The Chronicles of a Capitalist Lawyer: Game Theory

Showing posts with label Game Theory. Show all posts

Selama sumber daya terbatas, manusia harus memilih, dan itu berarti menemukan kebijakan yang memuaskan semua pihak belum tentu akan selalu tercapai. Ambil contoh kisah Gojek versus Ojek Pangkalan. Saya sudah membaca beragam artikel terkait hal ini mulai dari yang membela Gojek, mempertanyakan nasib supir ojek pangkalan yang katanya mulai tersingkir akibat "kapitalisme" ala Gojek, sampai potensi efek samping dari keberadaan Gojek, GrabBike dan variannya terhadap keberlanjutan transportasi publik. Tulisan ini tidak akan membahas kepentingan kelompok mana yang harus didahulukan. Saya jauh lebih tertarik untuk membahas insentif dari masing-masing grup dan dinamika yang mungkin terjadi.

Seperti biasa, saya beranjak dari asumsi ilmu ekonomi mengenai perilaku manusia rasional yang senantiasa mengutamakan kepentingan pribadinya terlebih dahulu. Saya cukup yakin bahwa semua supir Gojek dan ojek pangkalan sama-sama suka dengan profit (tentu tak ada yang melarang anda untuk berimajinasi kalau kebanyakan dari mereka bekerja jadi supir ojek sekedar demi memenuhi hobi bertualang di rimba jalanan Jakarta atau memenuhi idealisme mereka menolong rakyat Jakarta yang seringkali kesusahan menemukan sarana transportasi). Permasalahannya, kedua grup usaha ini memiliki model bisnis yang berbeda. Gojek bertindak sebagai broker dengan menggunakan jaringan teknologi untuk memudahkan hubungan antara supir ojek dan konsumen sehingga lokasi keberadaan ojek menjadi lebih fleksibel dan waktu tunggu bagi konsumen menurun. Harganya juga sangat murah walaupun setahu saya masih disubsidi untuk perkenalan. Bisa jadi minat konsumen akan berubah apabila harga Gojek sudah mencerminkan harga aslinya.

Sementara itu, Ojek pangkalan jelas sangat mengandalkan penumpang dari lokasi tempat mereka mangkal. Secara probabilistik, kemungkinan mendapatkan pelanggan akan sangat bergantung pada lokasi pangkalan yang bersangkutan. Bisa jadi ada pangkalan yang selalu penuh pelanggan dan ada pangkalan yang sepi pelanggan. Ini berbeda dengan Gojek yang pelanggannya seharusnya terdistribusi secara lebih merata. Kalau pelanggannya banyak, harga ojek pangkalan yang bersangkutan bisa jadi ditekan lebih murah. Kalau lebih sedikit, harga bisa jadi dinaikkan.

Tapi ada cara yang lebih mudah untuk memastikan keuntungan yang lebih besar. Para supir tersebut bisa berkumpul bersama dan menggunakan sistem antrian (atau sistem sopan santun, kulo nuwun, atau apa pun lah itu). Dengan sistem seperti ini, pangkalan memiliki kuasa yang lebih besar untuk menentukan harga yang mereka inginkan karena persaingan antar supir dieliminasi. Konsekuensi lebih lanjutnya, para supir tidak perlu terlalu sering menarik asalkan mereka bisa mendapatkan pelanggan yang mau membayar lebih mahal. Mereka kemudian bisa menggunakan waktu yang tersisa untuk berdiskusi membicarakan nasib negara ini sambil minum kopi dan main catur. Sayangnya model bisnis ini perlu memastikan bahwa tidak ada saingan yang berdekatan. Karena kalau ada saingan yang mau memberikan harga yang lebih murah, pelanggan tentunya juga akan malas menggunakan ojek pangkalan dan sistem antrian mereka juga akan kehilangan daya tarik bagi para pesertanya.

