Quotulatiousness

January 18, 2014

Austrian economics

Filed under: Economics — Tags: , , — Nicholas Russon @ 11:35

Published on 26 Sep 2012

Steve Horwitz, Professor of Economics at St. Lawrence University, explains what Austrian Economics is and what Austrian Economics is not, clearing up some common misconceptions.

This video is based on Steve’s essay by the same name:
http://www.coordinationproblem.org/2010/11/what-austrian-economics-is-and-what-austrian-economics-is-not.html

To learn more about Austrian Economics, visit http://www.fee.org

January 3, 2014

Virginia Postrel on “first world problems”

Filed under: Business, Economics, Technology — Tags: , , , — Nicholas Russon @ 15:53

I’ve heard the term many, many times (and used it more than a few times as well), but as Virginia Postrel points out, it didn’t just happen by chance that there are “first world problems” we can mock-sympathize over:

Third world conditions are defined not merely by economic misery but by unreliable services. “At the age of fourteen I had experienced a miracle,” writes Suketu Mehta in Maximum City, his critically acclaimed 2009 book on Mumbai. “I turned on a tap, and clean water came gushing out. This was in the kitchen of my father’s studio apartment in Jackson Heights [New York]. It had never happened to me before. In Bombay, the tap, when it worked, was always the first step of a process” taking at least 24 hours to produce drinkable water. Mehta’s family lived an affluent life but with third world problems.

By contrast, in a developed country, barring a major natural disaster, you can count on uninterrupted electricity, hot and cold running water, sewage disposal, garbage pickup, heat (and in hot climates, air conditioning), telephone service, Internet access and television. The roads and bridges will be in decent repair; the elevators will work; the ATMs will have cash; and you’ll be able to find a decent public toilet when you need one.

These things aren’t necessarily free, but they’re cheap enough for pretty much everyone to enjoy them. Most significantly, they’re ubiquitous and reliable. Even when natural disasters strike, we can expect heroic efforts to get things back to normal. Under normal circumstances, we can depend on these services to be there consistently and to work as promised. We can make plans accordingly. That’s a first world privilege.

[...]

It took years of sustained efforts by online retailers and delivery services to make overnight orders realistic. It also took dissatisfaction: insanely demanding companies working to please insanely demanding customers — or, in some cases, to offer customers services they hadn’t even thought to ask for — as each improvement revealed new sources of discontent.

“Form follows failure,” is what Henry Petroski, the civil engineering professor and prolific popular writer, calls the process. Every step forward begins with a complaint about what already exists. “This principle governs all invention, innovation, and ingenuity; it is what drives all inventors, innovators, and engineers,” he writes. “And there follows a corollary: Since nothing is perfect, and, indeed, since even our ideas of perfection are not static, everything is subject to change over time.”

Rising expectations aren’t a sign of immature “entitlement.” They’re a sign of progress — and the wellspring of future advances. The same ridiculous discontent that says Starbucks ought to offer vegan pumpkin lattes created Starbucks in the first place. Two centuries of refusing to be satisfied produced the long series of innovations that turned hunger from a near-universal human condition into a “third world problem.”

November 23, 2013

Epitaph for the vanishing used book store

Filed under: Business, Media — Tags: , , , , — Nicholas Russon @ 09:42

Kathy Shaidle responds to a David Warren post on the demise of one of the last used book stores that used to cluster along Queen Street West in Toronto:

I owe much of what passes for my education to one particular second hand bookstore in Hamilton.

My mother would try not to roll her eyes when I returned from yet another all-afternoon excursion with two or three white plastic shopping bags full of dusty, smelly paperbacks.

The closing of yet another independent Toronto bookstore never fails to prompt meditations such as David’s, although they are rarely as well written.

However, the sad fact is that most of these indie booksellers were well-meaning book lovers but terrible businessmen, with (as David notes in his piece) crusty, eccentric personalities who not-so-secretly didn’t like seeing their precious babies being carted off in your unworthy mitts.

At least 20 years ago now, one iconic bookstore just north of Yonge and Bloor shut its doors, at the start of the Chapters/Indigo invasion.

