whenever there is a low probability event associated with a high service cost to the end-user there is a very good and highly profitable business model selling at that service purportedly at a marginal cost to the end-user
e.g. insurance, AAA
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i thought the gain/loss(as measured by expected risk = prob. of loss*payout) in just about any business is on average the same.. there has to be a law of equilibrium in economics so that just abt any business will tend to make the same margin on average by balancing risk and gain though insurance and AAA might seem to be different because of the low prob of loss which means we dont actually see many people making the million dollars that the companies have to pay out sometimes. if this were not the case there will be heavy competition in these fields(i appreciate the possible hypothesis that that there is no competition might be because there was competition and the others died out but i dont think that is the case)
from what little economics i understand .. markets that have a very high fixed sunken cost , i.e. a very initial infrastructure setup cost naturally gravitate towards monopolies or duopolies --> AAA is a good example of this. insurance however does not seem to have the same sort of trouble so we observe plenty of players in the market (at least several more than AAA)
okay.. though i dont understand why this should be so in equilibrium(initially there are few risk-takers and few people with lots of money so will start off as a monopoly or duopoly then should become a polypoly :) ) - mining or the refinery or even many manufacturing industries will also qualify as industries with very high fixed sunken cost but there seems to be reasonable competition there.. i think i'll have to learn more economics before i can talk or maybe u can enlighten me on some of these mechanics.. and still u havent told me if my claim is true - any business will have on average the same risk of failure/profit with only scale deciding the absolute values.. for example, a sweeper will invest Rs10 on a broom and Rs 10 everyday on essentials and makes Rs 25 a day with a risk of 0.2 of losing his job whereas Ambani invests Rs 10 crores on Reliance Infocomm and Rs 20 crores a year and earns Rs 50 crores a year with the risk of 0.4 of losing on his earnings(all numbers are crap but gen want to say there is interplay between investment, risk and profit so that on the whole it evens out with "risk" being decided by competition, market conditions, ability, profitability of enterprise etc etc)
i think this equilibrium argument (constant risk irrespective of business model) and my observation make sense if everyone starts from scratch. if you are entering somewhere in the middle then it seems like you would have to take into account what happens between the entrants and the incumbents the dynamics of which can be quite complicated.
enough economics without really understanding anything .. but then isnt research the art of finding imaginary correlations in hypothetical dats sources :-)
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