Re: News: Demises Part Of Economic Life Cycle

From: John Conover <>
Subject: Re: News: 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.


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.


John Conover,,

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