From: pcollac@pyrnova.mis.pyramid.com (Paul Collacchi)
Newsgroups: rec.autos.tech
Subject: Re: Carburetors, gasoline, and why I don't recycle
Date: 9 Sep 92 23:02:14 GMT
Reply-To: pcollac@pyrnova.mis.pyramid.com (Paul Collacchi)
Distribution: na
Organization: Pyramid Technologies, Mt. View, California.

In article <27054@scicom.AlphaCDC.COM>, wats@scicom.AlphaCDC.COM (Bruce
Watson) writes:
|> I believe the original poster was addressing an economic question.
|> This from MICROECONOMICS, Gwartney, Stroup, HBJ, 1987.
|> 
|> _Would Monopoly Oil Sell the Miracle Carburetor?
|>

Firstly, thanks for a nicely put economic argument that re-affirms the
total value in bringing competitive products to market, even if they appear
to undercut one's own product.
 
|> For years, it has been rumored that a much more efficient "miracle
carburetor"
|> for automobiles has been discovered, but that the big oil companies have
|> plotted to keep it off the market because it would reduce their profits
|> from the sale of gasoline.

It's not clear that because the total economic logic justifies bringing the 
product to market that any particular business would in fact do it, for
this presupposes that business decision-making is rational and adheres to
economic logic.  It also supposes that executives in the business hierarchy
got there because they previously exhibited economic logic which arguably
and noticeably impacted the bottom line.  Clearly the negation of this
observation is the stuff of what books like "What that don't teach at
such-and-such a business school" are all about.

In other words, what's appropriate to decision-making in organization
is 'organization decision-making' logic, which is not necessarily 
economic logic.

It is not my personal opinion that senior level managers, decision-makers
of corporations that I've worked in, in fact, demonstrate the logical,
economic behaviors of the poster.  Most are bright and personable, and
probably, intuitive.  Their intuiton may get them to the poster's end decision,
to bring the product to market, but they will have secured that decision via
subtle and impressive political maneuvering based on a strong sense of trust
for their underlying intuition.

The only time I saw "true" logic win the day was when computer software
engineers successfully blocked the effort to create a breakable 
level of computer "security" software wanted by salesman because 
*their* (ignorant) customers thought they wanted it.  The engineers were
able to demonstrate, using formal proof techniques, that the security 
desired by the customer could not be provided in this way, and that it was
not worth the effort to create the product simply to let the customer "feel
good" about it.  The salesman never understood the logic, and continued
to argue based on the logic that they had a customer who wanted it. But the
engineers' managers were able to secure the decision that it was not worthwhile
to bring to market a "false" product despite the fact that there were already
customers who wanted to buy it.

As a general rule, most "high-level" corporate fast-trackers I know 
personally, got to the place of decision making within corporations
by doing whatever it took to get there.  Often that means managing perceptions,
particularly about *their* boss, (i.e. giving one's boss the feeling that
he is being successful.), sometimes by managing real results, though it's
frequently easier to get in front of real results created by a nebulous 
process.
|> 
|> Suppose an oil cartel, Monopoly Oil, sells all the oil and gasoline in the
|> world. This hypothetical organization has also obtained the patent on a
|> miracle carburetor. The real improvement is simply a little plastic gizmo
|> that can be inserted into ordinary carburetors. The gizmo can be made
|> in quantity for 1 cent each, and each gizmo lasts just long enough (one
|> year, on average) to save its buyer 1000 gallons of gas. If Monopoly Oil
|> makes 5 cents per gallon economic profit on each gallon, the sale lost
|> _per gizmo_ will cost the firm $50 per year. Will Monopoly Oil sell the
|> gizmo? Of Course! If gas sells for 95 cents per gallon (but the 
|> opportunity cost of crude oil, refining, and so on is only 90 cents),
|> the cartel will _increase_ its profit by selling the gizmo (cost 1 cent),
|> which replaces 1000 gallons of gasoline, as long as the price of the
|> gizmo exceeds $50.01 to save 1000 gallons of gas. Indeed, any price
|> below $950 per gizmo would help the motorist.

I'm not sure I understand these last couple of sentences.  What is the
opportunity cost, the amount made if Monopoly doesn't sell a gallon?
Are you saying that Monopoly has it within its power to determine a
profitable price for the gizmo?

Is there no risk that someone could circumvent the patentable item and
cut Monopoly's throat?

Paul Collacchi
  
Newsgroups: rec.autos.tech