I think it was Kevin Connolly, but anyway, some such young whippersnapper dared to counter the generalized wailing and gnashing of the city’s self-appointed elites.

He pointed out the truth: that the staff had been petulant; the inventory uneven and pedestrian; the music that classical stuff which urban planners prescribe to keep hoodlums from crossing the threshold.

I used to be a regular customer of several of the used book stores on Queen West, but as they began to move further west — driven by “gentrification” and rising rents (the same thing, really), I stopped trying to find the latest location they’d fled to. There are still a few used book stores I visit, but they’re in places like Port Perry or Port Hope, not downtown Toronto. They may not have the variety that the old shops used to have, but they usually lack the attitude too many old shop owners displayed toward their customers.

And failure gives me a rash, and is possibly contagious. I simply can’t bear to patronize shops of any sort that are so “authentic” and “organic” that the joint is falling apart or they keep having to move because they can’t afford the rent.

For all their snobbish sentimentality about Hemingway’s “clean, well lighted place,” too many indie bookshops are neither.

But Chapters is. So, in its way, is the internet — which is also the new second-hand-bookshop.

I’m as brokenhearted as anyone, sometimes more so, when one of my old haunts goes out of business.

But if any industry deserves to die, it’s traditional book publishing, which has been running on fumes of glamor and nostalgia for a few generations at least.

Sic transit gloria mundi.

November 15, 2013

Misunderstanding the purpose of health insurance

Filed under: Business, Economics, Health — Tags: , , , , — Nicholas Russon @ 00:01

One of the big problems facing everyone in the US is the cost of healthcare: it’s expensive and getting more so. Obamacare is supposed to be an attempt to lower the overall cost of healthcare, but by approaching it from the “insurance” angle, it’s likely to make the situation worse rather than better. The Anti-Gnostic reposted an extended comment from Steve Sailer’s blog explaining why misunderstanding the purpose of insurance is a big problem:

1) Most people lose money on insurance, because most of the time insurance doesn’t pay out more than it takes in.

2) Thus, a “good” policy is a catastrophic-coverage-only, high-deductible policy, where most payments are out of pocket. This is a policy that protects you against the downside risk, but where you lose a lot less on average.

3) This is because the purpose of insurance is to protect yourself from *catastrophe*, not to make routine purchases.

4) For example, if you went to Best Buy and whipped out your home insurance card to get a new flat screen TV, everyone would look at you as a crazy man. “Don’t you know that home insurance is only for fires and floods, and not for routine purchases?”

5) And so it should be with health insurance, because you’ll actually — *provably* — pay less with a high deductible plan for all but catastrophic conditions.

6) Indeed, the most innovative and technologically advanced areas of medicine are ambulatory areas in which people feel that markets are “ok”. These are paradoxically the most trivial areas: lasik, plastic surgery, dermatology, dentistry, even veterinary medicine.

7) Why are these areas so advanced? Because people pay cash money, because they choose based on quality, and because they are *able* to choose — i.e. they aren’t being wheeled up to the hospital in a gurney in a no choice scenario.

8) Moreover, with every technology ever, from cars to cell phones to air travel to computers, things that start out expensive become cheaper when enough people demand them. With medicine it seems to bite more that money means differences in care. But at the end of the day doctors, patients, nurses, drugs, ambulances…all that stuff means real resources, and a refusal to do explicit computations just results in massive waste as costs are shunted to a place where no one looks at them.

At the Independent Institute blog, John Graham points out that — in the few places that government allows free markets to operate — prices tend to drop over time even while services or features improve:

It has taken a long time, but the price of hearing aids is in the process of falling dramatically. How has this happened? Technological innovation, of course, but there is more. There’s no shortage of technological innovation in U.S. health care. However, because third-party payers, that is, health insurers and governments, determine prices, there is no mechanism for customers to signal value to providers.

This is not the case for hearing aids: Although some states have mandated insurance coverage for hearing aids, this is usually limited to disabled children. The big market for hearing aids is seniors, and Medicare does not cover hearing aids.

