Independent Institute Response To Phillip Hallam-Baker ("network externality")

[Phillip Hallam-Baker]

Declan would have more of a case if Theroux did not repeatedly refer to
L-M as 'Institute fellows' as if they were interns. Actually they are
faculty at a couple of state universities [albeit in admin roles].

The issue is not the case L-M actually make but the propaganda spin
put on that case by the Independent institute for transparent political
purposes.

I find it very hard to lend any credibility to any 'research' institute
that is committed to a particular political point of view - which 'The
Independent Institutue' clearly is.


Some additional information, it turns out that the original L-M paper
on QWERTY is nine years old.
http://www.economist.co.uk/displayStory.cfm?Story_ID=196071&CFID=1294910&CFT
OKEN=8639

Unfortunately the paper as reported does not make the case that Declan
claims. It does not DISPROOVE QWERTY, it merely asserts that the example is
USED WITHOUT PROOF.

Also the fact that economists generally still appear to give the QWERTY
story credence may indicate ignorance or may simply mean that they reject
the L-M hypothesis.


Since Theroux appears unable to actually state the L-M case, merely draw
his own conclusions from it, let us turn to the economist for a precis:
http://www.economist.co.uk/displayStory.cfm?Story_ID=240761&CFID=1294910&CFT
OKEN=8639

[[[To begin with, the authors question the theoretical appeal of the
path-dependence paradigm. Network effects are real, and it follows that
lock-in is a possibility. But note that lock-in is inefficient (that is, it
is a kind of market failure) only if the inferior product survives despite
the fact that the benefits of switching would exceed the costs. If the
inferior product survives because the costs of switching are high, that is
as it should be: in that case it would be inefficient to switch. (Recall
that the point of the bogus QWERTY story was that the benefits of switching
would be great and the costs low: the market failure consisted in the
difficulty of making a co-ordinated jump to the new layout.) Taking
switching costs into account immediately narrows the extent of plausible
market failures. ]]]


OK so what is being said here? Lock in is a possibility due to switching
cost, BUT IT ISN'T A MARKET FAILURE, why? because it does not demonstrate an
irrational choice.

This is not actually contradicting anything in my argument. What they are
actually arguing about is whether the lock in effect violates the tenets of
rational choice theory. Lock-in may occur and you may only be able to buy
your operating system from one vendor, but that is not a market failure AS
WE CHOOSE TO DEFINE IT.

So consumers may think it is a market failure to only be able to buy their
O/S from one company and that may be their complaint but the Indpendent
institutes of the world tell us that this is merely our ignorance. What we
are experiencing is not 'market failure' (which could never happen by the
way, no not ever, ever) but something else and until we work out what they
specifically call that effect [or more precisely what they will allow that
effect to be called] we ignorant peons have no right to complain about it.

It is a sham intellectual process, it is the type of behavior that gives the
'soft sciences' a bad name.

What this comes down to is a set of definitions, Theroux attempted me to use
his terminology on several occasions and I declined specifically because I
knew the game he was playing.


Another similar trick often seen is to use the technical definition 'Pareto
Optimal' to mean 'Optimal'. A system is Pareto Optimal if no improvement is
possible without disadvantage to at least one party. This means that
practically every real-world situation is Pareto optimal.[*] So 'free
markets' (an elastic term with humpty-dumpty semantics) become 'optimal'
since it is only necessary to find one person who would be harmed by each
alternative policy.


[[[Turning to the actual evidence, the authors find no such cases at all.
Again and again they show that good products win. The standard lock-in
stories are examined and, like QWERTY before them, debunked]]]

The authors find no evidence to disprove their theory.... surprise! What
this amounts to is the logical falacy A implies B, NOT B ==> A.

	Phill

[*] Pareto was a 19th centry Italian railway official who was the first man
to get the trains to run on time in that country. He did this by defining a
train to be 'on time' if it could not have arrived any closer to its planned
arrival time without causing any other train to be late.


> -----Original Message-----
> From: owner-fight-censorship at vorlon.mit.edu
> [mailto:owner-fight-censorship at vorlon.mit.edu]On Behalf Of Declan
> McCullagh
> Sent: Saturday, March 03, 2001 1:02 AM
> To: Phillip Hallam-Baker
> Cc: 'Paul Spirito'; 'Matthew Gaylor'; fight-censorship at vorlon.mit.edu;
> cypherpunks at cyberpass.net; CYBERIA-L at listserv.aol.com; 'Colin
> A. Reed';
> 'Ken Brown'; 'David Theroux'
> Subject: Re: Independent Institute Response To Phillip Hallam-Baker
> ("network externality")
>
>
> One problem with Phill's analysis is that the L-M work stands on
> its own, independent from the, well, Independent Institute.
>
> Criticizing the group does not score points against the L-M work.
>
> -Declan
>
>
> On Fri, Mar 02, 2001 at 01:20:41AM -0500, Phillip Hallam-Baker wrote:
> >
> > > Fyi, Phill has opposed the MS antitrust case.
> >
> > True, and I have been vindicated by recent events, since
> even divine power
> > has proven unable to breakup Microsoft - although to be
> fair to the DoJ it
> > must be pointed out that he felt the need to try.
> >
> >
> > It is pretty wierd that the crank tank thinks that people
> who disagree with
> > their reasoning must disagree with their conclusion, or for
> that matter that
> > people who agree with their conclusion must agree with their whacky
> > theories. The 'hundreds' of economists cited as backing the
> whacky theory
> > turn out to have signed up for an open letter to support
> Microsoft, not
> > quite the same thing at all.
> >
> > Now it is entirely true that I have not examined the
> specific evidence cited
> > in the book, merely the tendentious press release being
> circulated. However,
> > the press release makes the claims and the only evidence
> supplied is on the
> > basis of the book. This sounds to me like reference to
> spurious authority.
> > Particularly since the 'independent institute' that
> publishes the book was
> > paid $100,000 by Microsoft in a transaction that most
> certainly did not
> > influence a single pardon.
> >
> > Coupled with the bogus claim that 250 economists also deny
> the existence of
> > network effects that turns out to be 250 economists support
> Microsoft, it
> > seems fair to say that the press release does not cross the
> threshold of
> > credibility, even if the claim being made was not so far
> reaching and
> > revisionist.
> >
> > The behavior of the director of the institute only further
> confirms the
> > impression.
> >
> > 	Phill
> >
>