirical chapter is that it takes $900 million on average to develop a new drug, but regulations and the FDA are not mentioned.
I can recommend this book but I do not agree with its central conclusion: "Markets do not avoid the tyranny of the majority." There are very few areas of my life, if any, where markets force me to follow the wishes of the majority.
Oddly the biggest problem is not mentioned and that is style and marketing. Retail outlets do not carry many items, not because they couldn't hang some of the stuff from the ceiling, but rather because they wish to project a focused image. In other words, the real problem, when there is one, is the very limited attention spans of the consumers and the ad watchers and the product line gossipers.
Posted by Tyler Cowen on September 19, 2007 at 05:18 AM in Books | Permalink
Comments
Radio strikes me as an ill-thought-out example of the "tyranny of the majority." Not only does satellite radio provide a fair amount of diversity everywhere, but one of the main functions of radio -- providing music to listen to -- is easily supplanted by a host of technological devices. Markets made that iPod my wife has; markets provided the hundreds of albums it is stuffed with, probably 75% of which have never been played on any radio station in the US; markets (namely eBay) even provided the dozens of 30-to-50-year-old traditional Newfoundland LPs I've ripped for her to put on it.
Markets, in other words, have ensured that when she is out driving, she can listen to our perfectly obscure music wherever she is. The only other people whose tastes she has to worry about is whoever is in the car with her.
I suppose you can argue that for the non-musical world, radio does limit you -- even with satellite radio you can't exactly listen to play-by-play of an Eastern Michigan University women's track meet while you're driving in Alaska. But given advances in broadcasting over the Internet and mobile wireless, I wouldn't be surprised if that limitation is gone in another decade.
Posted by: Sol at Sep 19, 2007 6:47:50 AM
The radio example is a horrible thing to bring up in this context. The problem with radio is not that the markets control it, it's that there is only so much bandwidth out there. If the government owned all the air waves, there would still be large volumes of audible information that couldn't be carried due simply to bandwidth problems. If you devoted every available band in both AM and FM to college football, you still wouldn't be able to get every game on a usual Saturday - let alone anything else.
And besides that, what's the alternative? If the government ran radio it might put more stuff out there with only two listeners, but the fixed costs are still there. That just means that those two listeners are now forcing the rest of us to pay for it. That hardly seems fairer than majority rule.
Posted by: Josh at Sep 19, 2007 7:12:34 AM
Tyranny of the majority? Since when? Does Bobby Mugabe's tyranny
represent the majority in Zimbabwe?
Posted by: Bill Stepp at Sep 19, 2007 7:54:24 AM
It is not quite "tyranny of the majority", but neither do markets provide the diversity of choice that should in theory be possible. Turning on 3 TV news channels to find them all with non stop coverage OJ's latest, or 20+ movie theaters with less than 10 choices of movies, or no store in your area with shoes in your size is enough to make you believe there is tyranny of the majority at times.
Posted by: joan at Sep 19, 2007 7:55:14 AM
Perhaps it is tyranny of markets, not majorities;
1. If I find something that fits, when I return later it will no longer be sold..it will be replaced by another style with different fitting
2. Markets force "gadgets" to have many unneeded features that no one uses, but make the item hard to use.
3. Instead of a wide variety of choices, typically there is a wide variety of very similar products. For example, try to buy a black resin mens watch that does not contain writing all over it explaining its features and pretending that it is used by atheletes or mercenaries.
4. Entertainment is inevitably pushed in the direction of the crassest lowest denominator and alternatives are marginalized. The classic example of this is the games in ancient Rome. This started out as athletic contests, but over time market forces led to the spectacle of virgins versus wild animals.
Posted by: RobbL at Sep 19, 2007 8:16:30 AM
The book's opening example is about how hard it is to find radio stations in underpopulated areas.
Radio?!? You've got to be kidding. What a bad example. There are so many Internet radio stations available that I couldn't possibly begin to listen to them all (including streams from the major metropolitan area stations that you can't get over the air) -- and for free, it goes without saying. And, of course, all the songs played on those stations are available 'a la carte' for little or no cost (at most, the cost of a monthly subscription service). It used to be a problem for movies -- if you lived in a town with only a multiplex you were out of luck. Then the video store greatly expanded your opportunities and Netflix has made everything available everywhere. Books, too -- it wasn't *that* long ago that visiting friends wanted to make the 'pilgrimage' to Borders (I live in Ann Arbor). And, of course, you no longer need to have a good book store where you live. And there are other examples -- how great it is to be able to find all kinds of old, forgotten shows and performances on YouTube. Or live TV programs from around the world on TVU.
Live performances remain an exception, yes, but so many other areas used to be characterized by the same dynamic and no longer are.
Posted by: Slocum at Sep 19, 2007 8:24:58 AM
Seems like a particularly weak time to make this argument, when the Internet has opened up the market floodgates of minority preference.
Posted by: Jason Malloy at Sep 19, 2007 8:26:25 AM
Stupid browser -- I didn't submit repeatedly, just tried to navigate back from the comments page to the main page using the back button.
Posted by: Slocum at Sep 19, 2007 8:26:35 AM
You can actually get internet in remote and regional areas? You clearly don't live in australia, where lots of people are stuck on dialup speeds or out of coverage for anything at all (unless you install and commission your very own sat dish for transmit and receive at prohibitive expense - the PSTN speed is slower than GPRS.)
Posted by: CthulhuDreams at Sep 19, 2007 8:51:06 AM
I hate all those people who made Chipotle stock go over $100 a share, now I won't buy it. I only want to pay $60 a share. Sic Semper Tyrannis!
