The "shaman" concurs and Paul thinks it's "interesting."
But I'm not here (only) to cite myself. I think the newspaper "issue" is a brilliant illustration of the type of market failure that is not only common in our Internet driven world, but becoming endemic.
Joseph Stiglitz shared a Nobel Prize for his work in information asymmetry in 2001.
("Information Asymmetry" is Econo-mese for "I know something you don't know. Nyah. Nyah. Nyah-nyah-nyah.")
("Econo-mese" is the language that economists speak to make you think that what they are talking about is WAY over your head and you probably shouldn't betouchingthatandwouldn'tyouratherbewatchingOPRAHrightnow?)
Stiglitz's particular contribution was that he proved that you have to have some information asymmetry in order to have a functioning market. If buyers and sellers know everything there is to know about a product, who needs a market? Everyone knows exactly what the thing is worth; so that's what the price is. No negotiations, no discounts, just cash on the barrel, take it or leave it. Perfectly symmetrical and comprehensive knowledge leads to market failure because, honestly, no one needs a market.
On the other hand, if everyone is totally ignorant of the value of a product, what good is a market? The buyer has no idea what he's parting with and the seller has no idea what he just acquired. So the price has no relation to the value of the product; it's just what this one seller is willing to take and coincidentally what the buyer is willing to give. Any "market" that arises in this situation is just a series of fortuitous happenstances that is completely unhelpful to an outside observer trying to figure out what the product might be worth. Perfectly symmetrical ignorance leads to market failure because no one can figure out if they just got taken to the cleaners.
Anyone who has been paying attention over the last year and a half probably just realized that I could be talking about the "toxic securities" and the "troubled assets" and the "subprime loans" and the "collateralized debt obligations" and the "asset backed paper" and the... OK, I just ran out of "air quotes." Yes, I could be talking about that. And I assure you that I will be talking about that. Oh, yes. But today I'm talking about newspapers.
What is "news" really worth? In ancient times (by which I mean fifty years ago), most people relied on a newspaper to give them a sufficient depth and breadth of news. And their choices were: pay the paperboy or be willfully ignorant about the world. Back in the day (by which I mean ten years ago), most people were getting used to getting the headlines and sound bites from cable news and would get the paper to round off the sharp edges or fill in the gaps. Their choices were: pay for cable and get the big stories spoon fed in 15 minutes and/or buy a paper to maybe get some more coverage the next day after it was all sorted out - if you care that much. Now... NYTimes.com, CNN.com, [Local NBC Affiliate].com, Fark.com, Digg, RSS, blogs, Twitter, Facebook, et cetera ad nauseum, all pushed to your BlackBerry, iPhone or laptop.
("Et cetera ad nauseum" is Econo-mese for "and so on until I puke.")
My choices today are all free - a market is unnecessary. I have all the information that everyone else has - or I will just as soon as Fark greenlights the CNN article about the dog-show mishap that sent 4 people to the emergency room. I know exactly what their product is worth: Nothing. If I wait an insignificant amount of time, any new information that I could ever want will be all over the internet. And it will come with expert commentary and snarky headlines to boot. And online content providers (like yours truly) know it too. So they (I) try to keep their (my) day job and maybe sell advertising during a recession (hahaha!). Ergo, the result is a market failure due to perfectly comprehensive information symmetry - they (I) know its worthless and so do I (you).
("Ergo..." is Econo-mese for "If you paid attention to the last three sentences, it is blindingly obvious to even a trained iguana that...")
So what about the Old Gray Lady and her ilk? Neither the paper nor the readers have any single idea what "it" is that the paper delivers. Maybe it's that reading from a computer gives you a headache, or local flavor, or community viewpoint, or that Sunday-morning-with-coffee experience, or coupons, or the Water Polo Championship front page, or just nostalgia. In any event, the value a reader places on a newspaper is increasingly idiosyncratic and unpredictable - not exactly the stuff business plans are made of. Ergo, we have a market failure due to perfect information symmetry - the ignorant kind.
So there it is, the market for information is collapsing because there is too much information in some places and not enough information in others.
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1. I like old gray ladies.
ReplyDelete2. I know the screen reading headache comment was a jab at my medical condition, which is a very serious ailment, and deserves your respect, if not your compassion. For Shame!