From: John Conover <john@email.johncon.com>

Subject: Re: News: Dot.com Demises Part Of Economic Life Cycle

Date: 25 Dec 2000 20:53:10 -0000

BTW, there is kind of an interesting side bar to this. It can be shown, (using game-theoretic methods,) that the natural evolution of industries is to start as a panoply, and evolve into an oligopoly. During the transition from panoply to oligopoly, the surviving companies seem to be chosen by lottery, and the chances of any given company surviving is proportional to its market share-as in the so-called "gambler's ruin." (What this means is that a company has a chance of winning-or a Shannon Entropy, or probability-of C / M, where M is the total market, and C, the market share of the company; the duration that the company will be in existence will be proportional to CM - C^2.) Note that such a scenario will have the characteristics of a Brownian fractal-and one can not make money iterating investments in the likes. As an industry matures into an oligopoly-the ultimate destiny of any industry-it can be shown that none of the companies will be profitable in the long run. John BTW, note how closely game theory, information theory, probability theory, and fractal science are tied together in the above; the Shannon probability of a company succeeding, P, is C / M, meaning that one should not invest in companies that have less than a 50% market share; and when one does, the fraction of one's net wealth to be invested would be 2P - 1. The chances of any company lasting t many years will be proportional to 1 / sqrt (t), too; and that is another Shannon probability that has to be handled with the 2P - 1 scenario. John Conover writes: > > Kind of an interesting perspective on the dot-com shakeout ... > > John > > BTW, the analogy to the car biz is not unique. A similar shakeout > occurred for semiconductors, TV sets, Radios, CBs, video games, etc. > In these techno-bubbles, only about 1 in 10 survive; and the one that > does pays the investors about 10X their initial investment-so its > not a wise gamble, (fun, maybe, but not wise,) for an investor, on > average, (i.e., one win of 10X and nine losses of 1X, puts one right > back where one started-its like betting on a fair tossed coin, in the > long run.) > > So, who makes all the money? The founder's of the companies that > survived-who only invested sweat. > > Although the dot-coms have fallen from favor, the industry > has generated more billionaires than any other industry in history. > > http://www.computeruser.com/news/00/12/25/news3.html -- John Conover, john@email.johncon.com, http://www.johncon.com/

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