any time someone creates a lot of value without capturing it, a bunch of other people will end up capturing the value instead. this could be end consumers, but it could also be various middlemen. it happens not infrequently that someone decides not to capture the value they produce in the hopes that the end consumers get the benefit, but in fact the middlemen capture the value instead
an example: open source software produces lots of value. this value is partly captured by consumers who get better software for free, and partly by businesses that make more money than they would otherwise.
the most clear cut case is that some businesses exist purely by wrapping other people’s open source software, doing advertising and selling it for a handsome profit; this makes the analysis simpler, though to be clear the vast majority of cases are not this egregious.
in this situation, the middleman company is in fact creating value (if a software is created in a forest with no one around to use it, does it create any value?) by using advertising to cause people to get value from software. in markets where there are consumers clueless enough to not know about the software otherwise (e.g legacy companies), this probably does actually create a lot of counterfactual value. however, most people would agree that the middleman getting 90% of the created value doesn’t satisfy our intuitive notion of fairness. (open source developers are more often trying to have the end consumers benefit from better software, not for random middlemen to get rich off their efforts)
and if advertising is commoditized, then this problem stops existing (you can’t extract that much value as an advertising middleman if there is an efficient market with 10 other competing middlemen), and so most of the value does actually accrue to the end user.
Often tickets will be sold at prices considerably lower than the equilibrium price and thus ticket scalpers will buy the tickets and then resell for a high price.
That said, I don’t think this typically occurs because the company/group originally selling the tickets wanted consumers to benefit, it seems more likely that this is due to PR reasons (it looks bad to sell really expensive tickets).
This is actually a case where it seems likely that the situation would be better for consumers if the original seller captured the value. (Because buying tickets from random scalpers is annoying.)
I wonder how much of this is the PR reasons, and how much something else… for example, the scalpers cooperating (and sharing a part of their profits) with the companies that sell tickets.
To put it simply, if I sell a ticket for $200, I need to pay a tax for the $200. But if I sell the same ticket for $100 and the scalper re-sells it for $200, then I only need to pay the tax for $100, which might be quite convenient if the scalper… also happens to be me? (More precisely, some of the $100 tickets are sold to genuine 3rd party scalpers, but most of them I sell to myself… but according to my tax reports, all of them were sold to the 3rd party.)
ticket scalping is bad and we should find some sort of fully distributed market mechanism that makes scalping approach impossible without requiring the ticket seller to capture the value. it ought to be possible to gift value to end customers rather than requiring the richest to be the ones who get the benefit, how can that be achieved?
it ought to be possible to gift value to end customers rather than requiring the richest to be the ones who get the benefit, how can that be achieved?
The simple mechanism is:
Charge market prices (auction or just figure out the equilibrium price normally)
Redistribute the income uniformly to some group. Aka UBI.
Of course, you could make the UBI be to (e.g.) Taylor Swift fans in particular, but this is hardly a principled approach to redistribution.
Separately, musicians (and other performers) might want to subsidize tickets for extremely hard core fans because these fans add value to the event (by being enthusiastic). For this, the main difficulty is that it’s hard to cheaply determine if someone is a hard core fan. (In principle, being prepared to buy tickets before they run out could be an OK proxy for this, but it fails in practice, at least for buying tickets online.)
It’s worth examining whether “capturing value” and “providing value” are speaking of the same thing. In many cases, the middlemen will claim that they’re actually providing the majority of the value, in making the underlying thing useful or available. They may or may not be right.
For most goods, it’s not clear how much of the consumer use value comes from the idea, the implementation of the idea, or from the execution of the delivery and packaging. Leaving aside government-enforced exclusivity, there are usually reasons for someone to pay for the convenience, packaging, and bundling of such goods.
I worked (long ago) in physical goods distribution for toys and novelties. I was absolutely and undeniably working for a middleman—we bought truckloads of stuff from factories, repackaged it for retail, and sold it at a significant markup to retail stores, who marked it up again and sold it to consumers. Our margins were good, but all trades were voluntary and I don’t agree with a framing that we were “capturing” existing value rather than creating value in connecting supply with demand.
