Subject: Re: Irrational customers?
From: "Stephen J. Turnbull" <turnbull@sk.tsukuba.ac.jp>
Date: Fri, 18 Feb 2000 13:14:53 +0900 (JST)

>>>>> "Brian" == Brian Bartholomew <bb@wv.com> writes:

    Brian> I could have written that paragraph; perhaps our positions
    Brian> are not as far apart as I thought.

On ethical desiderata, we're quite close.  Outside of the market, I
want to hang out with the same kind of people you do.

However, I view the market as a way to help me to avoid as much
personal contact as possible in economic transactions.  "Don't ask,
don't tell" is the rule for anything that doesn't impact product
quality.  I like personal contact, of course; I just prefer to choose
my friends on a basis other than need for economic contact with them.
The market allows me to do this (when it works well).

One important place where we differ is that I do not consider a
vendor's (or a client's) desire to extract as much of the surplus from
our transaction as possible as a relevant signal of their passion for
quality.

It is true that if _customers_ are well informed, a high price for a
given vendor's product should indicate that the vendor produces a
quality product.  If customers are poorly informed, it indicates
either a high-cost or high-profit vendor, but I don't care which.  In
fact, I would prefer, other things equal, to deal with the high-profit
vendor, since they've demonstrated competence at cost control ;-)

Of course, cost control _could_ indicate corner-cutting as well as
cost-cutting, but there doesn't seem to be a strong correlation.  This
is especially true in situations with high fixed cost, since the
easiest way to take ~10% off your unit cost is to sell ~10% more units.

    >> But in those cases, no vendor in her right mind would reveal
    >> profit margins.  You have to get them from the "blue book" or
    >> whatever.

    Brian> When I'm the vendor for a unique program that I have a
    Brian> copyright monopoly on, I reveal profit margins to
    Brian> demonstrate a lack of abusive monopolistic intent.  Or at
    Brian> least that was the theory, which I'm now doubting.

Here we part company.  Monopoly profit is not an abuse.  Using
monopoly power to destroy the competition is an abuse.  Publishing the
source under GPL abdicates the lion's share of your abusable monopoly
power; you should take as much money as you can and be proud of
it---it's an expression of your customers' appreciation for your
product.

And even if you retain that monopoly, I don't have a problem with it.
But my point is that you personally should consider that open source,
with a license that you would find acceptable on past posts, clearly
disqualifies you from being considered an _abusive_ monopolist whether
or not there is actual competition, and whatever your profit margins.

    >> But that's not the case you're talking about in your
    >> "experiment".  The idea of shopping on price/value implies that
    >> (1) there is a market of several vendors

    Brian> In my case, the market is for the service of program
    Brian> development.

But that's not what the customers thought.  They thought you were
selling them an application.

    >> In that context, profit margin information tells you nothing
    >> about what the vendors are likely to do.

    Brian> I think I learn meaningfully more than "nothing".  For
    Brian> instance, I can reasonably assume nobody will operate a
    Brian> business at a loss forever.  Other software developers are
    Brian> not a completely unknown animal.  I can estimate the
    Brian> lifestyle they're earning and guess if it's sufficient to
    Brian> motivate them.

True.  But why do you care?  It doesn't help you improve your economic
situation.  If you want to get to know them personally, fine.  But if
you just want to take advantage of the range of goods offered by a
modern economy while at the same time picking your social contacts to
suit you, there are much better indicators of long-term viability of
vendors, etc.

    Brian> My first post complained that I wasn't finding customers
    Brian> who thought like me.  I suspect I know what the customers I
    Brian> *have* found want: Fischer-Price busy-box screens and the
    Brian> help-customers-fool-themselves walking-the-edge-of-fraud
    Brian> techniques from _Information Rules_.

Well, yes.  If Fisher-Price screens are a convenient way to do what
they what to do with a minimum of effort, nothing wrong with that, is
there?

And the techniques from _Information Rules_ are completely unconnected
to fraud.  They are about exploiting physical realities of information
goods.  Shapiro and Varian are typical economists: they assume
throughout that both vendors and customers are intelligent and
rationally self-interested.  Fraud is basically not possible in the
world they are considering, although there are perverse incentives
that often lead to lower quality than would be desirable.  But
customers in the _Information Rules_ world understand this.

You've been indoctrinated with too much Western-style wrestling, where
the world is divided into weight classes.  Economics doesn't work that
way; economics is supposed to function the way aikido does, with each
trying to use others' strengths to their own advantage.  The critical
difference with aikido (considered as a competitive sport, which is a
stretch) is that economics is about win-win, and aikido is necessarily
zero-sum.  But win-win doesn't mean shares are "fair", and I don't see
why it should.  Still, even in Japanese sumo, a 2-1 weight advantage
doesn't guarantee a win.

    Brian> Maybe I'm just whining because my altruism isn't being rewarded.

Oxymoron.  Altruism rewarded is not altruism at all.

    Brian> This was the intro to the group to prove I was for real.

    >> In other words, you offered them an "honest business plan" that
    >> made no business sense.

    Brian> The intro development offer was at the same hourly rate and
    Brian> license terms I was offering to use for larger development
    Brian> projects: Expect to pay me $xxx/hour, I'll sell copies for
    Brian> ($xxx/hour * #hours) / #customers, and put results in the
    Brian> public domain either immediately, or after six months if
    Brian> that eases customer concerns about free riders.

Assuming your time is worth $50/hr including overhead (probably a low
estimate, IMO), you were claiming you could go from nothing, do the
design, build the scripts, test, work out bugs/incompatibilities in
the upstream packages, write docs, master and burn CDs in _one week_,
with no overtime!

Why should I, or any of your potential customers, believe this story?


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