The twin forces of scarcity & abundance part 1
Scarcity and trade
Cutting to the chase, if I want to manifest economic abundance: I should have something scarce I can trade which people want.
This works well for rival goods where use of the good by one person easily excludes use by another. It‘s easiest to understand when applied to tangible objects.
For example, if I have a diamond and lots of people want diamonds and there’s not many diamonds to go around then somebody is very likely to fork over a lot of cash in exchange for my diamond. Now once I handover my diamond in exchange for cash, I don’t have it anymore. The other person does. I can’t have my diamond and sell it too.
It can also apply to less tangible things like services. For example, if I’m the only dentist in town and the other dentist is very far away then I can charge a higher rate for your services than normal. Similar to the diamond situation, once I’m booked and busy attending to a patient then I can’t accommodate another patient on the same chair at that same time.
As a first approximation, from my point of view as an individual, the less competition I have for my trade-able good or service, the better off I am.
Abundance in networks
Well, not quite.
Why for example do coffee shops, Vietnamese restaurants or wedding dress shops cluster together in one area of the high street? If I went by the principle discussed above, I would want to open my new Vietnamese restaurant as far as possible from other Vietnamese restaurants. But time and time again I see clustering of competitors together.
One reason could be people like to have lots of choices when they shop around. For example, if I want to eat Vietnamese food and I know that there’s a whole bunch of them at Marrickville Road then I might go there instead of going to only one in Mosman.
We can say that there are information signalling advantages to clustering together with competitors.
It is also in my nature as a social animal to feel safety in numbers. If I’m new to town, I tend to choose a restaurant where there are already people in it versus one that is empty.
This is exponentially true in the digital social networks that have sprouted in the last decade. I notice that after I reached 2,000 friends in Facebook, it became exponentially easier for me to add another or be added as a friend.
The evangelist Matthew described this phenomenon thousands of years ago in the parable of the talents: “For whoever has will be given more, and they will have an abundance. Whoever does not have, even what they have will be taken from them”.
So it seems abundance begets more abundance while scarcity begets more scarcity.
… continue to part 2
