
W. Brian Arthur popularized an economic theory that changed Silicon Valley - mstats
https://www.fastcompany.com/3064681/most-creative-people/most-important-economic-theory-in-technology-brian-arthur
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chishaku
> If a product or a company or a technology—one of many competing in a
> market—gets ahead by chance or clever strategy, increasing returns can
> magnify this advantage, and the product or company or technology can go on
> to lock in the market.

Isn't this just describing the nature of monopoly power? The worship of this
ideal seems to go hand in hand with the weakening of antitrust enforcement
over recent decades.

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mojuba
It is rather describing the process of becoming a monopoly in the post-
industrial economy. Mergers were the main mechanism previously, while now
nobody needs M&A anymore: just bet on 20 great looking startups and one of
them will become a monopoly.

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otoburb
>>[...] while now nobody needs M&A anymore: just bet on 20 great looking
startups and one of them will become a monopoly.

For early stage startups I agree, but the prevalence of acquire-hires and
straight-up acquisitions in recent years is indicative of thriving corporate
M&A departments.

Given the recent wave of early-stage AI investments, another wave of not only
consolidation but acquisitions is probably on the horizon.

~~~
mojuba
Yes, but what I meant was M&A is no longer a mechanism of becoming a monopoly
at least in the tech world. Interestingly, I can't even think of one big
acquisition in tech (excluding cable/utilities) that led to a monopoly as a
result.

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laurencerowe
Google buying DoubleClick?

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btilly
A lot of the hype was due to people accepting Metcalfe's Law of networks being
worth their size squared. Network effects are much smaller, as
[http://www.dtc.umn.edu/~odlyzko/doc/metcalfe.pdf](http://www.dtc.umn.edu/~odlyzko/doc/metcalfe.pdf)
argues, they are generally closer to O(n log(n)) than O(n^2).

That said the power of owning the standard is hard to overestimate. I highly
recommend a close read of
[http://gunkies.org/wiki/Gordon_Letwin_OS/2_usenet_post](http://gunkies.org/wiki/Gordon_Letwin_OS/2_usenet_post)
to see how important it is, and how much of a disadvantage it is to have to
play catch-up.

~~~
dmoy
Ah an Odlyzko paper of the form "X common statement-thing is actually wrong".
Another good one is "Content is not King", which also has interesting effects
in the tech industry (whether correct or incorrect).

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davidw
If you're interested in the economics of tech, this is one of my favorite
books:

Information Rules: A Strategic Guide to the Network Economy -
[http://amzn.to/2hKFpwW](http://amzn.to/2hKFpwW)

One of the authors, Varian, is now Google's Chief Economist, so they must
think highly of him too.

The book is a bit older, but like the book says, “Technology changes, economic
laws do not.”

~~~
wyc
This was a great read! There are some really cool ideas such as how
information products are high fixed-cost low marginal-cost items and what that
means for the market. It also has salient coverage of topics like lock-in,
price discrimination, and the different ways that standards affect
organizations. Thanks for mentioning this, I would also definitely recommend.

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arzt
This book chronicles Arthur's struggle pushing his theories through mainstream
academia and how that ultimately led to the creation of the Sante Fe
Institute. It's a narrative mixed with an overview of the creation of
complexity theory and many of the concepts he (and others) came up with that
changed economic thinking.

[https://www.goodreads.com/book/show/337123.COMPLEXITY](https://www.goodreads.com/book/show/337123.COMPLEXITY)

~~~
BrandonMarc
Hear hear. It's one of the best computer science textbooks I've ever read.
What's odd is that my college offered it to their Architecture students (due
to its economic / philosophical ramifications), and none of the Computer
Science classes had it on their list.

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fnovd
Misleading headline. From the article:

>"People in Silicon Valley," says Arthur, "knew a lot about this phenomenon
intuitively. But nobody had really written about it clearly."

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sp332
If someone is only described as having popularized an idea, that usually means
they didn't invent it.

~~~
fnovd
Title: W. Brian Arthur popularized an economic theory that changed Silicon
Valley

My interpretation: Mr. Arthur popularized an idea and in doing so shared it
with the technologists in Silicon Valley, who applied it to their work.

Truth: Mr. Arthur put to words a phenomenon that was incidentally also
observed in Silicon Valley.

The misleading part being the assumed causation, i.e. if it weren't for Mr.
Arthur popularizing the idea, the Valley wouldn't look like it does today.

~~~
caseysoftware
Sometimes a clear explanation is the most important part. It gives people a
common frame of reference and lets them have the _next_ conversation.

For example, this is why Design Patterns are so powerful. When I say MVC or
Active Record, most developers have a good handle on what I mean so now we can
skip the "what" and get to the "how" in a fraction of the time.

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primodemus
link to the article mentioned: [https://hbr.org/1996/07/increasing-returns-
and-the-new-world...](https://hbr.org/1996/07/increasing-returns-and-the-new-
world-of-business)

~~~
qwrusz
Thank you. I found it odd the article would hype this piece like this, quote
an entire paragraph and mention the Cormac McCrarthy connection and not give a
link. News on the internets business as usual I guess.

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dano
Eugene Kmetovicz's book, New Product Development: Design and Analysis (1992)
includes a graph and formula demonstrating the importance of time to market.
The first mover acquires a much larger part of the market by being first and
becoming the standard. His book, while a bit dated, is a good read.

[https://www.amazon.com/New-Product-Development-Design-
Analys...](https://www.amazon.com/New-Product-Development-Design-
Analysis/dp/0471555363)

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LiweiZ
As a big fan of his work, I would like to recommend his book: Complexity and
the Economy.

