Fish Farm Economies

I’m sure many have read Scott’s famous ‘fish filter’ parable, as an example of a coordination problem and how cooperation is better than individualistic self-interest (as detailed in MEDITATIONS ON MOLOCH and the THE NON-LIBERTARIAN FAQ).

The problem is this contrived example fall apart when more realistic conditions are imposed.

In real life, there would not be anywhere close to 1,000 homogeneous fish farms competing. Rather, consolidation is inevitable, so there may only be a dozen at most. This is because, no two companies are identical, even for the same industry/niche. A company with a competitive edge, all else being equal, will beat a company that lacks such an advantage, and the process repeats until some equilibrium or stalemate is reached or all the competitors all go out of business. As an example of the winner-take-all tendency of markets, name three competitors to the Windows operating system. Excluding open source alternatives such as Linux, MacOS is biggest competitor to Windows, but the distance between first and second is huge. To get an idea of big the disparity is, in 1997 Apple was close to insolvency and Steve Jobs was under pressure to sell the company to preserve what little shareholder equity was left. An investment in Apple in 1987, a decade later, lost money despite greatest tech boom ever. Meanwhile, Microsoft was being sued by the DOJ because it was too successful. It was only because Apple reinvented itself with the iPhone and iPod, in what is perhaps the greatest comeback in the history of business, that it surpassed Microsoft, but the MacOS marketshare is still only 9%, versus 89% for Windows.

Under more realistic conditions, by reducing the number of farms, the results are dramatic:

The returns to cooperation are highest for the unrealistic example (1,000 homogeneous farms).

Now let’s add the filters:

The results show that installation of the filters becomes disadvantageous if there are between 100-500 farms.