Wednesday, June 26, 2019

Markets and Competition Produce Variety, Not Monopoly

Summary of a conversation from Facebook:

Guy: Solar, wind, etc. can never succeed because nuclear is most "efficient" in terms of "energy density" -- that is, a given volume of space used for a nuclear reactor will produce much more energy than that same volume of space used for solar panels, wind turbines, whatever. "Standard economic theory" (his words, not mine) says that the most "efficient" way of providing a good will crowd out all the others and "win."

Me: You don't understand markets.

Here's a counter-example to his claim vis a vis a different form of energy:

Planting, growing, and harvesting an acre of wheat delivers 6.4 million calories. That same acre of ground would deliver 12.3 million calories if planted in corn, 17.8 million calories if planted in potatoes. And only 2.1 million calories if planted with soybeans, 1.1 million calories if used to raise beef, 3.5 million calories if used to raise pork, 1.4 million calories if used to raise chicken. (Source: Walden Effect)

23.6 million calories if planted with 200 apple trees. (Source: LocalHarvest)

If the guy was right, we'd be eating all apples all the time, assuming energy density/efficiency was a decisive metric.

But it turns out that lots of people like wheat, corn, potatoes, soybeans, beef, pork, and chicken in addition to apples, presumably for reasons other than energy density. And they're willing to pay for those things instead of, or along with, apples. So there's demand, and where there's demand, people seeking profit will supply.

People have reasons for preferring say, solar to, say, nuclear for electrical generation as well.

One of those reasons in my case (if I ever build my own home it will be built with solar; if I buy an existing home it will be retro-fitted with solar) is efficiency of distribution rather than production. More than once, I've gone without electrical power for several days, up to a week -- many more times for as long as a day or a day-and-a-half -- because storms took down a bunch of power lines. All the efficiency of power generation in the world does me no good if the power isn't actually reach my refrigerator. If I have on-site solar, distant accidents won't cut my power.

Another reason is time preference. I'd rather spend $X now than trickle out $X over an extended time period. Hypothetically, say spending $5k on a solar set-up now, with occasional maintenance and refurbishing (say, $5.5k over 50 months), versus paying $100 a month for 50 months to a utility company (only $5k over 50 months). I'm willing to pay more to be semi-done with it and not have regularly recurring bills.

For some people, the reason is that they consider nuclear unsafe and solar "green." I can empathize with that, although I hope the newer reactor schemes will obviate such concerns. And if an affordable home reactor came on the market, I'd certainly consider that, since it would address my preferences above.

If the government nationalized utilities tomorrow, built a bunch of nuclear reactors, and gave everyone "free" electricity, there would still be some people who wanted, and were willing to pay for, home solar arrays (or, if allowed, for grid power generated using solar). And where there are people willing to pay, there are people willing to take their money.

Markets do produce "winners," but they don't produce single winners. If you don't believe me, go to your local grocery store and see how many brands of mustard, coffee, and soup are on offer, of various qualities and at various prices. Not to mention a bunch of other foods that aren't apples.

blog comments powered by Disqus
Three Column Modification courtesy of The Blogger Guide
Some graphics and styles ported from a previous theme by Jenny Giannopoulou