This is another case of a phenomenon observed elsewhere by Devon Herrick of the National Center for Policy Analysis [PDF]: Where patients pay directly for medical care, prices fall like they do in every other market.

Seniors who want highly personalized service from an audiologist in his own practice can get it, and they will pay for it. Those who want to order online can save money by doing that. Those who want to get their old hearing aids repaired can make that choice. And the most adventurous seniors, who don’t mind running an earpiece into an iPhone, can get a functional hearing aid almost for free.

We are on the verge of enjoying universal access to hearing aids — but only because the government restrained itself from interfering, and let the market operate.

October 26, 2013

Another theory on gender wage gaps

Filed under: Business, Economics, USA — Tags: , , , — Nicholas Russon @ 09:34

A guest-post at the Freakonomics blog by John List and Uri Gneezy looks at an experiment they conducted to test their theory about the gender wage gap:

Scholars have long theorized about the reasons why women haven’t made faster progress in breaking through the glass ceiling. Personally, we think that much of it boils down to this: men and women have different preferences for competitiveness, and at least part of the wage gaps we see are a result of men and women responding differently to incentives.

Being experimentalists, we understood that without actual evidence, this was just a conjecture. Determined to test our idea in the field we launched a large-scale field experiment on Craigslist where we posted ads for an administrative assistant gig we needed to fill. The experiment was conducted with Jeff Flory and Andreas Leibbrandt as coauthors. We received responses from nearly 7,000 interested job seekers from cities all over the U.S.

After a job seeker touched base with us, we gave them more details on the way they’d be compensated. Then we asked them to provide some basic information if they wanted to be considered for the position. Half the job seekers were told that the job paid a flat $15 per hour. The other half were told they would be paid $12 an hour but they would compete with a co-worker for a $6 per hour bonus (so that both ads would pay workers an average of $15 per hour).

What’d we find? Women were 70% less likely than men to go after the job if it had the competitive pay scale.

The blog post is called “A Unified Theory of Why Women Earn Less”, but I don’t think it actually qualifies — if the experiment was repeated in different markets, it might well explain some of the difference, but I suspect that women’s choices of jobs that provide greater flexibility in hours and the specific fields that draw more female than male workers are probably greater influences on the overall employment and compensation picture.

September 19, 2013

The LCBO’s new “Ontario Boutique” outlets – doing a Wal-Mart to Ontario wineries

Filed under: Business, Cancon, Wine — Tags: , , , — Nicholas Russon @ 09:13

In the latest Ontario Wine Review, Michael Pinkus talks about the opening of three new “Ontario Boutique” LCBO stores. These stores are the LCBO’s response to rising demand for quality Ontario wines … opening stores to directly compete with the wineries.

Well it happened; the LCBO opened their Ontario Boutiques to great fanfare on September 12, in three cities: Niagara Falls, St. Catharines and Windsor … three places that have wineries nearby. Three places where the local populace could hop in their cars and within 15 minutes be at any of a dozen wineries in the area. The way we should all view this is the LCBO utilized the Wal-Mart approach to competition: get in there and fight it out with already established businesses. According to reports, they are beautiful, well-stocked and something to see. Now, I’m not questioning whether or not the LCBO was going to do a nice job on these in-store boutiques, heck they have the money to sink into them (yours and mine), I question their location and I question why the Wal-Mart tactics?

[...]

Someone who did get it (Bob) emailed me directly, putting it very succinctly: “The Wine Council’s information shows that the majority of VQA wines are still sold at the wineries. I asked one of their staff why they were putting a new VQA [boutique] in the Glendale store in St. Catharines rather than Toronto, and was told that it was because they sold more VQA wine in that store than any other in their system. Obviously, they are intent on trying to steal as much business away from the local wineries as possible, and therefore to deny the wineries (for the most part Canadian small businesses) as much profit as possible.”

While another reader, Gaye, admitted she has finally seen the light: “I always took your rants re: the LC mildly, as I like being able to shop in the “biggest” importer of wines in the world (sic). But I love Ontario wines, and living in Toronto always bemoan the difficulty of going to Niagara wineries and driving back … for obvious reasons. So I thought these boutiques were inevitable and of course would be in the place most Ontario wine was drunk, Toronto. As your excellent wife said, “a no-brainer”. This is incredible, opening in Niagara Falls? As if our wine was just something to be sold to tourists. Now I’m totally on side.”

