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Berlin, Frankfurt, Paris, Chapel Hill, Boston, Istanbul, Calgary, Washington DC, Austin, Tunis, Warszawa and counting

Monday, August 31, 2009

The economics of my job

Let's strip away for a second the morality issue of lying and try to look only at the underlying economics of doing business in the Middle East versus western, industrialized countries. In a capitalist market system constant competition is supposed to regulate supply and demand and assure that neither the seller nor the buyers accrue rents (aka make more money than they should based on the economic fundamentals. That is the theory, in practice this of course means that rents accrue to both sides in different deals in order to arrive at equilibrium position. Perfect information, a condition of that model, is nothing but a chimera of course, but in a competitive market prices should be decently close to equilibrium.

Now, in most countries in the Middle East (and outside the West in general (this is a geographic simplification of course, sorry)) this is not the case. Information is even more asymmetric and there is a powerful governmental actor that needs to be catered to (in a truly capitalist system he should only be acknowledged and taken into consideration), that results in rents being accrued to those on the good side of information and the governmental actor (both being the same most of the time). Looking at countries exporting a valuable good in high demand, companies within those countries are the ones benefiting from these rents since the governmental actor will not be swayed by a massive group of individualistic buyers abroad.

It is these rents that the company I work for targets. They allow higher advertisement prices and the interest in them allow to increase pressure on companies to advertise through references made to the governmental actor. It is the reason why this kind of system works better in developing countries than in more competitive (capitalist if you want) market regimes. To be harsh, it is the reason why this works better in countries with an autocratic regime not controlled by an attentive public running the place.

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