Posts Tagged ‘competition’
“Mastering others is strength; mastering yourself is true power”*…
After skipping last year (presumably to finish his best-seller Breakneck: China’s Quest to Engineer the Future), Dan Wang is back with his “annual letter.” An excerpt…
… I think the US continues to systematically underrate China’s industrial progress for several reasons.
First, too many western elites retain hope that China’s efforts will run out of fuel by its own accord. Industrial progress will be weighed down by demographic drag, the growing debt load, maybe even a political collapse. I won’t rule these out, but I don’t think they are likely to break China’s humming tech engine. Demographics in particular don’t matter for advanced technology — you don’t need a workforce of many millions to have robust production of semiconductors or EVs. South Korea, for example, has one of the world’s fastest shrinking populations while retaining its success in electronics production. And though China suffers broader economic headwinds, technology firms like Xiaomi continue to develop new products and enjoy rising revenues. Technology breakthroughs can occur even in a suffering society. Especially if the state continues to lavish resources on chips or anything that could represent an American chokepoint.
Second, western elites keep citing the wrong reasons for China’s success. When members of Congress get around to acknowledging China’s tech advancements, they do not fail to attribute causes to either industrial subsidies (also known as cheating) or IP theft (that is, stealing). These are legitimate claims, but China’s advantages extend far beyond them. That’s the creation of deep infrastructure as well as extensive industrial ecosystems that I describe above.
Probably the most underrated part of the Chinese system is the ferocity of market competition. It’s excusable not to see that, given that the party espouses so much Marxism. I would argue that China embodies both greater capitalist competition and greater capitalist excess than America does today. Part of the reason that China’s stock market trends sideways is that everyone’s profits are competed away. Big Tech might enjoy the monopolistic success smiled upon by Peter Thiel, coming almost to genteel agreements not to tread too hard upon each other’s business lines. Chinese firms have to fight it out in a rough-and-tumble environment, expanding all the time into each other’s core businesses, taking Jeff “your margin is my opportunity” Bezos with seriousness.
Third, western elites keep holding on to a distinction between “innovation,” which is mostly the remit of the west, and “scaling,” which they accept that China can do. I want to dissolve that distinction. Chinese workers innovate every day on the factory floor. By being the site of production, they have a keen sense of how to make technical improvements all the time. American scientists may be world leaders in dreaming up new ideas. But American manufacturers have been poor at building industries around these ideas. The history books point out that Bell Labs invented the first solar cell in 1957; today, the lab no longer exists while the solar industry moved to Germany and then to China. While Chinese universities have grown more capable at producing new ideas, it’s not clear that the American manufacturing base has grown stronger at commercializing new inventions…
Eminently worth reading in full: “2025 letter.”
Pair with “U.S.-China Economic Competition” (from Rand) and “The Outlook for China-US Strategic Competition in 2026” (an interview with Sarah M. Beran in The Diplomat)
* Lao Tzu
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As we grapple with geoeconomics and geopolitics, we might remind ourselves just how fast China’s rise has been: on this date in 1967, in the midst of the Cultural Revolution, the Shanghai People’s Commune was established following the seizure of power from local city officials by revolutionaries. Shenzen was, at the time, a sleepy backwater, just off what was then the British colony of Hong Kong.
“It’s easy to meet expenses – everywhere we go, there they are.”*…
… And those expenses seem to keep rising. Ben Brubaker weighs in on one ever-more-timely culprit…
Imagine a town with two widget merchants. Customers prefer cheaper widgets, so the merchants must compete to set the lowest price. Unhappy with their meager profits, they meet one night in a smoke-filled tavern to discuss a secret plan: If they raise prices together instead of competing, they can both make more money. But that kind of intentional price-fixing, called collusion, has long been illegal. The widget merchants decide not to risk it, and everyone else gets to enjoy cheap widgets.
For well over a century, U.S. law has followed this basic template: Ban those backroom deals, and fair prices should be maintained. These days, it’s not so simple. Across broad swaths of the economy, sellers increasingly rely on computer programs called learning algorithms, which repeatedly adjust prices in response to new data about the state of the market. These are often much simpler than the “deep learning” algorithms that power modern artificial intelligence, but they can still be prone to unexpected behavior.
So how can regulators ensure that algorithms set fair prices? Their traditional approach won’t work, as it relies on finding explicit collusion. “The algorithms definitely are not having drinks with each other,” said Aaron Roth, a computer scientist at the University of Pennsylvania.