September 8, 2013

Sometimes the worst possible thing for you is to dominate your market

Filed under: Business — Tags: , , , — Nicholas Russon @ 10:53

Charles Hugh Smith on the dangers of being too big in your own market:

Microsoft is a case study in dominance leading to incompetence and catastrophe. Within the moat of near-monopoly/dominance, competence dwindles to the ability to keep doing what worked spectacularly well in the past, and keeping bureaucratic infighting and divisional rivalries down to a dull background erosion of initiative and talent.

Doing more of what succeeded spectacularly in the past works until it doesn’t, at which point doggedly pressing on with the old formula of success leads to catastrophic failures.

Nokia and Blackberry are recent case studies, but the rise of Google Chrome and smart-phone/tablet computing is beginning to threaten Microsoft’s core business of being the utility monopoly in the PC space.

Dominance means leaders and employees alike lose the ability to experience risk. The customer will take what is delivered, regardless, for the simple reason that alternatives are either unavailable or cumbersome.

[...]

Dominance in any space breeds complacency and enables the luxuries of political squabbling, sclerosis and loss of focus. Competence becomes incompetence, and the infrastructure that fosters creativity and flexibility — that is, a keen appreciation of risk and spontaneity — is slowly dismantled.

That applies not just to corporations but to governments, nations and empires.

H/T to Zero Hedge for the link.

September 5, 2013

LCBO to offer expanded Ontario wine displays starting next week

Filed under: Business, Cancon, Law, Wine — Tags: , , — Nicholas Russon @ 10:57

Sounds like a reasonable thing, doesn’t it? The LCBO is the primary distribution channel for all Ontario wine, so making the best of the province’s wines more accessible is a good thing, yes? Well, sorta, as Michael Pinkus explains:

The LCBO must think we’re all stupid … that or they are run by a bunch of nincompoops – or maybe it’s a combination of both. On September 12, 2013 the Ontario wineries are finally going to see the fruits of their labours sold in special, larger and more prominent sections in some LCBO locations. Now if you were running the LCBO (more apropos to say: if you ran the circus), but if you ran the LCBO and you had some extra money kicking around and deemed it time to (finally) help Ontario wineries, show pride in the wines this province makes, and get the word out that Ontario is making world class wines, where would you put those new locations?

I asked my wife, an American, who can’t seem to grasp the concept of the LCBO, that very same question: “if you were opening up new sections within existing LCBO stores to promote Ontario wines where would you put them?” Her answer was immediately, “Toronto, it’s a no-brainer,” she said, “why where are they putting them?”

London, Ottawa, Kingston and Kitchener also all come to mind as potential locations for these new “boutiques” before the three locations the LCBO has chosen: Niagara Falls, St. Catharines and, you guessed it, Windsor; if they added Belleville to the mix they’d really hit the quad-fecta – but I shouldn’t give them any ideas – who knows, maybe that’s already in the works.

Why these locations matter is because they are smack dab in the heart of wine county; where wine already exists. There the locals have access to drive to their favourite wineries to buy their wine. As we all should know by now the LCBO can’t have you shopping at the competition, can they? Not when their unwritten mandate is to rule the province with an iron fist where booze is concerned … big sister Wynne doesn’t want to take her eye off the bottle, not for a second. Why you might ask would the LCBO put their stores in these locations? Think about it this way: when Wal-Mart comes to town where do they park their stores? Right next to the Canadian Tires and the Zellers locations (or as close as possible anyway) – they want to take on the competition directly. The LCBO is placing these new expanded Ontario sections in St. Catharines, Niagara Falls and Windsor – I trust you see the similarity.

August 2, 2013

The self-inflicted wounds of Britain’s post-war auto industry

Filed under: Britain, Business, Europe, History — Tags: , , , — Nicholas Russon @ 09:09

Dominic Sandbrook contrasts the rise of the German auto industry from the literal rubble of the post-war world with the slow decline of Britain’s once-mighty car makers:

If you want to know why Angela Merkel calls the shots in Europe, Germany’s car factories are a pretty good place to start.

