What does the Alchian and Allen theorem have to do with microblogs?
Today, Marginal Revolution had a micropost on a microblogging article on FT. The article’s behind a paywall, but Tyler suggests that instead of reading the article, to just study the Alchian and Allen theorem. That link also goes to an abstract of a paywalled article. Leaving the poor Marginal revolution reader with a mystery. What is the Alchian and Allen theorem, and what does it have to do with extremely short posts?
Well, I looked it up. It’s the theory that when a fixed cost is added to two products of differing price and quality, demand will shift toward the higher quality item. Say you’re meeting people across town for dinner. You have to choose between two restaurants, one costing $10 per plate, and the other costing $20 per plate. But the cab ride will cost $10. The addition of the fixed cab cost makes you more likely to pick the more expensive restaurant, because your evening will either cost $20 or $30, not $10 or $20. In other words, the fixed cost lowers the ratio of the two prices. At its extreme, the expression “once you’ve broken the cookie jar, you may as well eat the cookies” comes to mind.
So what does this have to do with microblogs? I’m waiting for an a-ha moment to hit me, but my first thought is that Cowen’s seeing the inverse of the theorem in action: the availability of software like twitter and tumblr lowers the fixed cost of posting an entry. The result is that authors tend to write lower “cost” (read: length) posts.
And the A-A effect would explain a consumer’s willingness to be “supersized” as well — they’re already in McDonalds, they may as well buy a little extra. In fact, it’s a primary force working against Smallists: when you choose a smaller size of anything, any fixed cost in the transaction makes the purchase seem more expensive.