Dalam konteks ini, apa bedanya bisnis ojek pangkalan dengan kartel monopolistik yang saling membagi-bagi wilayah kekuasaan? Skalanya mungkin akan lebih kecil dibandingkan dengan perusahaan besar atau organisasi besar semacam OPEC, tetapi intinya sama. Kalau anda tak suka menggunakan istilah kartel karena kesannya kapitalis sekali, boleh saja kita gambarkan kartel ini sebagai konstruksi sosial tentang relasi wilayah, kuasa dan budaya atau sistem gotong royong supaya kelihatan lebih merakyat. Ketika saya melihat ada foto spanduk ojek pangkalan yang menolak kehadiran Gojek atau GrabBike di suatu apartemen, yang pertama kali terbayang di pikiran saya bukanlah kaum bodoh termarjinalkan yang sedang berusaha mengais sedikit rezeki melainkan pebisnis pintar yang paham konsep monopoli tanpa harus capek-capek mengenyam pendidikan tinggi di bidang ekonomi. Siapa yang tak senang jadi pelaku monopoli? Harga bisa dipatok lebih tinggi, kualitas layanan bisa diturunkan, kapasitas produksi juga tak perlu produktif-produktif amat. Yang penting profit minimum yang diinginkan sudah tercapai.

Apakah kemudian pelaku ojek pangkalan tak rasional ketika menolak uluran kerja sama dari Gojek? Belum tentu. Isu alokasi waktu antara kerja dan bersantai-santai sudah lama dibahas dalam ilmu ekonomi. Saya beberapa kali membaca kisah tentang tingginya pendapatan supir Gojek. Tetapi dalam kisah itu selalu ada catatan: supir yang bersangkutan rajin kerja seharian. Ini bisa jadi eksperimen yang menarik. Mengingat ada beberapa supir pangkalan yang kemudian pindah ke sistem Gojek, dapat ditanyakan kepada mereka, apa alasan utamanya? Ingat, bersantai-santai tak selalu irasional. Ada kenikmatan tersendiri dalam bersantai-santai sebagaimana ada kenikmatan dalam menghasilkan uang yang lebih banyak. Yang paling enak tentunya adalah banyak santainya sekaligus banyak uangnya. Maka bayangkan kalau anda memiliki bisnis demikian dan kemudian muncul orang yang mengganggu. Apabila analisis ini benar, maka uluran tangan dari Gojek kemungkinan besar tak akan efektif selama jumlah supir ojek (atau minimal pemimpin-pemimpinnya) yang menikmati model bisnis lamanya lebih banyak dari model bisnis ala Gojek.

Lalu apakah potensi konflik ini akan terus membesar? Ini belum bisa diprediksi. Seperti saya sampaikan di atas, harga Gojek nampaknya belum merepresentasikan harga aslinya sehingga masih ada ruang perubahan permintaan dari para konsumen. Kita juga belum mengetahui data pasti minat kebanyakan supir ojek, model bisnis apa yang mereka lebih sukai? Bagi yang suka model lama, berapa "harga" yang mereka tetapkan sebelum mereka bersedia untuk menggunakan model baru? Apakah kemudian ojek pangkalan juga masih akan mempertahankan suasana konflik tersebut? Kekuatan monopolistik per pangkalan mereka yang kini sedang diuji dan ini akan sangat bergantung dengan relasi mereka dengan konsumen.

Naif kalau kita berasumsi bahwa konsumen akan luar biasa peduli dengan nasib para supir dari masing-masing kubu. Kisah perjuangan tiap supir memang indah kalau dituangkan dalam artikel berita atau buku. Siapa tahu bisa jadi the next best seller dalam kategori buku self-help. Namun demikian, isu utama bagi kebanyakan konsumen adalah soal harga dan kemudahan akses transportasi. Ojek pangkalan bisa jadi akan mengupayakan supaya persaingan bisa dihindari, misalnya dengan jalan intimidasi dan kekerasan, tapi tentunya menjalankan praktek demikian butuh biaya. Harus ada yang sibuk berjaga-jaga. Kekerasan bisa masuk ranah pidana dengan sanksi penjara. Kemudian harus dihitung sejauh mana area mereka harus dijaga karena bisa jadi konsumen memilih untuk berjalan lebih jauh guna menemui supir Gojek mereka. Mau tak mau, ini juga akan berpengaruh ke harga ojek pangkalan. Mereka harus memastikan bahwa harga mereka setidaknya merefleksikan harga Gojek ditambah ongkos konsumen untuk berjalan sedikit lebih jauh. Belum lagi ongkos yang timbul apabila aksi mereka tidak simpatik bagi konsumen dan semakin mengurangi minat konsumen. Seperti kata Gary Becker, semua aksi irasional (kalau kita masih bersikeras menganggap para supir ojek pangkalan sebagai manusia irasional) pada akhirnya akan tunduk pada kekuatan paling absolut di dunia ini, kelangkaan.

