As a customer, I broadly prefer competition, because it allows me to capture more of the total gains from trade.
Right now, for example, the small handful of RAM manufacturers have pricing power, and Nvidia has pricing power. It’s a terrible time to build a game machine.
But yes, I agree that sometimes capital investment can be stupid. At one point around 2000, the Boston area had a grossly insufficient number of hotels, driving hotel prices through the roof. Then, various projects started construction on at least 10 hotels (or so I was told). This was more capacity than was probably needed at the time, though I didn’t stay around long enough to see if prices crashed.
The historic alternative to these kinds of inefficiencies was called “central planning.” It failed catastrophically, leading to famine, death, and (even in the best case) adults who had never eaten a banana, like a teacher of mine who grew up in East Germany. Central planning requires the planners to possess truly implausible amounts of information, it provides the planners with little incentive to do a good job, and it removes customer “exit rights” if customers hate doing business with one local shop. Instead, we allow people to do distributed planning, and to occasionally lose their shirts by building an extra sushi restaurant with a stupid business plan.
As a customer, I broadly prefer competition, because it allows me to capture more of the total gains from trade.
Right now, for example, the small handful of RAM manufacturers have pricing power, and Nvidia has pricing power. It’s a terrible time to build a game machine.
But yes, I agree that sometimes capital investment can be stupid. At one point around 2000, the Boston area had a grossly insufficient number of hotels, driving hotel prices through the roof. Then, various projects started construction on at least 10 hotels (or so I was told). This was more capacity than was probably needed at the time, though I didn’t stay around long enough to see if prices crashed.
The historic alternative to these kinds of inefficiencies was called “central planning.” It failed catastrophically, leading to famine, death, and (even in the best case) adults who had never eaten a banana, like a teacher of mine who grew up in East Germany. Central planning requires the planners to possess truly implausible amounts of information, it provides the planners with little incentive to do a good job, and it removes customer “exit rights” if customers hate doing business with one local shop. Instead, we allow people to do distributed planning, and to occasionally lose their shirts by building an extra sushi restaurant with a stupid business plan.