Umair Haque / Bubblegeneration
umair haque  

 
 


Design principles for 21st century companies, markets, and economies. Foreword by Gary Hamel. Coming January 4th. Pre-order at Amazon.


 
Monday, October 17, 2005


Nick Carr vs Peer Production

"...Wikipedia might be a pale shadow of the Britannica, but because it's created by amateurs rather than professionals, it's free. And free trumps quality all the time."

OK. This argument is fundamentally, and I think fatally, flawed in terms of its basic economics. Here's why:

Carr spends the first half of this piece telling us that peers can only produce low quality goods. Then he tells us that 'free trumps quality'.

These two statements are contradictory - they're flawed premises which conflate two central econ concepts, and so they render Carr's argument pretty much invalid, IMHO.

Let me put it really simply. You can either argue that peers produce relatively high value goods at cheap prices, in which case they are substitutes for traditional goods. Or you can argue that peers produce realtively low value goods at cheap prices, in which case thy're not.

But Carr wants to have it both ways. This is because he conflates value and quality. So his argument is a wash; it's trivial, because its two premises are contradictory. It doesn't hold up, and you really shouldn't take it too seriously.

Let me get a little more technical. What Carr means to say is that holding 'quality' proportional (ie, >unit elasticity), free (aka zero cost) trumps not free (aka > zero cost).

In other words, if quality/price, or what we should really call value, is held constant, we will always choose the cheaper good.

This is obvious; of course we will - it's one of the fundamental concepts of microeconomics, and it's what lets us build demand curves.

But by conflating 'quality' with value, note that Carr contradicts his first premise, which is that peer production can only produce low quality goods.

In fact, if we follow Carr's argument to its logical conclusion, we see that he has in fact misunderstood his own argument (how cool is that!).

If peer communities can only produce low quality goods, and this drop in quality quality is less than the proportional drop in price, people will never choose peer produced goods, and the demand curve will never shift inwards.

So the only way this argument holds is if Carr contradicts himself - if demand is inelastic for every good in the universe; that is, if peer produced goods are relatively high value (quality, in Carr's terms) goods.

And this, dear readers, is exactly the scenario that smart venture money is backing (Zazzle, Squidoo, etc), and is exactly why traditional consumer-facing industries (media, fmcg, etc) are getting kinda scared.

-- umair // 5:28 AM // 6 comments


Comments:

I agree totally. And I reject prima facie that 'free trumps quality'. That is a blanket statement that needs lots of qualification before holding true.

Speaking of quality, run your posts through a spell check :)
// Anonymous tonyz // 7:12 PM
 

I don't think you really get what Carr said. He was talking about a public goods problem.

A public goods problem exists whenever there is something that a rational person might reasonably want to pay money for, but the decision of whether to buy or not is not an individual decision, but a collective one.

I might care about clean air, but I cannot purchase one person's worth of clean air. Either we all purchase clean air or we all live with dirty air.

This becomes a problem when a population does not realize the negative consequences involved. Most people are aware that failing to pay for road upkeep would end up costing more in the long run, but not all people realize that the reason we educate all our children is not out of charity - we do it because our overall economy experiences real and measurable benefits from a well-educated citizenry.

Because too many people do not realize that spending money short-term can save money long-term, we (as a group) may try to save money by skimping on costs.

Sooner or later there will be social costs - for instance, too many uneducated or even unemployable citizens, or a drop-off in commerce due to lousy roads, or whatever. This is when the error becomes obvious: we valued "cheap" over "quality" because we didn't realize the quality issue mattered. At this point, however, it's too late to undo the damage.

This appears to be what Carr is talking about when he worries about the amateur culture thing.

There are people who believe (apparently sincerely) that Wikipedia and blogs are just as good as professional content.

If this is not true - if professional writers do have something to offer that amateurs cannot match - then, if Carr's scenario is correct, we will not realize what we have lost until after we have lost it.
// Anonymous Anonymous // 7:34 AM
 

Anonymous,

That is among the worst comments I have ever gotten.

It should absolutely trivial that think Wikipedia is not a public good.

Access to publishing is regulated by the community. This is the collective action mechanism that is lacking in public goods problems.

I can no more go to Wikipedia and hope to do/say whatever I want, than I can at Disneyland.

So I think your argument is trivially wrong.

Also, your definition of a public goods problem could use some work.
// Blogger umair // 7:47 AM
 

Umair,

I won't argue that I'm right about the public goods thing. I will only say that, if I am wrong, I'm in good company.

I wasn't saying Wikipedia is a public good. For one thing, Wikipedia is not something a rational person might reasonably want to pay money for. It's too like your post: it tends to rely on unsupported opinions instead of offering anything of substance.
// Anonymous Anonymous // 1:31 AM
 

Umair,

I won't argue that I'm right about the public goods thing. I will only say that, if I am wrong, I'm in good company.

I wasn't saying Wikipedia is a public good. For one thing, Wikipedia is not something a rational person might reasonably want to pay money for. It's too like your post: it tends to rely on unsupported opinions instead of offering anything of substance.
// Anonymous Anonymous // 1:31 AM
 

Hey Anon,

Nice dig. I suppose I deserve it - sorry for being a bastard before :)

My post is not empirical; I'm pointing out a basic flaw in Nick's logic.

You don't need evidence to do point out conclusions that can't logically flow from premises.

Look, let's talk about your argument.

I don't understand it. In the first comment, you imply that Wikipedia is a public good. Then, you don't.

My argument is simple: Wikipedia is not a public good. If anything, it's the inverse. The community (or anyone, really) can infinitely exclude you from "consuming" (or producing on) it.

Leaving aside public goods, the fact that you don't have to pay for it is kind of economically meaningless. You don't pay for dreck like Bill O'Reilly, right?

Quality is a tricky issue. Is Wikipedia, or a blog, "worse" than reading "professionally-produced" content? I don't know.

I certainly don't think so. But the point is that the market will (is) deciding.

Thanks for the comment.
// Blogger umair // 2:42 AM
 
 

Recent Tweets







    input
    portfolio
    contact

    mail.
    uhaque (dot) mba2003 (at) london (dot) edu

    skype.
    umair.haque

    atom feed

    technorati profile

    blog archives