Oct

10

The field is ecology and the discussion is of the negative effects that one organism has on another by controlling access to a limited resource.

The foundation is provided by work on competition at the molecular level based on the work of Morowitz  that compounds of higher energy state increase at the expense of lower energy states, while energy is flowing into the system. This idea is extended to the study of sperm competition, nest destruction by wrens, competition among plants, competition among salamanders in ponds, competition at the shoreline, competition between finches relating to bill length and shape. Models of competition are covered with detailed examination of the Lotka - Volterra model wherein two species growth is each effected simultaneously by the other species and stable coexistence and exclusion develop based on the varying effects. Tools that make competitors more effective are covered including size, efficiency in using the resources,and foraging ability.No theory of competition is developed but excellent exploration of the reasons that scientists have been unable to reach a theory in this field and others are developed.

I have long felt that competition is the major factor behind our material and emotional well being. It gives consumers what they want, and makes the producer responsive. But like others, I hate competition when the adversary has an unfair advantage over me at the start. And I agree with Milton Friedman's point that you can always be sure that one competitor will always tend to bad mouth his other competitors. I have often told my daughters that the secret to a better romantic life is to increase competition among their suitors.

I immediately applied some of the models and techniques to the competition between those who have the better equipment and size to take the limited resources available in the trading field. I found the discussion of competition of whales for krill, and owls for prey gave me great insight into the ability to get there first with better size of the hft . The access to better information that the flexions have I found illuminated by the competitive advantages that high flying and better eye-sighted birds have in seeking prey.

The entire subject calls for study and reflection and humility in the pervasiveness of competition in shaping our life. An illuminating book.

Steve Ellison asks:

At whose expense do high frequency traders take out their profits? My first guess would be slower-moving liquidity providers, who are left with fills more likely to suffer from adverse selection. Liquidity takers probably benefit from high frequency trading (at least until there is a flash crash).

Victor Niederhoffer comments:

I believe they take their profits from any short term traders because they get there faster like an insect.

Anton Johnson responds:

An assured death by a thousand cuts.

Anatoly Veltman agrees:

Very apt, Anton. I can't imagine any counter-argument, given the statistics of $50m average daily HFT profit year-round.


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