By contrast, Britain’s car industry is a shadow of its former self. We do still make almost one and a half million cars a year, which is good news for thousands of British engineers. But these days, we make them for other people.

The iconic Mini plant at Cowley, for example, is celebrating its centenary this year. It was founded in 1913 by the entrepreneur William Morris as the home for his legendary Morris Oxford.

Today it still makes thousands of cars — but it makes them for BMW.

It’s a similar story at Crewe, the home of another great British icon, Bentley – which actually belongs to Volkswagen.

Half a century ago, let alone when Morris was at his peak, this would have seemed unimaginable. But the sad truth is that Britain’s car firms only have themselves to blame.

Seventy years ago, at the end of World War II, Germany was on its knees. After the fall of Hitler’s empire, its car industry lay in ruins.

In August 1945 the British Army sent a major called Ivan Hirst to take control of the giant Volkswagen plant in Wolfsburg, which had been built under the Nazis to produce ‘people’s cars’ for the German masses.

Ignoring his sceptical superiors, Hirst could see the potential amid the shattered debris of the Wolfsburg factory.

Rebuilding Volkswagen, he thought, would be a step towards rehabilitating Germany as a prosperous, peaceful European ally. And of course he was right.

In the next few years, Hirst restarted production of a car we know today as the Beetle. And from then on, VW was flying.

July 21, 2013

Real competition? In our mobile phone market? It’s less likely than you think

Filed under: Business, Cancon, Government, Technology — Tags: , , , — Nicholas Russon @ 09:31

Canada’s mobile telephone market is a rigged oligopoly of three major companies and a few minor players. One of the big three, Telus, has opened a new campaign against the federal government’s tentative gestures towards allowing a more competitive mobile phone market for Canadians. Michael Geist has the details:

Yesterday, Telus CEO Darren Entwistle was campaigning at the Globe and Mail and National Post, warning of a “bloodbath” if the government sticks with its commitment to allow for a set-aside of spectrum for new entrants such as Verizon. Telus is concerned that a set-aside would allow Verizon to purchase two of the four available blocks, leaving the big three to fight it out over the remaining two blocks. Telus emphasized its prior investments in arguing for a “level playing field” in the auction.

Yet to borrow Telus’ phrase — “scratch the surface of their arguments and get to the facts” — and it becomes clear the fight is not about level playing fields since new entrants have been at a huge disadvantage for years in Canada. Indeed, even with a spectrum set-aside, there would not be a level playing field as companies such as Telus would have big advantages that include restrictions on foreign ownership for broadcast distribution (thereby blocking Verizon from offering similar bundled services), millions of subscribers locked into long term contracts, far more spectrum than Verizon would own, and its shared network with Bell that has saved both companies millions of dollars.

While the companies frame their arguments around level playing fields, the real goal is simply to keep competition out of the country. For Verizon (or any major new entrants), a spectrum set-aside will be crucial since it is the only way to obtain sufficient spectrum (when combined with the existing spectrum from Wind Mobile and Mobilicity) to establish a viable fourth wireless network that could compete directly with the big three incumbents. If Telus gets their way, the removal of the set-aside would kill the government’s stated goal of a viable fourth carrier since there would be little reason for Verizon to enter the country only to face many of the same disadvantages that has hamstrung the smaller new entrants.

[...]

Make no mistake: the Telus lobbying campaign will be joined by Bell and Rogers as the three companies spend millions of dollars in advertising and lobbying to keep the Canadian market free from much needed competition (the Wire Report reports that ten board members each from Telus and BCE have registered to lobby the government on spectrum). The government has insisted that it will do whatever is necessary to ensure greater competition and consumer choice in the wireless sector. The potential Verizon entry into Canada — undoubtedly conditioned on a spectrum set-aside — is precisely what is needed. In this case, sticking with its policy by siding with consumers and greater competition has the dual advantage of being both good policy and good politics.

