Thursday, November 27, 2008

Friendship and The Supply of Ideas, cont.

Again, I feel the need to do some clarifying.

In the original post, I said:

For many ideas, which are carried in books, on CDs, in movies, and the like, the supply works just as it does with any other material good. As the market price goes up, so does the amount supplied. The everyday upward-sloping supply curve for material goods applies equally to these ideas — because they are material goods.

This is partially true. I failed to address intellectual property laws, which in some cases invalidates this model.

To make a long story short, the amount of information supplied will not necessarily respond to supply and demand. In general, information subject to IP laws (patents, for example), will be supplied suboptimally. That's about all I can say without getting deep into the details of specific industries, as well as monopoly and monopolistic competition theory, and I don't want to do that. Suffice it to say my supply-and-demand model can break down in these cases.

So moving on:


I feel like my analysis of friendship was pretty weak, so I'm going to try to go through it more thoroughly here. Consequently, I'm about to get fairly meticulous and technical. Feel free to skip this, I reach the same conclusion at the end.

Let's take the simplest possible example: one homogenous group of people, who are able to provide what they want on their own. Naturally, no relationships are formed. Everyone is a happy hermit. Supply equals demand, because everyone gets as much of what he wants at the price of providing it.

Now let's say there are two separate homogeneous groups of equal sizes, each of which can provide what the other group wants, and the wants of each group are homogeneous. Naturally, they pair up randomly. Supply and demand again are equal, and the two services are traded. The amount of each service provided depends on the cost of the service.

Two homogeneous groups of different sizes, each of which can provide what the other group wants: scarcer groups attract more friends. Friendship groups are formed with ratios of group 1 to group 2 that are equal to the ratio of group 1 to group 2 of the entire group. So if there are 3 times as many people in group 1, friendship groups will be formed with 3 of group 1 and 1 of group 2. Supply again equals demand.

Now 3 homogeneous groups. Let's say group 1 likes group 2, group 2 likes group 3, and group 3 likes group 1. In this case, the friendship bartering market breaks down, and no trade occurs. Supply doesn't equal demand.

Same as the above case, but introduce a currency to the situation. Let's call the basic unit of currency a "joke". Using jokes, the 3 groups can now purchase the services they like, and supply again equals demand. (Yes, I am proposing that jokes operate as a currency of sorts, but no, I'm not prepared to defend this. Just an example.)

Multiple groups with a variety of services they can provide and services they like: depending on how well friends match up, social currencies may or may not become widespread. In any case, the variety of wants and the variety of abilities allow social currencies to come into play if needed. In the friendship market, supply equals demand (though the process may be relatively crude). This case seems realistic, so I'm feeling confident of this aspect of my model. My conclusion from the last post should hold true.

Also, I keep saying "friendship", but this should apply to all human social interaction, where coercion is not present. People try to avoid those who they dislike and be around those they like. For example, coworkers may be hard to choose, but if the difference between potential coworkers is large enough, it may lead one to change jobs. A person will be willing to accept losses less than the gains from better coworkers. Supply should practically always equal demand in social situations.

I don't like writing these kinds of posts.

[edit- the social currency idea is no good. I should instead argue that as people are able to provide a larger variety of services, there will be a greater likelihood of avoiding the scenario where no trade occurs, so in everyday life the friendship market should be crude but still amenable to economic analysis.]

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