Bagaimana dengan Gojek? Terlalu cepat untuk mengklaim bahwa Gojek telah menjadi pelaku monopoli yang mendominasi seluruh pasar ojek. Kalau memang ini bisnis yang menarik, pemain baru juga akan tertarik untuk menangkap pasar yang masih tersedia dan ini akan mempengaruhi kekuasaan Gojek (yang saat ini saja sudah disaingi oleh GrabBike). Apalagi kalau minat yang tinggi terhadap Gojek saat ini dikarenakan Gojek masih menggunakan harga promo. Kalau harga asli Gojek ternyata jauh lebih tinggi dan pelayanannya tak cukup untuk menarik minat konsumen untuk berpaling dari ojek pangkalan, maka kekhawatiran bahwa ojek pangkalan akan musnah juga terlalu prematur. Memangnya dipikir membuat bisnis sukses itu gampang? Bisnis ada dan jatuh bangun, apalagi bisnis yang mengandalkan jaringan teknologi. Siapa yang dulu percaya Google akan menghabisi Yahoo atau Microsoft menghabisi IBM. Kita butuh data akurat untuk mengetahui apakah Gojek saat ini memang benar-benar berkuasa secara ekonomi atau semua ini cuma ilusi di sosial media.

Yang pasti, saya belum melihat adanya kebutuhan mendesak akan intervensi dari pemerintah. Pasar ojek sedang mencari titik ekuilibrium baru dan sebaiknya dibiarkan saja dulu untuk sementara ini. Yang lebih penting untuk disadari, setelah kita kupas bungkusnya, baik Gojek maupun ojek pangkalan adalah grup kepentingan (interest group) yang saling bersaing dalam sistem ekonomi yang kapitalistik. Kita sudah lihat bagaimana kepentingan ini bermain dalam bisnis taksi versus Uber yang sebenarnya sama persis model bisnisnya dengan ojek pangkalan versus Gojek. Jangan terpana dengan kisah pertentangan antar kelas. Ujung-ujungnya tak pernah jauh dari profit dan kompetisi untuk mendapatkan profit lebih banyak dengan cara yang lebih mudah. Jangan lupa juga bahwa masih ada kubu konsumen yang kepentingannya pun berbeda dengan kepentingan para produsen ini.

Penyakit yang sering saya lihat di sini adalah availability heuristic. Ketika suatu isu sedang trendi dibahas, maka seakan-akan isu ini menjadi penting dan kritis. Tak heran bangsa ini sedikit-sedikit mengalami "darurat" ini dan itu. Asal masuk berita, dan kemudian disebarkan di beberapa situs berita lainnya, tiba-tiba suatu isu yang bisa jadi sudah lama ada dan tak tersentuh menjadi isu krusial yang dapat mengguncang keutuhan bangsa dan negara (padahal sebelumnya tak ada yang peduli karena memang tidak krusial). Namun karena naiknya juga sekejab, tak lama kemudian isu itu pun sudah ditelan dengan isu lainnya.

Untuk kepentingan media, sah-sah saja. Namanya juga bisnis yang mengandalkan minat pembaca. Kalau tak bombastis, mau dapat uang dari mana? Tapi pemerintah? Masa kita biarkan pemerintah tak fokus dan bingung sendiri dengan kebijakan yang hendak disusun karena sibuk mengandalkan riak informasi dari masyarakat yang suka meributkan apa pun yang bisa diributkan? Secara normatif, tentu ini harus dihentikan, tak semua isu cukup penting untuk ditangani oleh pemerintah. Sebagaimana tak bosan-bosannya saya sampaikan, pemerintah perlu melakukan analisis untung rugi (CBA) secara hati-hati. Masih banyak isu lain yang lebih penting daripada persaingan antar tukang ojek. Yang berbahaya adalah ketika pemerintahnya sendiri menyadari minat masyarakatnya terkunci pada hal-hal yang bombastis saja. Kalau demikian, yang kita dapatkan adalah lingkaran setan, masyarakatnya gemar meributkan hal yang tidak perlu, pemerintahnya sibuk pencitraan karena pencitraan lebih gampang daripada kerja dengan serius.

I'll admit it: I have not watched "Innocence of Muslims," the anti-Islam film that has been blamed for causing ruckus around the world. Why? Well, I have more important things to do, one of them involves an amateur cooking competition with my friends.

Personally, in terms of importance, such movie sits in the category of "absolutely not important that even staring at the wall for 2 hours would still be better." The problem is, not everyone shares the same view. But before we discuss why Muslims are against the film, we should first study why some people are still trying to make a movie like this.