June 7, 2013

Taking the battle to the patent trolls

Filed under: Business, Law — Tags: , , , — Nicholas Russon @ 08:01

In The New Yorker, Tim Wu suggests some lines of counter-attack to use against patent trolls:

There are good laws in place that could fight trolls, but they sit largely unused. First are the consumer-protection laws, which bar “unfair or deceptive acts and practices.” Some patent trolls, to better coerce settlement, purposely misrepresent matters such as the strength of their patents, the extent of other settlements, and their actual willingness to litigate. Second, there are plenty of remedies available under the unfair-competition laws. Some trolls work by aggregating an enormous number of patents, and then present the threat that one of their thousands of patents might actually be valid. The creation of these portfolios for trolling may be “agreements in restraint of trade” under Section 1 of the Sherman Antitrust Act, or they may “substantially lessen competition” under the Clayton Antitrust Act. More generally, the methods of the trolls are hardly what you would call ordinary methods of competition; they should be considered, rather, what the Federal Trade Commission calls “unfair methods of competition” under Section 5 of the F.T.C. Act. The Commission has the power to define and punish methods of business that are inherently harmful with few or no redeeming benefits, and that’s what trolling is. Finally, it is possible that the criminal laws barring larceny and schemes to defraud may cover the conduct of some trolls.

Unfortunately, other than in Vermont, these laws remain largely unenforced, for reasons that aren’t particularly good. Trolls, to switch metaphors, are like cancer cells: they mimic ordinary activity, namely the assertion of patent rights. A war on trolls could become a war on patent holders in general. Since the line between the two can be fuzzy, the argument is that war might deter some real invention. It might, for example, lump universities in with the extortion artists.

But that justifies caution, not inaction. All law enforcement involves this problem of sorting. There is a narrow line between the legitimate trader who knows the stock market well and the criminal inside trader, yet that doesn’t mean securities laws should be left unenforced.

May 19, 2013

Top Three Common Myths of Capitalism

Filed under: Business, Economics, Liberty, USA — Tags: , , , , — Nicholas Russon @ 09:09

Is being pro-business and pro-capitalism the same? Does capitalism generate an unfair distribution of income? Was capitalism responsible for the most recent financial crisis? Dr. Jeffrey Miron at Harvard answers these questions by exposing three common myths of capitalism.

May 16, 2013

The bitter truth is that hops might be ruining craft beer

Filed under: Business, USA — Tags: , — Nicholas Russon @ 15:47

I link to this article with a heavy heart, because I’m a hop-aholic in my beer preferences:

If one of my favorite session beers was too hoppy and bitter for an avid beer drinker — for a homebrewer who is currently brewing beer to serve at his own wedding — what would he think of the famed Pacific Northwest IPAs? Do friends let friends drink only pilsners?

That’s when I realized that I had a problem. In fact, everyone I know in the craft beer industry has a problem: We’re so addicted to hops that we don’t even notice them anymore.

Hops are the flowers of the climbing plant Humulus lupulus, a member of the family Cannabaceae (which also includes, yes, cannabis), and they’re a critical ingredient in beer. Beer is made by steeping grain in hot water to turn its starches into sugar (which is later converted to alcohol by yeast). While the resulting liquid, called wort, is boiling, brewers add hops to tone down the mixture’s sweetness — without hops, beer would taste like Coke.* Recipes usually call for only a few grams of hops per gallon of beer produced, but those little flowers pack a big punch. In addition to their bittering properties, hops impart strong piney, spicy, or fruity flavors and aromas. They also contain antimicrobial agents that act as natural preservatives.

[. . .]

There are a few obvious reasons for hops’ status as the darling of craft brewers. Hops’ strong flavors present a stark contrast to watered-down horse piss, which is how I believe one refers to Bud Light in the common parlance. Maximizing hops is a good way for craft brewers to distinguish their creations from mass-market brands.

So, given all the flavourful goodness of hops, what’s the issue?

