Re: controversial paper

From: Ben Mord (benmord_at_earthlink.net)
Date: 09/28/03 

Date: Sun, 28 Sep 2003 17:35:21 -0400

Mxsmanic wrote:
> Ben Mord writes:
>
>
>>The basic point is that in an efficient market, the bulk of the money
>>paid to the vendors by customers is spent on expenses related to support
>>and production of the product.
>
>
> Hardly. There are relatively few domains like that. Mass-market
> retailing is one of them--margins are extremely slender. Information
> technology is not, however.

As for percentage of domains that are efficient, I lack data to take a
position. I suppose it would depend largely on how you carve up the
market into domains. I bet someone has tried to answer that question,
and I would love to read such a paper.

As for the rest, I'm glad you've come around to my assertion that the IT
industry is not operating very efficiently. The place where I suspect we
still disagree is whether this fact has much to do with the presence of
a monopoly.

There can of course be other causes of market inefficiency, and I
suggest you point to high sunk cost combined with practically zero
marginal cost as an alternative explanation for the inefficiency of the
IT industry. (In other words, most of the costs in software is incurred
before you sell your first license, and this creates a barrier to entry
which in turn supports inflated profits and reduced production over the
long run.) If you did take that position, I would have to agree that
this is a significant contributor. I just wouldn't agree that it is the
whole of the problem.

Ben

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