All value is finite, and every time value is used, it decreases. The middlemen are merely causing the thing to die faster. For instance, if you discover a nice beach which hasn’t been ruined with plastic and glass bottle yet, and make it into a popular area, you won’t get to spend many happy summers at that place.
If you find oil and sell it, are you creating value, or are you destroying value? I think both perspectives are valid. But since the openness of information in the modern world makes it so that everything which can be exploited will be exploited, and until the point that exploitation is no longer possible (as with the ruined beach), I strongly dislike unsustainable exploitation and personally tend toward the “destroying value” view.
And if you want something to worry about, let it be premature exploitation. X ‘creates’ value and chooses not to exploit it prematurely, but then Y will come along and take it, so X is forced to capitalize on it early. Now you have a moloch problem on your hands.
of course, this is more a question about equilibria than literal transactions. suppose you capture most of the value and then pay it back out to users as a dividend: the users now have more money with which they could pay a middleman, and a middleman that could have extracted some amount of value originally can still extract that amount of value in this new situation.
we can model this as a game of ultimatum between the original value creator and the middlemen. if the participation of the OVC and middleman are both necessary, the OVC can bargain for half the value in an iterated game / as FDT agents. however, we usually think of the key differentiating factor between the OVC and middlemen as the middlemen being more replaceable, so the OVC should be able to bargain for a lot more. (see also: commoditizing your complement)
so to ensure that the end users get most of the value, you need to either ensure that all middleman roles are commoditized, or precommit to only provide value in situations where the end user can actually capture most of the value
The equilibrium comprises literal transactions, right? You should be able to find MANY representative specific examples to analyze, which would help determine whether your model of value is useful in these cases.
My suspicion is that you’re trying to model “value” as something that’s intrinsic, not something which a relation between individuals, which means you are failing to see that the packaged/paid/delivered good is actually distinct and non-fungible with the raw/free/open good, for the customers who choose that route.
Note that in the case of open-source software, it’s NOT a game of ultimatum, because both channels exist simultaneously and neither has the option to deny the other. A given consumer paying for one does not prevent some other customer (or even the same customer in parallel) using the direct free version.
any time someone creates a lot of value without capturing it, a bunch of other people will end up capturing the value instead. this could be end consumers, but it could also be various middlemen. it happens not infrequently that someone decides not to capture the value they produce in the hopes that the end consumers get the benefit, but in fact the middlemen capture the value instead
can you give examples?
an example: open source software produces lots of value. this value is partly captured by consumers who get better software for free, and partly by businesses that make more money than they would otherwise.
the most clear cut case is that some businesses exist purely by wrapping other people’s open source software, doing advertising and selling it for a handsome profit; this makes the analysis simpler, though to be clear the vast majority of cases are not this egregious.
in this situation, the middleman company is in fact creating value (if a software is created in a forest with no one around to use it, does it create any value?) by using advertising to cause people to get value from software. in markets where there are consumers clueless enough to not know about the software otherwise (e.g legacy companies), this probably does actually create a lot of counterfactual value. however, most people would agree that the middleman getting 90% of the created value doesn’t satisfy our intuitive notion of fairness. (open source developers are more often trying to have the end consumers benefit from better software, not for random middlemen to get rich off their efforts)
and if advertising is commoditized, then this problem stops existing (you can’t extract that much value as an advertising middleman if there is an efficient market with 10 other competing middlemen), and so most of the value does actually accrue to the end user.
Often tickets will be sold at prices considerably lower than the equilibrium price and thus ticket scalpers will buy the tickets and then resell for a high price.
That said, I don’t think this typically occurs because the company/group originally selling the tickets wanted consumers to benefit, it seems more likely that this is due to PR reasons (it looks bad to sell really expensive tickets).
This is actually a case where it seems likely that the situation would be better for consumers if the original seller captured the value. (Because buying tickets from random scalpers is annoying.)
I wonder how much of this is the PR reasons, and how much something else… for example, the scalpers cooperating (and sharing a part of their profits) with the companies that sell tickets.