… unfortunately hops are a quick way for beginning brewers to disguise flaws in their beer, by using the hops’ strong flavor to overcome any possible off tastes. Do you regret throwing those juniper twigs in the boil? Did you forget to sterilize a piece of equipment and are now fretting about bacteria? Quick! Hops to the rescue!

From a consumer’s standpoint, though, beers overloaded with hops are a pointless gimmick. That’s because we can’t even taste hops’ nuances above a certain point. Hoppiness is measured in IBUs (International Bitterness Units), which indicate the concentration of isomerized alpha acid — the compound that makes hops taste bitter. Most beer judges agree that even with an experienced palate, most human beings can’t detect any differences above 60 IBUs. Sierra Nevada Pale Ale, one of the hoppiest beers of its time, clocks in at 37 IBUs. Some of today’s India pale ales, like Lagunitas’ Hop Stoopid, measure around 100 IBUs. Russian River’s Pliny the Younger, one of the most sought-after beers in the world, has three times as many hops as the brewery’s standard IPA; the hops are added on eight separate occasions during the brewing process.

Tim Harford on the patent system’s failings

Filed under: Business, Law, Technology — Tags: , , , , — Nicholas Russon @ 08:15

The question seems to be is it totally broken or only partially broken?

According to one well-publicised estimate, there are 250,000 patents relevant to a modern smartphone. Even if the number is one-tenth of that, it suggests an impossible thicket of intellectual property through which a company must hack to bring a cool new product to market.

A key issue is something called the hold-up problem. If a $1bn product depends on 1,000 patents, it is clearly impossible to pay the typical patent holder more than $1m. But any patent-holder could try to extort many times that amount by threatening to block the whole project.

Large firms have responded to this problem by buying or developing large collections of patents. This gives them the ability to launch countersuits, and that threat should make rivals reasonable. But although defensive patenting looks like a pragmatic solution, it has costs and limits. The wave of defensive applications swamps patent offices, which means more poor-quality patents and longer delays.

“Patent trolls” — a derisive name for companies that make money purely from their patents — have less to lose in a patent war but although some are legitimate, others are extortionists. And while established players may reach cosy understandings, a young company with a new idea may find it impossible to break into a market that is thick with defensive patents. If only the big boys can play the patent game, innovation will suffer.

May 14, 2013

Time to free the CBC

Filed under: Business, Cancon, Media — Tags: , , , , , , — Nicholas Russon @ 11:04

In Maclean’s, James Cowan makes the case for liberating the CBC from the shackles of government subsidy, as it’s now out-competing private business in several fields:

The online success of the CBC should be laudable. Its website received an average of 6.2-million unique visitors last year, making it the most popular Canadian website. Around 4.3-million people visit the CBC News site each month, besting both The Globe and Mail and Huffington Post. Adding to this success is an ambitious five-year plan that will open digital-only news operations in cities like Hamilton and Kamloops and allocate 5 per cent of the overall programming budget to digital content. Once upon a time, it was only private TV and radio broadcasters who had reason to grumble about competing with the Crown corporation; in building its online empire, the CBC is taking on everyone from newspapers to Netflix.

In doing so, the CBC has strayed a long way from its original purpose: to sustain Canadian culture when and where the market cannot. The problem is, the CBC’s traditional funding model now allows it to build its digital empire unfettered by economic reality. In its last quarter, 60 per cent of the company’s expenses were paid by government subsidies while just 21 per cent of its revenue comes from advertising. All media companies are struggling to adapt to shifting consumer and advertising patterns brought about by the digital age; only the CBC had $1.2 billion in government cash to fund its experiments and ease the transition.

Broadcasters would argue the CBC has always operated from an unfair advantage. But the current scenario is different in several respects. For one, the Corp.’s legislated mandate to be “predominantly and distinctly Canadian” arguably placed it at a commercial disadvantage. Further, capital and regulatory requirements made it implausible for commercial broadcasters to serve many areas of the country. But nobody needs to ask the CRTC’s permission to create a website, and the startup costs for a digital service are far less than those of a television or radio station. If small cities like Kamloops need a local digital news service, that’s a need that could be plausibly served by entrepreneurs. The CBC is increasingly no longer complementing the market, but instead meddling within it.

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