The Tyranny of the Market

November 29, 2007

I finished reading The Tyranny of the Market by Joel Waldfogel last weekend. The subtitle of the book is “Why You Can’t Always Get What you Want”. The premise is that markets do not always fulfill the needs of consumers whose tastes are not shared by a majority of people. To support this claim Waldfogel describes black and Hispanic populations in urban markets being underserviced by radio, newspapers, and television options. Waldfogel says that two prerequisites are needed for this type of market failure. “First, preferences must differ across groups. And second, something — generally fixed costs — must limit the number of available options and prevent products from being provided to small groups of potential buyers.”

My answer to Waldfogel is <Mick Jagger singing> “If you try sometime, you just might find, you get what you need”. Sorry, couldn’t resist :-)

The mass media examples presented in the book remind one of Chris Anderson’s Long Tail theory. Anderson claims that finite shelf space is to blame for your inability to get Bollywood films at your local Blockbuster. The internet, on the other hand, has infinite shelf space and that fact coupled with technology to help customers find obscure titles allows “long tail” products to outsell blockbuster products in aggregate (or so the theory goes).

In my mind, Waldfogel only manages to demonstrate what seems obvious, products and their prices are beholden to the laws of physics and the availability of information. In the Long Tail theory, the physics of shelf space and population density determines how many titles are carried in a bricks-and-mortar store. iTunes and Netflicks did not change the laws of physics but they changed the way their products/services are delivered which changes the specific laws of physics that apply (or are most critical). Amazon.com biggest breakthrough involved information, that is, the way people discovered books. Sears built an empire around warehouses, the railway, and a large selection of products communicated through a catalogue.

I think free markets tend to find an equilibrium that balances price with product offerings. It takes shifts in information (i.e. innovation) to disrupt the system and a new equilibrium results. The fact that these equilibriums preclude certain offerings is not proof of a market failure that requires government intervention. Waldfogel’s book is well written and his argument is clearly presented but I’m left unconvinced.

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4 Responses to “The Tyranny of the Market”

  1. Sevcan Says:

    Got the Kindle 2 for my 5 year old. Has a better OtterBox case abavlaile than a Nook (which I definitely got the Obx as well) but no expandable memory, and realize it’s a special device(drug) designed SPECIFICALLY to get you to buy more, and only, Amazon content(hits). I’m not sayin’ I hate it, just sayin’ understand what you’re asking for. (I’d recommend finding an actual tablet instead.) The 7 screen is actually a good size for a hand held media device.

  2. Jonathan Says:

    Exemlrtey helpful article, please write more.


  3. Normally I’m against killing but this article slaughtered my ignorance.


  4. All of these articles have saved me a lot of headaches.


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