Wednesday, January 13, 2010

James Case: Competition

James Case's Competition is a disappointing book. It starts out strong, covering competition in nature and game theory, and moving on to markets. But it's clear that Case doesn't actually like markets, and uses controversies about how trade and monopolies works as opportunities to attack markets and mainstream economics in general. One of his biggest weaknesses in his analysis and policy prescriptions is that he doesn't understand or believe in the possibility of progress. In the chapter on Policy implications, Case suggests that farm problems be solved by fining farmers for overproduction, so the "farm sector could [...] earn more money by producing less, as other oligopolies routinely do. A similar plan worked for many years in the oil industry." This might be beneficial for current farmers, but at the cost of their producing less food for the rest of us at higher prices. If you think of the market as a competition between different producers that should be made both fair and remunerative for them, you end up with a situation where they are taking advantage of their customers rather than serving them. The beauty of the market is that producers compete to satisfy their customers. Each of them has an incentive to undercut the others in order to better serve the customers. This does have the effect of driving the least efficient out of business. Everyone (all consumers, and we're all consumers) gets more over time, but everyone has to remain nimble. The alternative is that some people are comfortable in their inherited position, but then you've undermined not just the incentives for progress and improvement, but also destroyed the mechanism that makes it possible.

Case's review of the literature on competition is quite readable and thorough. He covers the theory of games between 2 players, many players, the effects of incentives in auctions, how game theory was approached historically, and the progress that has been made in the field. His antipathy toward markets may be tied in with his lack of an intuitive grasp of zero sum and non-zero sum games. In the preface, he argues that analysis of non-zero sum games and many player games is nearly intractable.

Whenever many-player games such as Scrabble and Monopoly are contested at the tournament level, the rules are altered to transform them into two-player zero-sum games. Many player and non-zero sum games are simply too confusing for tournament play. With three or more players, there would be no end of complaints from alleged victims of collusion.

For a book published in 2007, it's pretty surprising that he didn't consider tournament poker. People like it because of its complexity and the psychological analysis required for good tournament play. And formal analysis may be intractible, but there are very competitive programs winning real money from serious human players.

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