Steve Margolis: The Economist Who Challenged Market Failures

Steve Margolis, a renowned free-market economist known for his ground-breaking research on market dynamics and network effects, passed away in late August due to Alzheimer’s disease. His contributions to economics have left an indelible mark on how we perceive market efficiency and choices.

Early Academic Pursuits

Steve’s journey began at UCLA in the 1970s, where he delved into various fields such as Urban Economics and Law and Economics. Despite initial challenges with academic advisors, he managed to publish his work in prestigious journals and began focusing on Industrial Organization and network effects in the mid-1980s.

Defining Network Effects

Together with Stan J. Liebowitz, Steve redefined the concept of network effects, emphasizing that terms like “network externalities” prematurely judged market inefficiency. They proposed a neutral terminology, “network effects,” to describe how products like telephones and personal computers become more valuable as more people use them.

The QWERTY Dilemma

One of their most notable discussions revolved around the QWERTY keyboard—once perceived as an inefficient market choice due to the alleged superiority of the Dvorak layout. Steve and Stan debunked this by showing that the supposed advantages of Dvorak were unfounded. According to Independent Institute, the true reason for QWERTY’s persistence was not inefficiency but practicality and widespread adoption.

Challenging Market Failures

Steve’s work extended to broader market phenomena, questioning the notion of “lock-in” in cases like Beta/VHS and Windows/Macintosh. Their influential paper on switching costs asserted that inefficiencies often attributed to market failures didn’t leave profits on the table, challenging preconceived economic theories.

A Legacy of Insight

Steve Margolis’s insightful inquiry into economics taught us to respect markets, entrepreneurs, and profit motives. While theoretical inefficiencies may allure economists, Steve’s legacy reminds us that real-world markets are robust and self-correcting when given the opportunity.

A witty and wise economist, Steve will be remembered not only for his intellectual acumen but also for his unwavering faith in the power of well-functioning markets. His contributions continue to inspire and guide economists around the world.