Yet a widely cited 2019 paper showed that algorithms could learn to collude tacitly, even when they weren’t programmed to do so. A team of researchers pitted two copies of a simple learning algorithm against each other in a simulated market, then let them explore different strategies for increasing their profits. Over time, each algorithm learned through trial and error to retaliate when the other cut prices — dropping its own price by some huge, disproportionate amount. The end result was high prices, backed up by mutual threat of a price war.
Implicit threats like this also underpin many cases of human collusion. So if you want to guarantee fair prices, why not just require sellers to use algorithms that are inherently incapable of expressing threats?
In a recent paper, Roth and four other computer scientists showed why this may not be enough. They proved that even seemingly benign algorithms that optimize for their own profit can sometimes yield bad outcomes for buyers. “You can still get high prices in ways that kind of look reasonable from the outside,” said Natalie Collina, a graduate student working with Roth who co-authored the new study…
Read on for more on recent findings that reveal that even simple pricing algorithms can make things more expensive: “The Game Theory of How Algorithms Can Drive Up Prices,” from @benbenbrubaker.bsky.social in @quantamagazine.bsky.social.
See also the charmingly-understatedly-titled “AI-Driven Personalized Pricing May Not Help Consumers.“
* anonymous
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As we muse on malign mechanisms, we might recall that it was on this date in 1787 that the first in a series of eighty-five essays by “Publius,” the shared pen name of Alexander Hamilton, James Madison, and John Jay, appeared in the Independent Journal, a New York newspaper. Known collectively as The Federalist Papers, they were an effort to urge New Yorkers to support ratification of the Constitution approved by the Constitutional Convention on September 17, 1787. While aimed at New Yorkers, the essays were reprinted in newspapers (and pamphlets) across the fledgling nation.
In Federalist Paper #12, Alexander Hamilton (later the first Secretary of the Treasury) articulated an argument for the economic advantages of a united government under the proposed Constitution– and sketched the outline of the financial and commercial regime we’ve built since.
Your correspondent is heading into a series of meeting sufficiently intense that (R)D will be on brief hiatus. Regular service should resume on October 30.
“The drums have hogged a lot of the credit. We’re as much — or more — cymbal players, as we are drummers”*…
Members of the Ziljan family have been making the cymbals-of-choice for drummers since before humans learned the Earth revolves around the sun. They’ve weathered challenges of all sorts, from the inevitable trials of a family business to the vagaries of international trade. As Cullen Hendrix explains, they’re battening down the hatches for another period of turbulence– one that could impact both their fortunes and those of the drummers they serve…
North America’s two largest cymbal producers share a family lineage and approaches to cymbal making. What they don’t share is a country of origin. One is US-based, the other Canadian. The similarities between the two companies and their products provide a unique window into how US tariffs on Canadian goods would affect consumer choices and prices—both for the worse.
As I write, the 25 percent tariffs imposed on Canada and Mexico have been paused for all US-Mexico-Canada Agreement–compliant products until April 2, when they are expected to be reinstituted along with reciprocal tariffs against a larger list of countries. Before the tariffs were imposed, Canadian-made SABIAN cymbals entered the United States duty-free.
Zildjian (USA) and SABIAN (Canada) are the dominant cymbal brands in the US market and part of the “big four” globally, which include Paiste (Switzerland) and MEINL (Germany). Both Zildjian and SABIAN trace their cymbal-making history to 1623, when Avedis Zildjian founded Zildjian Cymbals in Constantinople. The Zildjian family immigrated to North America in the 1920s, beginning production at their Massachusetts plant in 1929.
In 1968, Zildjian opened a second plant in the Canadian province New Brunswick. Initially intended to produce a budget-oriented line, the exploding popularity of rock music led Zildjian to quickly scrap those plans and begin producing the emerging industry standard Zildjian cymbals in both factories. As can happen with family businesses, the succession plan led to a schism between two of the Zildjian brothers and a lengthy court battle. One branch took control of the Massachusetts plant, the other New Brunswick, leading to SABIAN’s founding in Canada in 1981. Helped along by early endorsers like Phil Collins and Vinnie Paul of Pantera, SABIAN quickly became Zildjian’s number one rival in North America.
Their family drama is a social scientist’s gold. Assessing the effects of tariffs for many consumer goods requires making apples-to-oranges comparisons. The Chevrolet Corvette is in the same market segment as the German Porsche 911 and Japanese Nissan GT-R, but differences in drivetrains, interior appointments, and styling add myriad variables to consumer choices and complicate efforts to discern the effects of tariffs on consumer behavior.
