Median Smartphone Theorem

With the new releases of Apple phones/gadgets being so publicized, it had me thinking about how the new specifications or "specs" of the technologies are so similar to other leading brands. For example, take the Apple iPhones and the Samsung Galaxies. From my layman's perspective, it seems that these phones are increasingly similar, and I'm not the only one curious about the similarities - with Apple switching to the full touch screen model in the iPhone X, similar to that of the Samsung phones, and with the focus selling point being camera quality in both of the brands.

In class, we learned that the median voter theorem predicts candidates in a two party system to "race to the median" in order to capture the most votes. If we apply this to the smartphone industry and hold the hypothetical assumption that Apple and Samsung have a duopoly, we can see how the Hotelling model applies: when both firms have the objective to "win" the most consumers, they will want to appeal to the most people, causing them to race to the median in terms of focusing on similar specs that the consumers are looking for. In other words, the product differentiation decreases, just as Downs predicts party platforms to more or less converge in the middle.

At this point, the parties compete on giving the voters what they want; in the smartphone case, the firm that figures out what consumers value most will be able to dominate. Of course, the product specs are not the only thing that are at play which is what causes the product differentiation - for the smartphones, there are other effects like networks effects (having an iMessage with someone vs the "green messages," integration with other technologies like Macbooks) and application integrations (iOS vs Android). However, it would be an interesting take to see these other effects as a part of the "product" as both firms strive to offer similar integrations within their operating systems, resulting in similar technologies overall.

The Burdens of External Costs

Fun fact: I am on the UVA Mock Trial team.

We travel across the country competing against the best schools in the nation. Our trials can be about anything from bribery to copyright infringement to murder. In any given round, we represent attorneys and witnesses for the prosecution/plaintiff and the defense—using case facts to build legal arguments. Over the years, I've seen that in both civil and criminal trials, unanimity amongst jurors is required to find a defendant guilty. But what differs between civil and criminal trials is something called the burden of proof. Think of this as a measure of how certain a juror has to be of the defendant’s guilt. In criminal trials, the prosecution must prove the defendant is guilty beyond a reasonable doubt—meaning that jurors have to be absolutely certain of the defendant’s guilt in order to convict. But in civil cases, the burden is a preponderance of the evidence (more likely than not—51%). This burden directly effects how we construct our legal arguments.

But why are the burdens different? The disparity in the external costs are to blame. To ground this in the analysis we walked through in class, its helpful to think of the juror's decision making cost as a constant as the jurors aren’t being effected by the outcome.  But in this example instead of N_a* being the number of voters, it represents the certainty a juror has in the defendant’s guilt. The external cost curve varies between civil and criminal cases. The external costs of a guilty verdict in a criminal case are higher, meaning that the N­_a* is larger—just as it would be if we were ratifying a constitutional amendment. 

Think about it. The consequence of being found guilty for a crime is a jail time—a loss of someone’s liberty (and their right to vote #electionseason). Whereas the consequence of being found liable for a civil tort is (usually) a monetary cost. A loss of one’s freedom and the repercussions of being convicted of a crime are significantly higher than paying (even the largest of) fines. Money is something that can be regained over time—even prisoners are paid for labor. So in civil cases with lower external costs, N_a* doesn’t have to be maxed out. But one’s liberty is nearly, if not entirely suspended in prison. So, when making the decision to take someone’s freedom we want to make sure that jurors don’t have a semblance of doubt in the person’s guilt. Beyond a reasonable doubt doesn’t mean doubting reason—but it does call for certainty and a maximized N­_a*.

Venezuela's Suboptimal Production

There is no question that Venezuelans are trying to leave Venezuela fast, where “tens of thousands cross the border into Colombia each day”.  People leave everything behind including their homes, their cars, and even their jobs all in the hopes of obtaining a dignified quality of life in neighboring countries. There is clearly a high cost related to leaving Venezuela due to forced migration, and for those who try to sell assets before the big move, they quickly find out their assets are worthless due to hyperinflation. The more Venezuelans leave the country, the easier the move seems but unfortunately this is not true. One would think that the opportunity cost of leaving would decrease as more people leave the country, but there is a high cost related to seeing a country collapse as a result of suboptimal production of goods and services. There is the need to leave but the desire to stay and see the country prosper.

