Monday, February 13, 2012

Compete or Cooperate

Well, I am starting to grow a distaste to reading the thoughts presented in this book by Dr. Robert Frank. I almost feel as if indulging into his ideas are engendering ill thoughts about Libertarians and Human Nature into my thought process. It almost seems as if he has forgotten about his role of antagonizing Libertarians about the very broad claims that a few of them probably made. Nevertheless, he still seems to be peddling the same idea that when people compete they end up competing themselves into being super efficient and making no profits. (lol)

First off, I do like the idea that the Invisible Hand is only one but many of the possible cases. I can't imagine the alternatives too clearly, though. In a competitive Free Market, the Invisible Hand will guide the competitors into an efficiency seeking process that ultimately benefits the consumers. I understand that there are cases in which the Social Cost will outweigh Aggregate Individual Cost because of the Invisible Hand (as explored in Chapter 1), which should call for some sort of intervention to balance out the costs. This would lead me to believe that the invisible hand is not a "special case" of some broader theory, but rather just a component of a broader theory (namely Economics). After all, the Invisible Hand is a theoretical concept, not a concrete item or scenario. Maybe somebody can figure out what Bob Frank was going for. Right now I'm just left with the idea that the "special case" he was talking about was the case in which the invisible hand is all that is necessary for maximal profits. Of course, that could never be true, because there needs to be some sort of human force involved in human competition...

Anyways, there is a criticism of the Free Market that occurs time and time again in the first couple chapters. That is, consumers are the only beneficiaries of competition. As we saw with the Prisoners Dilemma last Thursday at the SWEET Scholars discussion session, it is very clear that when competitors compete then altogether they are not making optimal profits. The Prisoners Dilemma explicitly illustrates that competitors are best off when they cooperate, but individual choice gets in the way. However, when different producers cooperate then mergers, cartels, oligopolies, and monopolies form, right? These are not best for the consumer. So it looks like we have the fundamental rule of Economics on the stage: Tradeoffs.

There appears to be Tradeoff between consumer and producer benefit directly related to if the producers so decide to cooperate or if they so decide to compete. In our current situation in America we are zealous advocates of consumer benefits, and so naturally competition is highly encouraged on the Market. Conversely, we see attacks on cooperation of producers, because that would result in a the producers getting the benefit and the consumers paying for it. The indoctrinated side of me agrees that this is how it should be, but the open minded side of me wants to humour Robert Frank's thesis that this sort of Competition Bias produces negative effects. However, the open-minded side of me will still not humour that our Utility Functions are analogous to some arbitrarily deduced Utility Function of an Elk.

Finally, he attacks the fact that humans have improving standards that are a direct resultant of the individual choice of wanting to be better off than thy neighbor. He claims that people want better cars than they did before simply because they are better than what became the standard. He argues that this is bad because it raises the cost to gain such luxuries. First, personally, I don't think he is in any position to be judging the Utility Functions of a society. Secondly, the producers are competing so they'll surely find a way to lower their production costs and sell at an affordable price, or, y'know, not produce at all. In all of these situations both the producers and the consumer are doing things they want to do, so why is it bad? Because eventually they'll have to up the ante again? Idk, to me, that sounds like a pretty freaking awesome process that vitalizes human advancement.

He's the one that professes Economics at Cornell, though.


  1. Nice post, burst out laughing when I cam to the part about the Elk. I think you also made a good point with the human advancement, glad someone felt the same way after reading the chapter.

  2. Great post man. I think the prisoner's dilemma helps explain why cartels and oligopolies break down even when it is in their interest to remain in solidarity.

  3. "However, the open-minded side of me will still not humour that our Utility Functions are analogous to some arbitrarily deduced Utility Function of an Elk."

    I lol'd. Neither my open-minded side nor my closed-minded side can handle this analogy either.