From economics perspective, the reason might be very simple: because with such a minimum cost, the movie can maximize the damages caused to the world, which I assume will also maximize the makers' own pleasure or benefit.

Why are the costs so low? Based on the comments of those who have seen it, "Innocence of Muslims" was a low-budget movie (bad editing, amateur actors, etc). And it is unlikely that the filmmaker - who, according to Wikipedia, resides in California - will face legal penalty in the United States.

The first reason might be the protection of free speech, though this is debatable. The second reason might be the fact that the United States does not want to show any weaknesses toward the demand of the Muslim worlds, including the terror they received in Libya which caused the death of the US ambassador and three other Americans.

On the first reason, the protection of free speech is indeed complicated. People may argue the movie is a hate speech. But what would be the correct standard? I mean, I've seen a lot of movies and jokes harassing Jesus in such a really bad way and yet, I have not heard any case in the United States sanctioning the makers. Should we measure hate speech from objective or subjective requirements?

The second reason is even more problematic. The movie undoubtedly triggers heavy protests from Muslim communities around the world. And within the protesters, some of them may use the event to promote their own idea of violence and war. Perfect timing indeed.

If the United States penalizes the filmmaker, it can be assumed by terrorists and war mongers that the United States is bowing down to their threat and thus, in the future, it would be easier for them to demand things from the United States as long as they kill certain US citizens.

In other words, the United States would also have difficulties in punishing the stupid filmmaker based on political reasons. I borrow this analysis from Prof. Eugene Volokh, a law professor from UCLA, and I agree with the basic premise.

If the filmmaker realizes the above facts (and I assume he was not stupid enough to bring the video online without thinking the consequences), it would be rational for him to actually publish the video since his own personal benefits outweigh his costs.

Unfortunately, this is inefficient and bad to the overall welfare of the society. Currently, triggering protests from the Muslim world using cheap tactics (such as this movie) has a success rate of almost 100 percent - if not 100 percent. And it is most likely that the protest can turn into a riot.

This is completely different if the movie is directed to, say, Christians. As I've said above, there are so many jokes and movies depicting Jesus in such a bad way that I am certain if you change the character into Muhammad, the makers will not live long enough to see another day. Heck, we even have a Jesus parody in Twitter.

Why do Muslims and Christians have such a different approach in handling these kind of issues? Could it be that it has something to do with education and living standards?

But as long as most Muslims continue to retaliate, I believe the cycle would never end. The supply of people similar to the above filmmaker might be endless and they will definitely take the advantages they currently have, i.e. free speech protection and political reasons.

The most efficient solution is of course ignoring these buffoons. After all an ant can't cause harm to a blue whale. The problem is, it will take a long time to reach that stage (if ever).

I can only hope the majority of Muslims will follow the Prophet basic rule in dealing with bad mouthing: Just ignore those people. Good for your health, good for your image, and less trouble for all of us. We still have many urgent matters which are more important than a stupid movie.

There is a very interesting case study in Public Choice literature. Once in the United States there was a law called Sunday Blue Laws which basically prohibited the sale of alcohol in Sunday. One of the supporting groups for this law, we call them as Baptists, was a group consisting of people who wanted to prohibit such sale of alcohol based on moral and religious values. The other group, we call them as Bootleggers, was the seller of illegal alcohols. They also supported such law but not based on altruistic or moral values, rather it was because such restriction increased their profits. The stricter the restriction is, the less the supply for the alcohol, the bigger the price that they can charge for their illegal products.

It goes without saying that these two groups are ideological opponents, but with respect to political matters, they were in the same side and their cooperation as interest groups allow them to provide the necessary voting power in the legislative to support the promulgation of the Sunday Blue Laws, effectively prohibited the sale of alcohol even though both groups have completely different reasons to support such laws. Public Choice theorists also use the same analytical structure when they review a very famous case in the United States, i.e. the Lochner case which dealt with whether New York may legislate the maximum working hours for workers in bakery shops.

New York argued that the law was passed to protect the health of the workers since during the beginning of the 20th century, the working condition of many bakery shops was so poor and many workers work for a very long hour in order to compete with each other. Some politicians support this law on the basis that they need to protect the interest of their citizens, giving protections to relatively weak workers from the capitalists. But the researchers also found out that the other supporters of this New York law are groups of major bakeries that already comply with such law and want to cut the competition by imposing a law that will destroy the business of many small bakeries that depend on immigrant workers.

