While I was fussing with the translation of Friedman, slowly and sadly posting one chapter at a time, Sergei Ankapov completed his own translation, and is now raising money for a print edition. Since my version of the translation is also close to completion, I will, of course, hurry up now, and soon you will have two options to choose from: a free amateur one and a paid official one, with a preface by the author (although, if the preface is worth it, I will also pull it over to my version in time).
That’s how competition works: because of me, it will be harder for Sergei to raise money, and I will simply be ashamed that I didn’t manage within a shorter timeframe, and thus partially undervalued my own work.
In the script for the video about the free-rider problem and the tragedy of the commons, I emphasized how bad this is for users of a shared resource and what strategies have been developed to combat it. Now, I want to talk about a case where the tragedy of the commons is actually a good thing, and fighting it is bad.
The entire focus is on what exactly constitutes the shared resource. Imagine a rare resource such as consumer demand. Everyone has the opportunity to produce a certain good or service, sell it, and make a profit. While the market is empty, a few producers will make superprofits, and the thirst for gain will attract many other suppliers to this patch. Competition for the consumer’s attention quickly leads to a decrease in margins. To maintain profit, volumes must be increased, and this finally exhausts the shared resource. The consumer receives an enormous abundance of cheap goods, which they are ready to push in the greatest possible quantity, as long as the consumer is willing to buy. Here is a “buy one get one free” promotion, here is an installment plan, here is a sale, here is unlimited access for a fixed subscription—just buy it.
Admit it, if you put yourself in the consumer’s shoes, this phenomenon cannot help but be pleasing. But the producer, for whom this is a terrible tragedy of the commons, tries to fight it. As we know from the video, two strategies are possible here: privatization and cooperation.
Privatization means the appropriation of consumer demand in a certain industry by a specific producer—in other words, the creation of a monopoly. Other suppliers are forbidden from selling certain goods and services to consumers. That’s it; now there is no need to chase sales volumes, and superprofits can be earned with fairly modest investments in production. However, part of the profit will have to be invested in protection against competitors, and they are not idling, so these costs will tend to increase.
Cooperation means that anyone can satisfy consumer demand, but a number of restrictions are imposed upon it. This is usually expressed in strict industry standards that effectively secure the dominant position of those players who are ready to invest significant capital into production, while outsiders are filtered out. However, a lot of attention must be paid to controlling that producers do not cheat. In this regard, a recent case comes to mind with some European auto concern that faked data on the exhaust emissions of its engines to save money on complying with environmental standards. But the classic example is, of course, medieval guilds. The quality of their goods was high, production volume was low, and profits were magnificent. Only the black market eventually undermined their dominant position, and a tragedy of the commons occurred, which we know as the Industrial Revolution.
So, when you are told about the harm of competition and the benefits of cooperation, as well as the inevitability of natural monopolies, it is important to understand: these people are quite sincere and not fools at all. It’s just that you are a resource to them.
A Christmas market is a tragedy of the commons in all its glory: consumers are happy, they are lured in with all their might, and they look more than they buy
