Biology and Economics: A Study of Symbiosis

Thursday, July 16, 2015

Animals are like little corporations. They seek out resources, compete with rivals and strive to achieve concrete goals at minimal costs. For this reason, I often flip through biologic texts to find new perspectives on pricing.

I've spent quite a bit of time learning about how organisms interact with each other.

Sometimes they work together, as is the case in biologic mutualism. One classic example is the relationship between the clownfish and the sea anemone. Each protects the other from a different class of predators. As a result, both are able to thrive. In an ideal world, businesses would all utilize such an approach. Negotiations and deals would allow both parties to improve. For example, a business owner might buy my book on software pricing, and both he and I would be better off. My customer would receive knowledge to increase his firm's profitability. In return, I'd receive funds to purchase other products.

Unfortunately, some animals haven't learned social etiquette. They attempt to take resources without providing any value in return. Biologists call this commensalism. A classic example is the remora, a fish that uses sharks for free transportation while offering nothing in return. While biologists see such relations as harmless, economists see this relationship in a far different light.

When I first started learning about pricing, my textbooks had big warnings about free riders (people who obtain value from a product or service without paying for it). Free riders are everywhere: folks who watch fireworks without paying admission fees, or who read books without buying them. In an economic system, such cheapskates are hated because they do not create any incentive for businesses to produce value. After all (goes the classical reasoning), who would want to spend precious resources to create value when he is unlikely to be paid for his efforts?

Economics books typically stopped here. Alas, biology goes a bit further and teaches us that there is a third type of arrangement. A very popular strategy for organisms is called parasitism. It occurs when one organism derives benefit by harming another. Many of the examples are too horrible to list in a mere pricing blog, but rest assured that even this Wikipedia article has enough material to supply you with nightmares for years to come. Many folks will point to usury or price gouging as prime examples of parasitism in the world of business, though I would disagree in many cases. The real parasites are those who add unnecessary friction against those who wish to sever business ties and others who allegedly mislead customers as to what is being offered.

My studies of biology have led me to believe that the parasites that do the most harm do not tend to last long. They will either "burn themselves out" by killing their hosts before they are able to infest another, or they will learn some manners and become less harmful. Yet, the world, as they say, is becoming flat. Parasitic organisms and parasitic businesses now have a worldwide reach and face fewer barriers to prevent the spread of their harmful effects. As a result, I expect increasingly harmful behavior from both in the coming years. Could this cause customers to see businesses with smaller reaches as being a safer alternative to their larger competitors? I can't say for certain, but large companies might see a very real value in appearing smaller.

Are you looking for some economic symbiosis? Why not contact me for a business consultation?