With SABIAN and Zildjian, you have two companies formed from one, making competing products made to near-identical specifications and using knowledge and techniques developed by the same family and at the same facilities over centuries. The biggest difference is that one is doing so in Norwell, Massachusetts, and the other in Meductic, New Brunswick.
Zildjian and SABIAN each produce a “standard” set of professional-grade cymbals—the A line in Zildjian’s parlance, AA in SABIAN’s—suitable for a broad range of musical styles. These cymbals can be heard on recordings by some of drumming’s leading lights, including Carter Beauford of the Dave Matthews Band and Chad Smith of the Red Hot Chili Peppers. Stripped of their logos, even a seasoned audio engineer would be hard-pressed to tell the difference between the two lines. My first set of “real” cymbals, purchased in 1995, were SABIAN AAs…
… SABIAN’s prices are higher, but the differences are relatively small, between 3 and 6 percent. How would a 25 percent tariff affect US retail prices for Canada’s finest cymbals? Tariff pass-throughs, i.e., the share of the tariff’s increase in prices paid by the end consumer, are typically calculated on the basis of cost insurance and freight (CIF) prices, rather than retail prices. So, a 25 percent tariff would not translate into a 25 percent increase in the retail price…
… At 100 percent (50 percent) pass-through, the SABIAN cymbals would now be 12 to 14 percent (7 to 10 percent) more expensive than the corresponding Zildjians. On the face of it, this would seem to be bad news for SABIAN and good news for Zildjian. This is how protectionism as industrial policy works: By making imported goods more expensive relative to domestically produced goods, tariffs should shift demand toward domestic producers.
But would this be good news for US-based drummers? No. First, US-based drummers would have more limited choices. Instead of choosing on aesthetics, what their favorite drummer plays, or perceived (extremely minor) differences in sound, there would be drummers who would prefer to play SABIANs but find themselves buying Zildjians instead. But that scenario doesn’t factor in Zildjian’s response. With its closest competitor now charging higher prices, what incentive would Zildjian have not to increase their prices as well? If the evidence from US tariffs on Chinese washing machines is any indication, the answer is none. And if Canada were to reciprocate, the mirror image of this situation would obtain in Canada: Zildjian loses market share and/or SABIAN increases prices. And these calculations simply account for the narrow price effects. They don’t include potential product boycotts as a form of protest and national solidarity.
These scenarios are complicated by the availability of competing imported products from China, Germany, Switzerland, and Turkey, but there are few reasons to think US tariffs would not eventually touch those products as well (if they haven’t already). The math would be more complicated, but the end result would likely be the same: higher prices, less consumer choice, and decidedly mixed benefits even for domestic producers that aspire also to sell in foreign (and now reciprocally protected) markets.
The schism in the Zildjian family ultimately left drummers better off, with more options and competition to keep prices affordable. The same won’t be said of a more sustained US-Canada trade war…
The trade war comes for music: “US tariffs could crash the market for North American drummers,” from @cullenhendrix.bsky.social and @piie.com.
* Peter Erskine (A Zildjan user)
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As we ponder the impact of protectionism on percussion, we might send rhythmic birthday greetings to Derek McKenzie; he was born on this date in 1962. He’s best known as the drummer of Jamiroquai who had the 1993 UK No.1 album Emergency on Planet Earth and the 1998 UK No.1 single ‘Deeper Underground.’ Jamiroquai have sold more than 26 million albums worldwide and won a Grammy Award in 1998. He remains active as a drummer and as a producer and a DJ; he is a SABIAN user.
“Old ways of thinking die hard, particularly when they were weaned by legally enforced monopolies”*…
According to the US Bureau of Labor Statistics, from 2000 to present, prices in the hospital industry have grown faster than prices in any other sector of the US economy. The $1.3 trillion US hospital sector accounts for 6% of US GDP, nearly a third of all health care spending (which is materially higher as a share of GDP in the U.S. than in any other country). The average price for an inpatient hospital stay is $25,000.
