Suppose Fred opens up a car repair shop in a city which has none already. He offers to fix the vehicles of Whoville and repair them for money; being the first to offer the service to the town, he has lots of happy customers.

In an abstract sense Fred makes money by he's creating lots of value (for people that need their cars fixed), and then capturing some fraction of that value. The BATNA of the customers Fred services was previously to drive around with broken cars, or buy new ones. Whoville can literally afford to spend less time building or purchasing cars; the birth of Fred and his enterprises has caused the town's productivity to go up.

But then let's say Tom sees how well Fred is doing, and opens up an identical car repair business ~1 mile closer to the city center. Suddenly most of Fred's customers, who use a simple algorithm to determine which car repair business to frequent, go to Tom.

Now, Tom has certainly provided his customers a bit of value, because it is nicer to be closer to the city center. But mostly Tom makes has came from redirecting customers from [...]

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Narrated by TYPE III AUDIO.