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The internet is made of cats – and you can blame economists

in the bag solutions

Economics sometimes has surprising applications. One example is the Alchian-Allen theorem, an observation that came from a footnote in an economics textbook in the 1960s about how quality demand is affected by transport costs.

You may think this has nothing to do with you, but it does, because it explains why you consume so much internet animal hilarity and so little Shakespearean seriousness. It comes down to economics. Seriously. Smart people make these choices and it is fascinating to understand why.

The Allen-Alchian theorem explains why places with high-quality produce (Allen and Alchian had in mind apples in Seattle, which is where apples come from in the US) nevertheless do not always get to consume that same high quality (they pointed to the market for apples in New York city, where no apples grow) because of the relative costs faced by consumers in each case (for New York consumers, a high-quality apple, once you account for transportation costs, was actually relatively cheaper than a low-quality apple compared to relative prices in Seattle). Hence the market sent the high-quality apples to New York.

You’re still with me? It’s all about relative costs. When you move something, or impose any fixed cost, the higher-quality item always wins, because it now has a lower relative cost compared to the lower-quality item.

The interesting idea is that this also applies in reverse – namely when we remove a fixed cost. The internet does this: it removes a cost of transport, and it does so equally for high quality and low quality content. Following the Allen-Alchian theorem, this should mean the opposite. Low-quality items are now relatively cheaper and high-quality items are now relatively more expensive. This idea was first explained by Tyler Cowen, but the upshot is that the internet is made of cats.

I want to give you some time to go away and read that paper, and maybe peruse the entire journal. This video of cats and vacuum cleaners should make for perfect background music:

Done that? OK, let’s continue. The internet isn’t really made of cats, obviously, it’s made of HTTP-HTML. But why do we choose so many cats?

The internet lowers the cost of “transport” for every idea, high and low quality alike. It’s the opposite of the apples situation. It means that low quality apples are now relatively cheaper. It means that cats-doing-funny-things is now relatively cheaper than say German Opera. Economics insists that when demand curves look like this we can expect more cat watching, and less German opera watching.

This theorem means that we expect a lower quality, “bittier” consumption to proliferate on the internet (as a technology that lowers transport costs of high-quality and low-quality ideas alike). Which is what we observe. So that’s a win for micro-economic demand theory.

But is that what’s just happened? Have we all just gotten dumber?

The case for no is because this bittier world is now the new condition for entrepreneurs to seek to discover new ideas and angles. Shorter attention plays out in particular ways and different ideas are required to capture it. This also means more concentrated attention.

It’s unclear what the winning formula will be for arts and cultural producers. The best bet is probably that we should try a lot of things and just see what works. It’s old school, but it’s also increasingly the cheapest option as the Allen-Alchian theorem explains.

Join the conversation

12 Comments sorted by

  1. Mark Jackson

    logged in via email @bigpond.com

    When I went to uni I was forced to do a couple of semesters of economics. I say "forced" because the evil henchmen of the WSE (World Society of Economists, the evil organisation trying to achieve world domination) had infiltrated the senior echelons of my university and arranged for economics to be core subjects. So if you wanted a degree you had to read Adam Smith and some stuff about assumptions. And maybe some graphs, I don't really remember.

    The upshot is that I didn't understand it then and your article hasn't assisted with that.

    But even though I know nothing about economics, apart from the fact there are graphs and assumptions, I really must disagree with your conclusions.

    Have we all gotten dumber? Of course we have. How else can you explain that Gangnam Style just passed 2 billion hits. And not a kitten in site...

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  2. Russell Hamilton

    Librarian

    Libertarian economists aren't much help here, the text to read is Postman's Amusing Ourselves to Death.

    Print, radio, TV, the internet has meant more and more stuff available, but quality stuff will always be relatively more expensive to produce (skills, intellectual property etc.) People have had choices, say between radio programs ranging from good to poor quality, for a long time, but there are more factors involved than Jason's "cost of transport" thing - not the least among them being education. It's harder to make educated choices if you haven't been educated.

    The complex world doesn't work the way economists would like it to.

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    1. alfred venison

      records manager (public sector)

      In reply to Russell Hamilton

      thank you, Russell Hamilton, nicely put. and i'll second your neil postman. -a.v.

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    2. alfred venison

      records manager (public sector)

      In reply to Russell Hamilton

      the berlin philharmonic simulcasts some of its concerts to the world wide web, but where i live, eh, i have access to neither digital radio nor a broadband internet connection, and they understandably don't support downloads, therefore i don't listen to their concerts, though i'd like to. so, transport done me in somehow? -a.v.

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  3. Seamus Barker

    logged in via Facebook

    The economic explanation given is surely a factor, but in itself is inadequate for accounting for the cat-and-otherwise-attention-shortened phenomenon it describes. The problem is that the article here doesn't account in any way for the differences in popularity between different types of free content. E-books are now cheaply/freely available, and yet people don't spend more time reading. Marshall McLuhan's communication theory, that the medium determines the message, is somewhat problematic, but it may still may go some way to explaining why people prefer free photos of cats to free shakespeare.

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    1. Cory Zanoni

      Community Manager at The Conversation

      In reply to Matty Silver

      Thanks for letting us know Matty. We'll get it sorted asap.

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    2. Cory Zanoni

      Community Manager at The Conversation

      In reply to Matty Silver

      A new video has been added. Thanks again Matty.

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  4. Michael Shand

    Software Tester

    Very interesting article, thanks for sharing

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  5. Dianna Arthur

    Environmentalist

    Hmmmm maybe.

    I can only speak from my own experience, after enduring Hockey's budget speech, our articulate Abbott on anything, the ravings of Bernardi, the bias of Bronwyn, the spectre of the IPA, the man-who-would-rule-the-world Murdoch and, oh so much more... I can only reclaim my sanity watching the antics of cats.

    Does this mean I have been dumbed down? I call it survival.

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  6. Alan Walker

    Factory Manager

    I can't remember when I last watched a cat video but I think it would be about as useful as watching a libertarian economics video.

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