Again, we can see how the cooperation between Baptists and Bootleggers worked very well in this case. The US Supreme Court finally deemed the law unconstitutional although after the passing of the New Deal by Franklin Roosevelt, more paternalistic laws were issued and the Supreme Court was pressed by the President to support those laws. But that will be another topic of discussion. For now, let us focus with the case of fuel subsidy in Indonesia.

We can quickly see two groups rejecting the reduction of fuel subsidy. The first group argue that reducing fuel subsidy will harm a lot of poor people. The fact that most of the time the subsidy is enjoyed by those who actually do not deserve it does not matter since once the subsidy is reduced, it will affect the overall price of goods in Indonesia and the poor people will suffer. There is a grain of truth here. You do not need to be a genius economist to understand that when you increase the fuel price, since it affects the price components of many other products, producers will most likely also increase their prices as a response. Consumers will be the victim here.

The second group reflects the people who enjoy the existence of fuel subsidy, those who buy the cheap fuel and those who illegally export the cheap fuel to other countries for considerable profits. For those who buy the cheap fuel, it is simply a rational choice, at least for the short term. Whether there will be huge inflation and whether it damages the environment are things that will happen in the future and discounting the probability of having such catastrophe in the near future, they might conclude that in the long run, all of us (this generation) would already be dead when the Earth is being struck by such catastrophe. So, why the heck should we care anyway? It's the problem of future generations, not us.

Combined these two groups, and you will find that they consist of the majority of Indonesian people. They might have different agendas, but they have the same goal, preventing the fuel price from going up. As such, I do not see why I should be surprised with the recent political maneuvers in our legislative board. Politicians, considering their rational incentives for maximizing their own interests, would always consider the present condition in making their decision. And the future for them would always be about the next election, meaning that they are very short sighted. Whatever beyond the election period is another issue to be solved when they reach another election.

Of course in the context of Indonesia, it also means that the idea of reducing the fuel subsidy will never be a popular one. You can't argue about the needs to conserve the energy or to pursue alternative energy sources in a country where most of the people have bleak futures. They don't care about such issues. If they are pessimistic with their futures, how could they appreciate the fact that our environment is in danger? For them, whether the environment will be destroyed or not in the future will not alter the fact that their life sucks now and most probably also sucks in the future.

The question is, how could we avoid this vicious cycle? One thing that might happen is to wait until the fuel price has reached a point of no return where it would be impossible for the government to maintain the subsidy. I note that this might be the political compromise made a couple of days ago. At least when you need to take an unpopular policy, you take it after you are in a desperate condition. Might actually work, but I can't predict whether the end result would be beneficial for all of us, since it might also be too late.

You see, the problem of this kind of policy is that in the end it is made to support certain groups at the expense of other groups. Right now, the Government supports both of the Baptists and Bootleggers groups at the expense of tax payers money, though I will argue that the Bootleggers are the ones who enjoy most of the policy. From Game Theory perspective, it is also a prisoner's dilemma game. I personally for sure will buy the cheap fuel. It is paid by my tax without my consent, and I will enjoy it to the fullest. I bet that many other people will also think the same. It will turn out into the tragedy of the commons and everybody will eventually suffer.

The Baptists group may produce a nice argument on the need to support the poor. It is a valid argument, but it fails to see the overall human incentives. Rational choices of many people may produce a bad result, that is the essence of the tragedy of the common. Everyone will be better off had they conserve the energy, but in a situation where every people can benefit themselves at other people expenses and there is a lack of supervision, the rational choice will be to spend the resources as soon as possible before other people take the resources for themselves. Why bother conserve the energy if we can't be sure on whether everybody will do the same? See the irony?

Is this a premonition for a bleak future for us? Who knows? We can hope that suddenly a miracle will occur, maybe someone will be able to produce energy from water and humanity will eventually survive. But until that day comes, you better cross your fingers and hope for the bests. After all, we are all together in this situation.

PS: I only provide a positive analysis of our current condition. There are many other people who have provided excellent normative analysis on the policies that should be taken on fuel subsidy and I don't think that my thoughts on the normative aspects will give an additional value so I decide not to dwell on it.