If we were to look at Venezuela as a firm, forced migration to neighboring countries has imposed a negative externality of production on Venezuela. There is a clear brain drain and capital flight as a result of people leaving the country. The more Venezuelans leave the country means unattended production facilities are expropriated by the government who then appoint unexperienced producers as new facility leaders. The marginal social cost is greater than the marginal private cost where in return, this shift causes suboptimal production of goods and services which are below the allocative efficient quantity and is one reason for the collapse of the economy.

For the people leaving however, this is another story; Venezuelans leave in search for a better life into the known because marginal benefit of leaving is greater than marginal cost of staying. The search for a new life can be seen as a positive externality of consumption on the Venezuelans who are leaving since in their mind, nothing can be as bad as the life they were having in Venezuela, which is essentially what fuels the act of forced migration. In union, through moral support the more people leave together means the marginal social benefit will be greater than the marginal private benefit. From this analysis one could say that there is an underproduction of satisfied Venezuelans in the country which has led to an overproduction of Venezuelans migrating to neighboring countries.

Gun Control from Maslow's Perspective

This weekend, I attended the Clinton Foundation’s Clinton Global Initiative University in Chicago, where Chelsea Clinton moderated a panel on gun control. The panel included Sarah Chadwick, Founder of March for Our Lives, and Nza-Ari Khepra, Founder and Co-Creator of Project Orange Tree and Wear Orange, among others. Over the course of the panel, the conversation took an interesting turn. Lieutenant Colonel Joe Plenzler, activist with #VetsforGunReform, spoke of fear, and the fact that in many inner-city communities, residents feel the need to carry guns for self defense.

He mentioned Maslow’s Hierarchy of Needs, a known psychological phenomenon stating that people need simple things like shelter, food, and safety before they can realize their full potential. He spoke of the irony of this situation in which people are crippled by lack of safety, prompting them to carry guns, which then of course leads to the perpetuation of an unsafe environment where guns abound. I couldn’t help but infer that, at least from this perspective, the complex issue of gun control is reduced to a classic prisoner’s dilemma. 

Consider a highly simplified situation focusing on just two residents of a certain neighborhood, Resident A and Resident B. Just as in a typical prisoner’s dilemma set-up, there are four potential scenarios: both carry guns, neither carries a gun, Resident A carries a gun and B does not, or Resident B carries a gun and A does not. The optimal choice of two residents in such a situation would be for neither to carry a gun. If Resident A doesn’t have a gun, Resident B doesn’t need one for self-defense because there is no threat to his/her safety by Resident A, and vice versa. This way the residents would be able to spend their time focusing on the higher strata of Maslow’s Hierarchy of Needs, such as relationships, creativity, and self-actualization.

However, safety in the world as we know it is based not on the simple trusting relationship between two residents, but rather the complex dynamic of large groups of people and therefore the potential for danger from many fronts, and so the current Nash equilibrium is for all parties to carry guns, perpetuating fear and a vicious cycle. Until we find a way to increase trust in these communities and therefore reduce the very need for guns themselves, gun purchases will continue to stagnate. What’s more, without a decrease in the magnitude of overall gun sales, it will be continually difficult to regulate illegal gun sales, an unfortunate negative externality perpetuating gun violence on other fronts. Chelsea, maybe you and Maslow can solve this one… 

Hotelling in Death Valley

      This weekend, I ventured into the absolutely insane world of the tailgating scene of Louisiana State University to visit some friends during their Homecoming Weekend. This unbelievable scene, affectionately referred to as "Death Valley", has recently seen major changes as the university has cracked down on the locations of fraternity tailgates.
       Now that individual fraternities are unable to host tailgate festivities within their own houses or inside the perimeter of the actual stadium, there is a mad dash for fraternities to capture the optimal tailgate plot that can capture the biggest share of the tailgate-goer market. The plots right outside the stadium sit right in the middle of the consumer market, with LSU student apartments to the east and LSU dormitories to the west. Right in the heart of Death Valley, Hotelling's law seen in "Stability in Competition" holds true in that the different fraternities "selling" mostly homogenous products (alcohol and music) end up moving closer and closer to the plots just outside the entrance of the stadium, so that they may capture more college students "consuming" their fraternity's tailgate experience.
       However, due to the conglomeration of fraternity tents side by side to one another and the lack of differentiation between products, consumers on their way to the football game freely flow through what seems like a mere block-long tailgate. This causes the plot directly closest to the stadium to be the optimal location, thus capturing the biggest amount of tailgate-goers and therefore achieving the coveted tailgate "buzz".