A new working paper from the NBER assesses the impact of these rising costs. From its abstract:
We analyze the economic consequences of rising health care prices in the US. Using exposure to price increases caused by horizontal hospital mergers as an instrument, we show that rising prices raise the cost of labor by increasing employer-sponsored health insurance premiums. A 1% increase in health care prices lowers both payroll and employment at firms outside the health sector by approximately 0.4%. At the county level, a 1% increase in health care prices reduces per capita labor income by 0.27%, increases flows into unemployment by approximately 0.1 percentage points (1%), lowers federal income tax receipts by 0.4%, and increases unemployment insurance payments by 2.5%. The increases in unemployment we observe are concentrated among workers earning between $20,000 and $100,000 annually. Finally, we estimate that a 1% increase in health care prices leads to a 1 per 100,000 population (2.7%) increase in deaths from suicides and overdoses. This implies that approximately 1 in 140 of the individuals who become fully separated from the labor market after health care prices increase die from a suicide or drug overdose.
– NBER WORKING PAPER SERIES- WHO PAYS FOR RISING HEALTH CARE PRICES? EVIDENCE FROM HOSPITAL MERGERS
Four of the authors of that paper looked more deeply into the issue, exploring why those costs are rising; they identified consolidation in the hospital sector– 90% of hospital markets are now highly concentrated, according to the thresholds set by the FTC and the U.S. Department of Justice– as a key culprit:
The study, conducted in collaboration with researchers at Harvard University, Yale University, and the University of Wisconsin-Madison, found that of 1,164 mergers among the nation’s approximately 5,000 acute-care hospitals that occurred in the United States from 2000 to 2020, the Federal Trade Commission (FTC), which is tasked with preserving competition, challenged only 13 of them — an enforcement rate of about 1%.
Meanwhile, the researchers show that the FTC, using standard screening tools available to the agency during that period, could have flagged 20% of the mergers — 238 transactions — as likely to cause reduced competition and increase prices…
Unchallenged hospital mergers should have had minimal effects on competition and prices if the FTC were optimally targeting enforcement, the researchers noted. However, using data on the prices that hospitals negotiate with private insurers, the researchers found that mergers the FTC could have challenged as predictably anti-competitive between 2010 and 2015 eventually led to price increases of 5% or more.
The researchers estimate that the 53 hospital mergers that occurred on average annually from 2010 to 2015 raised health spending on the privately insured by $204 million in the following year alone. Putting this spending increase in context, the researchers note that the FTC’s average annual budget and antitrust enforcement budget between 2010 and 2015 were $315 and $136 million, respectively…
The study found that mergers in rural regions and areas with lower incomes and higher rates of poverty generated larger average price increases, often in outpatient services. The researchers suggest this occurred because those regions — compared with higher income, urban settings—have fewer free-standing clinics that offer surgical and imaging services that compete against hospitals in the outpatient market…
Consolidation in Hospital Sector Leading to Higher Health Care Costs
As Cory Doctorow succinctly observes…
The health system is a perfect example of how monopolization drives more monopolization, and how that comes to harm the public and workers. Health consolidation began with pharma mergers, that led to pharma companies gouging hospitals. Hospitals, in turn, engaged in a nonstop orgy of mergers, which created regional monopolies that could resist the pricing power of monopoly pharma – and screw insurers. That kicked off consolidation in insurance, which is why most Americans have a “choice” of between one and three private insurers – and why health workers’ monopoly employers have eroded their wages and working conditions.
How consolidation in the hospital sector is increasing healthcare prices and creating even steeper costs more broadly in the economy. @nberpubs @AEAjournals @doctorow
* Mitch Kapor
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As we measure our blood pressure, we might send concerned birthday greetings to Janette Sherman; she was born on this date in 1930. A physician, toxicologist, author, and activist. She researched pesticides, nuclear radiation, birth defects, breast cancer, and illnesses caused by toxins in homes and was a pioneer in the field of occupational and environmental health.
Dr. Sherman served as a medical-legal expert witness in more than 5,000 workers’ compensation claims and served as an expert witness for residents in communities affected by environmental hazards, most famously the Love Canal neighborhood of Niagara Falls, N.Y. Her medical-legal files, among the largest collections of their kind in the United States, are preserved at the National Library of Medicine at the National Institutes of Health in Bethesda, Md.
“We all live in each other’s shadow”*…
Further, in a fashion, to yesterday’s post, Nathan Gardels, editor of Noema Magazine, on a new book by Children of a Modest Star, “A clear-eyed and urgent vision for a new system of political governance to manage planetary issues and their local consequences” by Jonathan Blake and Nils Gilman…
Globalization was about markets, information flows and technology crossing borders. The planetary is about borders crossing us, embedding and entangling human civilization in its habitat. That, in a nutshell, is the core thesis of a new paradigm-shifting book by Jonathan Blake and Nils Gilman titled “Children of a Modest Star: Planetary Thinking for the Age of Crises.”
