Favorite Models: Spence on Monopolies, Harberger on Incidence, Solow on Growth

Alex and Tyler put three classic models through their paces. Alex starts with Spence on how a monopolist chooses quality and applies it to how the New York Times' paywall flipped its audience incentives. Tyler pushes back, arguing that network effects and loyalists matter more than marginal customers. They move to Harberger on tax incidence and the hidden winners and losers of corporate taxes, minimum wages, and congestion pricing. Finally, Solow's growth model frames a conversation on why some countries catch up and others stall, including what it gets right about China, and what it misses. Together, their debate shows why the best models keep earning their place—not because they're perfect, but because they still shape how we think even when they're wrong.

Transcript: https://www.mercatus.org/marginal-revolution-podcast/favorite-models-spence-monopolies-harberger-incidence-solow-growth

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Timestamps:

• 00:00 Intro
• 00:19 Spence's monopoly model
• 07:08 How Spence applies to NYT and HBO
• 16:13 Alex and Tyler's approach to writing a textbook
• 20:43 Harberger's model of who pays tax
• 24:44 Harberger's model as applied to congestion and minimum wages
• 33:54 Solow's growth model
• 42:22 What Solow's model misses