Posted by: 8 at Sep 19, 2007 8:51:43 AM
Oh and those dialup speeds are not going to be 56k either :P
Posted by: CthulhuDreams at Sep 19, 2007 8:52:21 AM
Didn't Chris Anderson make the exact opposite point in 'The Long Tail'?
Posted by: Independent George at Sep 19, 2007 9:07:43 AM
I haven't read the book, but I do have a comment ... (does this sound like it is out of a faculty meeting or what?)
I think the "tyranny of the majority" is an interesting counterpoint to Chris Anderson's "long tail" phenomenon. Fixed costs do indeed have to be recovered else they are not incurred, and that can be done through increasing the number of payers, raising prices, or through relationships with complementary goods. In the long tail, Anderson shows us that there are some kinds of goods (in some kinds of markets) where distribution costs can get small enough so that minority preferences can be accommodated despite the up-front fixed costs. So I share Tyler's optimism that creative actors with appropriate incentives can find ways to meet minority preferences.
Posted by: Martin at Sep 19, 2007 9:13:05 AM
When I sit in Heathrow Airport for two hours admiring the 15 Starbucks franchises and 25 Boots outlets, I feel subject to some sort of tyranny.
Maybe it's the airport shareholders, but it seems like everybody else is enjoying shopping while I'm simply waiting for a plane.
In fact, of course, I'm not really waiting for a plane. I would have come five minutes before take-off if I had the choice.
Posted by: DVH at Sep 19, 2007 9:48:13 AM
The problem with radio is that it is owned by the government (well managed by the government). Compare radio with cell phones. Radio grants an exclusive license to a single broadcaster in a region (with the set goal that they will not interfere with each other), resulting in a very small number of broadcasters. Early cell phones allocated spectrum in similar ways. Analog phones gave a call a specific portion of spectrum called a channel (radio has a single broadcaster on a channel).
However since you generally don't want a many to one relationship on your cell call, market based innovators began to work on channel sharing technologies. Nokia developed Time Divided Multiple Access which is a little like a token key network that each person using the same frequency is allocated the ability to broadcast for a portion of time. QUALCOMM devleoped Code Division Multiple Access which encodes each communication with a different encryption code and the different codes allow each end of the broadcast to correctly pull their portion of the broadcast from other users of the same frequency. Both technologies allow many multiples of the original single user per channel.
Because radio broadcasts have an incentive not to minimize their spectrum usage (within their licience) this technology is not used.
Posted by: nelsonal at Sep 19, 2007 10:01:04 AM
Tyranny of the majority? Compared to what?
Posted by: josh at Sep 19, 2007 11:57:38 AM
Framing the inquiry on the assumption that there is a "tyranny of the majority," in particular the colorful choice of "tyranny" rather than the more neutral "preference", suggests to me a bias with respect to the evaluation of "solutions". It reminds me of the classic ideological tactic of defining some aspect of the status quo as a big problem and then only endorsing solutions of a a different ideological stripe if a) they are backed up by irrefutable proof that it will unquestionably work, and b) it completely eliminates the problem, as opposed to merely mitigating it. However, if a solution consistent with the ideologue's pre-existing views is being debated, then the ideologue lowers the standard and says, "well, it may not work, but it is likely to make things better, and the situation is dire, so we should give it a try."
Posted by: MT57 at Sep 19, 2007 12:13:50 PM
"And I'm not saying that television is vulgar and dumb because the people who compose the Audience are vulgar and dumb. Television is the way it is simply because people tend to be extremely similar in their vulgar and prurient and dumb interests and wildly different in their refined and aesthetic and noble interests." David Foster Wallace
This discussion led me to recall this quote--which is implicitly one about fixed costs. Despite the potential heterogeneity of preferences among those with "refined taste", this problem is partially resolved with technological advances (internet, satellite and the bundling of very specialized cable programs with more popular ones) allowing for the provisioning of rather narrow entertainment material to an audience that is not limited by geography. This may explain why diverse radio stations have flourished, but I am less sanguine about the creation of unique, original, and interesting independent film, since the principal mode of delivery--before it hits video--is theaters with hefty fixed costs.
Posted by: Marshall at Sep 19, 2007 12:40:03 PM
"There are very few areas of my life, if any, where markets force me to follow the wishes of the majority."
No doubt. But then again, you are very rich and very well-informed (and that is in many ways also a luxury you can afford as a tenured professor!).
There are _a lot_ of areas where the market has forced _me_ to follow the wishes of the majority. I only got a Linux job quite recently, for instance!
Posted by: Harald Korneliussen at Sep 19, 2007 3:18:06 PM
This is an odd discussion. Yes, I'm tyrannized by the majority that I don't get paid a large salary to pursue my hobbies! Any and all times I am inconvenienced by other people's tastes and choices are intolerable tyranny!
I think this is stretching the word tyranny far past it's breaking point.
The average American has never had greater freedom to live their life according to their personal whims, no matter how odd. Eccentricity, typically the province of the ultra-wealthy, has been democratized as never before.
Posted by: dave at Sep 19, 2007 4:00:51 PM
Despite all the supposed variety in radio that market provides me, I still usually listen to NPR, which the market does not provide me. What to make of that?
Posted by: ed at Sep 19, 2007 6:47:17 PM
You can actually get internet in remote and regional areas? You clearly don't live in australia...
No, but in the U.S., it used to only a small minority of the population lived where they could take advantage of a great bookstore or record store or art-house movie theater. Now the situation is the reverse -- only a minority have high-speed internet unavailable. And even then, most of the benefits of the internet are there for dial-up users (which I am, too, when up at the cottage). Google works fine. So do EBay and Amazon. So do blogs. And Netflix and the NY Times. But, yes, streaming video is not feasible.
Posted by: Slocum at Sep 20, 2007 12:40:39 PM
