Assuming that the discounted value of a monopoly in this IP is reasonably close to Alice’s cost of training, e.g. 1x-3x, competition between Alpha and Beta only shrinks the available profits by half, and Beta expects to acquire between 10%-50% of the market,
Basic econ q here: I think that 2 competitors can often cut the profits by much more than half, because they can always undercut each other until they hit the cost of production. Especially if you’re going from 1 seller to 2, I think that can shift a market from monopoly to not-a-monopoly, so I think it might be a lot less valuable.
Still, obviously likely to be worth it to the second company, so I totally expect the competition to happen.
Yeah, I’m really not sure how the monopoly → non-monopoly dynamics play out in practice. In theory, perfect competition should drive the cost to the cost of marginal production, which is very low for software. I briefly tried getting empirical data for this, but couldn’t find it, plausibly since I didn’t really know the right search terms.
Basic econ q here: I think that 2 competitors can often cut the profits by much more than half, because they can always undercut each other until they hit the cost of production. Especially if you’re going from 1 seller to 2, I think that can shift a market from monopoly to not-a-monopoly, so I think it might be a lot less valuable.
Still, obviously likely to be worth it to the second company, so I totally expect the competition to happen.
This point feels related to the AlphaGo behavior everyone puzzled over early where it would consistently win by very few points.
I have this head-chunked as approximately undercutting the opponent until they hit the cost of victory.
Yeah, I’m really not sure how the monopoly → non-monopoly dynamics play out in practice. In theory, perfect competition should drive the cost to the cost of marginal production, which is very low for software. I briefly tried getting empirical data for this, but couldn’t find it, plausibly since I didn’t really know the right search terms.