The failure of Boeing's outsourcing business plan by farming out most of its work to other overseas firms might be a good example of the danger of outsourcing when it is used without proper calculation. The original idea itself seems good. By outsourcing the work to other firms instead of doing it by itself, Boeing hoped to save costs. First, Boeing can choose firms which have better economies of scale (meaning that such firm have better comparative advantage compared to Boeing and therefore can produce the required products on a cheaper basis). Second, Boeing can focus its works on things that it could do more efficiently (again the idea of economies of scale). Third, by separating the works to many firms, Boeing expected that each of those firms will have less bargaining power against Boeing, lowering the chance of hold up problem for Boeing in the future (see my discussion on Hold Up problem here).

Unfortunately, this seemingly perfect plan did not work in practice. As you can see in my link above, Boeing is already three years late from the original schedule and has spent billions dollars over the budget. It is a business disaster. But why such system does not work? Before I provide my analysis, I would like to share a deal that I once did for one of my major clients.

The client wanted to build a new huge factory in order to expand its business to a new level. In the past, the client usually appointed only one single contractor to do all the work (design, procurement, and construction). However, for this particular project, the client came with a new idea. Instead of using single contractor, it first divided the works into procurement (including design) and construction. Then it further divided the procurement parts into 4 separate parts with 4 different suppliers. It was a good idea. Although the contracts became very complex, the client can save a lot of money by lowering the contract price and reduce the bargaining power of the suppliers (effectively preventing them from forcing their own terms and conditions which would usually happen when there is only one contractor/supplier).

It is interesting why my client structure could effectively work while Boeing's plan turned out to be a failure. Several factors that must be considered are among others: (i) the number of parties involved in the deal which is related to the costs for coordination, (ii) the costs for enforcing the contracts which is correlated with the degree of interdependence between the parties, and (iii) the level of technology involved in the process.

One of the most interesting examples provided by Milton Friedman on the power of free market is the story of pencil. No one knows exactly how pencils could be made, there are so many parties involved in the process and yet, firms make pencil with ease without having to be coordinated nor integrated in the process. It is the perfect example of the invisible hand, how market could work without the need of central coordination among market participants. But issues always come when we try to generalize everything. The case of Boeing can be a good example when failure occurred because lack of coordination.

In my client's case, it took a lot of effort and months of negotiation in order to coordinate 4 suppliers. Yes, there are only 4 suppliers involved in the deal, but the contract drafting process took a long time to ensure that proper risk allocation was made for each contract since even when all of the suppliers were different, each supplier's action can have a significant impact to other supplier's work. A delay in part 1 could impose delay on part 2 and so forth. In other word, coordination really matters. What happened with Boeing is that it seems that Boeing used too many different suppliers located in various parts of the world (I would assume that Italy suppliers would be totally different from Chinese suppliers). This choice of action increased the costs of coordination significantly.

This bring us to the second issue, the costs for enforcing the contract. Since people respond to incentives, if breaching the contract is more efficient than actually satisfying the contract's provisions, we could safely assume that people will choose to breach the contract. In Boeing case, it seems that it's suppliers farm out their work to another sub contractors, increasing again the costs of coordination. Surely it is standard to have contracts where subcontractors are not permitted to sub contract their job to third parties without prior approval from the work giver or that while work can be sub contracted, the liability stays with the supplier. But that kind of contract would work effectively only when the costs of enforcement is not high. If the enforcement cost is high, there would be less incentives for the work giver to enforce the contract. Even worse, since the contract value has been divided into so many suppliers, the value of each contract might be too small for each supplier, to the extent that they do not fear of any liabilities, even when they are deemed fully liable (since usually a supplier will limit its liabilities only to the value of the contract and not the whole project).

In other words, this is a reverse issue of hold up. In hold up problem, a party can increase its bargaining power excessively due to certain specific conditions or advantages that such party has against its counterpart. But in this case, the party has no incentive to work for the best interest of its counterpart because it's stake of interest is low. Even if its counterpart is in impeding doom, that would not affect its position significantly and thus it is meaningless whether the business relationship should be maintained or not.

Finally, the issue of technology is also dominant in Boeing case. What they are trying to build is a new airplane. In case you don't know, airplane can be considered as the most advance technological product in earth. It is very hard to build a plane that could work properly. That's why Boeing case cannot be compared with the success story of the car industry in terms of outsourcing their job overseas. There is a huge discrepancy between the technology needed to build a plane and the one needed to build a car. This would surely affect the amount of coordination needed between the parties. We can say that it would be better in Boeing case if they simply have more integrated coordination and conduct the work by themselves.