The concept of planetarity describes a new condition in which humans recognize not only that we are not above and apart from “nature,” but that we are only beginning to understand the complexities of our interdependencies with planetary systems.
“If Copernicus’s heliocentrism represented the First Great Decentering, displacing the Earth from the center of the heavens, and Darwin’s theory of evolution by natural selection the Second Great Decentering, then the emergence of the concept of the Planetary represents the Third Great Decentering, and the one that hits closest to home, supplanting the figure of the human as the measure and master of all things,” Blake and Gilman write.
As further argued by the authors in a forthcoming Berggruen Press volume, “the Planetary as a scientific concept focuses on the Earth as an intricate web of ecosystems, with myriad layers of integration between various biogeochemical systems and living beings — both human and non-human. Drawing on earth system science and systems biology, this holistic understanding is being enabled by new planetary-scale technologies of perception – a rapidly maturing technosphere of sensors, networks, and supercomputers that collectively are rendering the planetary system increasingly visible, comprehensible and foreseeable. This recently-evolved smart exoskeleton — in essence a distributed sensory organ and cognitive layer — is fostering an unprecedented form of planetary sapience.”
The open question is how, and if, human governance in the late-stage Anthropocene can align with the knowledge we are now attaining.
Paradoxically, planetary-scale connectivity is also what divides us. Convergence entails divergence because the universalizing and rationalizing logic of technology and economics that ties the world together operates in a wholly different dimension than the ethos of politics and culture, rooted in emotion and ways of life cultivated among one’s own kind.
While the emergent world-spanning cognitive apparatus may be sprouting the synapses of a synchronized planetary intelligence, it clashes with the tribal ingathering of nations and civilizations that remain anchored in their historical and spatial identity.
Consequently, this new domain of encompassing awareness is — so far — as much the terrain of contestation as of common ground…
[ Gardel unpacks Blake’s and Gilman’s proposition, which would devolve some decision-making on some issues, even as it globalized others. By way of addressing the Herculean challenge of creating the equitable, workable global system for addressing global challenges they [propose– a task made the more difficult by the divergence in values discussed yesterday— he invokes an episode from American history…]
… At the turn from the 19th to the 20th century, America was morphing from an agricultural, largely rural society into an urban and industrial one. Cultural norms and familiar ways of living were in upheaval. Political institutions that had become dysfunctional were challenged — not so unlike the disruptive transition to digital society and planetarity we are experiencing at present.
The turmoil of transition in those days gave birth to what became known as the Progressive Era. Its progenitors sought to address the new social concerns of a more complex society — working hours and safety conditions in newfangled factories, women’s suffrage, public health exposure from mass food processing, poor urban infrastructure from housing to water and electricity, the concentration of power in the railroad and banking trusts as well as exploitative private utility companies.
The Progressive Era response in the American states was to move in two directions at once. The movement promoted direct democracy whereby citizens could make laws and enforce accountability directly, skirting the corrupt and bought-off legislators of the patronage machines, through the citizens’ ballot initiative, the referendum and the recall of elected officials. At the same time, elected Progressive governors delegated authority to nonpartisan experts for commissions that regulated commerce, banking, railroads and electric utilities on behalf of the public interest. Professional city managers, unelected but accountable to direct democracy and the elected officials who appointed them, came into being for the first time to competently administer ever more complex urban environments.
In time, the reforms that resulted from this pairing of citizen engagement and technocracy percolated up to the national level into institutions such as the Interstate Commerce Commission or the Food and Drug Administration and led to the abolition of child labor, the eight-hour working day and women’s right to vote.
The point of this brief detour into American history is not to suggest the unworkable proposition of direct democracy at a planetary scale, but simply to say that it is well within the capacity of the political imagination to marry modes of consent with delegated authority in a way that confers legitimacy.
The paradigm shift and governing innovations Blake and Gilman propose in “Children of a Modest Star” are no less realizable over time than what has come before because, now just as then, changing circumstances demand it…
A paradigm shift from globalization to planetary governance? “The Third Great Decentering,” @NoemaMag @JonathanSBlake @nils_gilman.
* Irish proverb (in Gaelic, “Ar scáth a chéile a mhaireann na daoine”), quoted by Irish Prime Minister Michael Martin
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As we think systemically, we might recall that on this date in 1998 The Price Is Right aired its milestone 5,000th episode (the longest-running game show in history, it’s over 10,000 episodes to date, and still chugging along). Every prize given away on that episode was a car.
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