🤏 Microeconomics

Updated at 2018-06-19 11:48

Microeconomics studies decisions and interactions of individuals and companies regarding allocation of resources and products. In contrast, macroeconomy deals with the economy as a whole.

Supply and demand affects the price of your product. If your competitor lowers their prices, the demand of your product will go down unless you match them.

Every product has substitutes. Substitute is another product you might buy if the product if the original product is too expensive.

Chicken is a substitute for beef. If beef price goes up, the people will want more chicken. Thus chicken farmers will sell more chicken.

But entertainment products are hard to subtitute. Entertainment products never have perfect substitutes, only partial ones, which makes it hard to "get in" but easier to keep growing your market.

If Halo is selling like crazy, it doesn't really have subtitutes.

If you want to see a Star Wars movie, Woody Allen movie won't do.

Every product has complements. Complement is a product that you usually buy together with another product.

Gas and cars are complements.

Computer hardware is a complement of computer operating system.

Babysitters are a complement of fine dinner restaurants. When a local 5-star restaurant has a Valetine's day special, the local babysitter s double their rates.

Demand for a product goes up when price of a complement goes down.

If flights to Miami became cheaper, demand of Miami hotel rooms goes up.

When computers become cheaper, more people will buy operating systems.

Smart companies want to commoditize their complements. Companies want their product complements to be commodity price. Commodity price arises when there are multiple competitors offering indistinguishable products.

All car companies would want gas to be free.

Complement chains are interesting to follow.

IBM designed the PC architecture using off-the-shelf parts and with careful documentation so other manufacturers could join, thus commoditizing the add-in market.

When Microsoft sold DOS license to IBM PC-DOS, it was not an exlusive license so the same license could be sold to the other manufacturers, thus commoditizing the PC market.

This all lead to PC becoming a commodity. Which lead to complementary operating systems to become high in demand.

IBM is investing in open source. IBM has become an IT consulting company. IT consulting is complement of enterprise software. You can commoditize enterprise software by supporting open source.