At this point, we reach the most fundamental question posed by the Theory of the Firm. Why people choose firm to conduct its business activities, instead of using the market? The primary answer would be the need for coordination. To the extent the costs of integrating the market process (production, manpower and capital) in a single business platform is cheaper than the costs of doing all of that via the market, rational men should choose to use the firm structure. It is a natural thing to do. Too bad that people often polarize the issue of market vs the firm into a debate of uncoordinated economy against coordinated economy as if only one is superior. A productive debate should discuss what type of economic system would work best in accordance with the situation and condition. The pencil case shows the strength of the market while the Boeing case shows that uncoordinated market process could produce inefficient result. In the end, always pick the most efficient system if we really care about the welfare of the society.

Indonesia always provides us with interesting cases from economic perspective. The latest one is the new Blackberry product launching where the seller gave a 50% discount to 1,000 first purchasers. It was a major event as people rushed to Pacific Place mall to buy the product. Unfortunately there are some casualties, as there is an excessive amount of buyers and the mall is not big enough for all of them. While we can ask why didn't the seller stop the visitors as soon as they reach 1,000 to avoid unnecessary casualties, one may ask why did the seller choose this marketing strategy? Cafe Salemba economists provide their answers in these two nice articles: Economics of Queuing and More on Buying Frenzies. Meanwhile, I'll analyze the case from the Seller's perspective.

There are a lot of different types of buyers. Some are very conscious about the price of a product, so if the price is too high for them, they won't buy it. In the recent Blackberry case, we can argue that the seller used this understanding to actually screen its potential buyers and therefore they can get more buyers. The Blackberry's price is around 4,5 million rupiah. By all means, it is not a cheap gadget, but we know that such price is higher than the price in the United States and there is a theory that the price of the Blackberry in Indonesia is being inflated while the demand is still high in average. In short, it could be a very good business.

Now, by imposing a 50% discount to the price, there are two benefits that the seller can get. First, it can get those buyers who previously thought that Blackberry is overrated and therefore don't value Blackberry that high or people who want to have Blackberry but doesn't have enough money. Giving a 50% discount is still a good way to induce people to buy products. To the extent that this people don't highly value their time (they don't have better thing to do, or the utility of getting the Blackberry is higher from standing in the hellish queue, etc), these people will definitely enter the queue.

Second, the process can effectively screen the buyers who value their time more than their cash and get them to also buy the Blackberry with the inflated price. By giving such a hellish condition in the queue, the seller can know the people who will choose to skip the queue by paying more. No wonder that at the same time, the seller also conducted an exclusive sale using the original price. That's smart.

Now, we know that the seller imposed a restriction that the buyers in the queue cannot be represented by other people. Why do you think so? If there is no such restriction, the people who value time more than their cash will be induced to pay other people to stand in the queue for them, and that will disturb the screening mechanism. The seller definitely doesn't want to subsidize the people who value their time more. However, as we understand, the costs for supervision is also high. Therefore, they didn't conduct a full supervision, instead, they just let people rush in. Why?

There is an elementary game theory involved here. The seller knew that the costs for supervising the entire process would be high, managing thousands of people is not easy. But the buyers didn't know that information. Some will predict that the seller will be strict with the rules, some will predict that the seller will be lenient, and there will be chaos. Whatever the end result is, it is still a good way to screen the people who are not really sure with the value of their money versus their time but nevertheless have some interests to buy the Blackberry. If these people are risk averse, or prone to risks, they will probably not go to the queue and they will buy the product later on. For those who really want the Blackberry but don't have enough money, they will stay. For the people who value their time more and put their jockeys in the queue, they put a bet, if they get it, it would be nice, if not, they buy it later on and risk some money for the jockeys. Again, risk aversion matters, not all people want to risk their money for nothing and so they may decide not to do it.

Overall speaking, from the seller's perspective, there is a probability that the discounted products will be purchased by its unintended targets, i.e. the people who value their money less than their time. But it should not be many, and the seller can still effectively increase the demand of its products and reap more profits. So instead of being a sign of irrationality, it might be a good indication for good strategy for getting more buyers. Unless there are other additional high costs to the sellers for these kind of activities (i.e. death, riot, etc), we can expect more sellers to pursue the same strategy. So, two suggestions to improve the end result for consumers, next time it would be better to give a time limit for coming to the place and also limit the people who can stay in the location when they reach 1,000 or whatever the intended maximum amount of buyers is.

