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March 2004
April 2004

2004-03-29 »

Capitalism in Action

After reading a few semi-depressing books and articles about the way standard-economics-as-taught-in-school doesn't actually work (because almost all markets are inherently imperfect), and mostly agreeing with them, I realized that right now in Montreal I'm surrounded by examples of perfect free-market capitalism: restaurants.

Some background: some major reasons capitalist markets fail are incomparable goods and high cost of entry. For example, I can buy cotton from just about anybody with cotton, but CorelDraw just isn't the same as Adobe Illustrator. They're similar, but I can't only compare them on price; I have to decide which one I want more. Furthermore, some guy off the street can't just walk in, make a better graphics package, and sell it to you: he has to spend a lot of money (the "cost of entry") first. One big reason Microsoft can maintain their monopoly is that the cost of just getting started competing with them can (and does, regularly) put just about anyone out of business.

So basically, the software market is depressing, because I only took Economics 101 and it can't be explained by that. In my continuing attempts to simplify my model of the universe, however, I moved to Montreal, which brings me to my point: restaurants. Useless trivia: Montreal is second only to New York City in North America for "number of restaurants per capita", ie. the number of steps you have to walk down the street before stumbling into some food.

There are all imaginable prices of restaurant (and at varying quality, of course), and lots of each type, so they have to compete on price. You can buy as large or small a quantity of food as you want. You can start a cheap restaurant and quickly move up in the world, so the cost of entry is relatively low. And the market, in action, is amazing: just watch the consumers get sucked dry! No matter how much money you have, you can spend every last penny, no more, no less, on food, and still feel good about yourself, as this example shows. If you normally buy groceries, then eating out is a treat. If you normally eat at Burger King, then eating out anywhere else is a treat. If you normally eat at cheap diners, then eating at a nicer cafe/bistro is a treat. If you normally eat at nice bistros, then eating at a fancy restaurant is a treat. And if you always eat at fancy restaurants, well, Canada has a lovely progressive income tax system.

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