To put it simply, if I sell a ticket for $200, I need to pay a tax for the $200. But if I sell the same ticket for $100 and the scalper re-sells it for $200, then I only need to pay the tax for $100, which might be quite convenient if the scalper… also happens to be me? (More precisely, some of the $100 tickets are sold to genuine 3rd party scalpers, but most of them I sell to myself… but according to my tax reports, all of them were sold to the 3rd party.)
ticket scalping is bad and we should find some sort of fully distributed market mechanism that makes scalping approach impossible without requiring the ticket seller to capture the value. it ought to be possible to gift value to end customers rather than requiring the richest to be the ones who get the benefit, how can that be achieved?
The simple mechanism is:
Charge market prices (auction or just figure out the equilibrium price normally)
Redistribute the income uniformly to some group. Aka UBI.
Of course, you could make the UBI be to (e.g.) Taylor Swift fans in particular, but this is hardly a principled approach to redistribution.
Separately, musicians (and other performers) might want to subsidize tickets for extremely hard core fans because these fans add value to the event (by being enthusiastic). For this, the main difficulty is that it’s hard to cheaply determine if someone is a hard core fan. (In principle, being prepared to buy tickets before they run out could be an OK proxy for this, but it fails in practice, at least for buying tickets online.)
More discussion is in this old planet money episode.
It’s worth examining whether “capturing value” and “providing value” are speaking of the same thing. In many cases, the middlemen will claim that they’re actually providing the majority of the value, in making the underlying thing useful or available. They may or may not be right.
For most goods, it’s not clear how much of the consumer use value comes from the idea, the implementation of the idea, or from the execution of the delivery and packaging. Leaving aside government-enforced exclusivity, there are usually reasons for someone to pay for the convenience, packaging, and bundling of such goods.
I worked (long ago) in physical goods distribution for toys and novelties. I was absolutely and undeniably working for a middleman—we bought truckloads of stuff from factories, repackaged it for retail, and sold it at a significant markup to retail stores, who marked it up again and sold it to consumers. Our margins were good, but all trades were voluntary and I don’t agree with a framing that we were “capturing” existing value rather than creating value in connecting supply with demand.
All value is finite, and every time value is used, it decreases. The middlemen are merely causing the thing to die faster. For instance, if you discover a nice beach which hasn’t been ruined with plastic and glass bottle yet, and make it into a popular area, you won’t get to spend many happy summers at that place.
If you find oil and sell it, are you creating value, or are you destroying value? I think both perspectives are valid. But since the openness of information in the modern world makes it so that everything which can be exploited will be exploited, and until the point that exploitation is no longer possible (as with the ruined beach), I strongly dislike unsustainable exploitation and personally tend toward the “destroying value” view.
And if you want something to worry about, let it be premature exploitation. X ‘creates’ value and chooses not to exploit it prematurely, but then Y will come along and take it, so X is forced to capitalize on it early. Now you have a moloch problem on your hands.
of course, this is more a question about equilibria than literal transactions. suppose you capture most of the value and then pay it back out to users as a dividend: the users now have more money with which they could pay a middleman, and a middleman that could have extracted some amount of value originally can still extract that amount of value in this new situation.
we can model this as a game of ultimatum between the original value creator and the middlemen. if the participation of the OVC and middleman are both necessary, the OVC can bargain for half the value in an iterated game / as FDT agents. however, we usually think of the key differentiating factor between the OVC and middlemen as the middlemen being more replaceable, so the OVC should be able to bargain for a lot more. (see also: commoditizing your complement)
so to ensure that the end users get most of the value, you need to either ensure that all middleman roles are commoditized, or precommit to only provide value in situations where the end user can actually capture most of the value
The equilibrium comprises literal transactions, right? You should be able to find MANY representative specific examples to analyze, which would help determine whether your model of value is useful in these cases.
My suspicion is that you’re trying to model “value” as something that’s intrinsic, not something which a relation between individuals, which means you are failing to see that the packaged/paid/delivered good is actually distinct and non-fungible with the raw/free/open good, for the customers who choose that route.
Note that in the case of open-source software, it’s NOT a game of ultimatum, because both channels exist simultaneously and neither has the option to deny the other. A given consumer paying for one does not prevent some other customer (or even the same customer in parallel) using the direct free version.
I make no claim to fungibility or lack of value created by middlemen.