Imagine that your are a property developer who wishes to build a new amusement park in certain city. The business prospect is good, and the city is also happy with the project since it will increase the city's tax revenues and improve the city's economic growth. But before you can start your dream project, you must first buy the necessary land from several owners. Here is when the problem starts. If you tell these owners that you are trying to build an amusement park above their land, each rational seller who maximizes his/her own interest might hold up the sale of his land, hoping that they can increase the value of their land as the number of sellers decrease. The smaller the number of sellers, the higher the gain that they can get from holding up their land. Of course this is detrimental to your project since it is effectively similar to a monopoly by the sellers and it increases the difficulties of settling the negotiation.

True, the sellers realize that the increase value of their lands owes to your proposed project. If they are being too greedy and you choose to abandon the project, they will gain nothing. So there is a possibility that they will give up and sell their land with the maximum value that they think they can reap from you without making you cancel your plan. However, there would always be a possibility that one seller remains unwavering. Seeing that other people have already sold their lands, he understand that now his land has the biggest value of all and he knows that you don't have any choice other than buying his land in order to continue with your project. He also knows that you have already incurred a lot of money for purchasing the lands and you will need to start the project in order to recoup your initial investment costs. Effectively, you become a hostage of the final seller due to an increase of his bargaining power. This is what we call as the Hold Up Problem.

Hold Up Problem is a serious matter. If we don't find a good solution, Hold Up Problem can end up discouraging any form of investment that may benefit the society. Why? Because obviously, you don't want to waste your money for initial investment if in the end you will be ripped off by whoever holds the final trump card. The costs of investment will be too high and any rational person will eventually choose not to put the investment in the first place. As you can see, both parties and the society can be better off if only the parties cooperate, but because they can't trust each other, they fail to do so.

The case does not stop there. A Hold Up Problem can easily turned into a Chicken Game. Ever heard about this game? A good example is the famous scene in old US movies where two stupid kids are driving against each other on a collision course. If both of them stay in the path, they will die. But if one of them chooses to swerve from the path, both will survive, although the one who swerves first will be called as a coward chicken, hence why we call this as Chicken Game. Let us try to apply the basic principle of this game into our case above.

Once initial investments to purchase the lands have been made by you and there is only one seller remaining, you only have two choices. You can "swerve" by accepting the ridiculous demand from the seller and continue with the project (of course, you're being a loser here), or you can stay in the path and continue with the project even though you have not secure the land from the last seller. If you choose the latter, it is a disaster for both of you. Once the project has been started, the value of the seller's land will drop to virtually nothing. Who wants to buy a land in the middle of an amusement park that cannot be used for anything? For you it is also a problem since you will spend a considerable amount of costs to alter your project and ensure that it can be build around the remaining land. Both parties can be better off in this case if they cooperate and again, my analysis shows that they can end up with unnecessary losses.

So how can we solve the issue? Some people argue that Hold Up Problem can be solved through takeover or merger (it works on certain type of contracts), but we know for sure that in our case, the problem is the takeover itself, so we can skip that solution. I would think of two solutions. First of all, you can purchase the lands from the sellers without having to disclose your future plan for the land. As far as I know, there is no legal obligation to disclose the reasons for doing a transaction and this solution may work in case you can design a system that will not cause the sellers to suspect you of doing anything fishy.

Second, you can disclose your plan and then offer to buy the land of the sellers as a single package (everyone must sell their lands at the same time or the deal is off). By doing this, you prevent the possibility of having a Hold Up Problem in the future as the sellers will be required to act as an unity. Again, the solution might not guarantee that you can do your project but at least you won't be a hostage to certain sellers. Furthermore, in case the majority want to sell their land for a nice fortune, asking the sellers to sell their lands as a bundle will induce them to cooperate to reach the best conclusion for everyone and there would be pressures to sellers who refuse to sell without a good reason.

As you can see from the above, cooperation matters where there is an inherent collective action problem. The issue is to give the correct incentives that can promote cooperation among parties that might have different interests. In this case information matters. How we disclose the information in the first place will affect the strategy that we will choose to close the deal. Here I agree with the current legal regime that allows people to transact without having any obligation to disclose their purpose in doing such transaction. Requiring such obligation might be inefficient in case the information can be used for Hold Up purposes.

If you can propose other solutions that may be implemented to the above problem, feel free to give your comments. Who knows, we might end up finding a solution worth a Nobel Prize :)