People tend to complain that goods are really expensive or even over-priced. Such good are actually very few; most goods come at great deals. They are just so common, we tend not to notice them.
Consider my bed. Less than two years ago, I paid Ikea $400 for a mattress and box spring. It's incredibly comfortable and still in great shape. Since I'm moving in a couple of days, I'm giving it away (I need to get rid of it quickly). Did I get my money's worth?
Over the past 21 months, I've spent about 16 months sleeping in my apartment (the rest visiting my fiancee during breaks). That means that bed cost me $25 per month, or less than a dollar a night (about 83 cents). On any night, I would have easily spent ten times that amount to avoid sleeping on the floor. I would probably go as high as 15 times (or $12.50). Thus I received $6,000 (or, 15 times $400) - $400 = $5,600 in "consumer surplus." I don't really think of this bed as costing $400. I think of it as giving me a net of over $5,000.
I assume most of you have never calculated your consumer surplus (the most you are willing to pay minus how much you actually paid) for your bed. I bet you haven't done it for your electricity, Internet access, gasoline, or toilet paper. Anything you buy without thinking too much about if you should buy it are items you get a lot of surplus from. Take a moment and estimate your consumer surplus from one of these items. You'll find a lot of stuff is really cheap.
Showing posts with label Markets. Show all posts
Showing posts with label Markets. Show all posts
Wednesday, May 29, 2013
Friday, September 21, 2012
A World Without Greed
Suppose we lived in a world without gravity. How would we feel about that? (For now, ignore the fact that without gravity our atmosphere and oceans would dissipate, suffocating all life on earth.)
How we feel depends on what we're talking about. No one could fall to their death and flying around would be really easy. Launches to space could happen almost accidentally. But at the same time liquids would get in all sorts of electronics and ruin them. Hydroelectric dams won't work. Plumbing, irrigation, and natural gas lines would fail. Assemblies lines would be chaos. Drinking would be hard.
Our civilization is built with gravity in mind. This counts not just preventing the bad stuff that comes with gravity (we have rails to prevent falls) but leveraging its reliable existence into something that benefits us. The constant gravitational pull lets us generate enormous quantities of power very cheaply. We'd be fools to ignore it.
Why then are we so reluctant to build our world assuming greed is as consistent as gravity? Why do we often assume that we live in a world without greed, where teachers, politicians, labor unions, and even companies will not act in their best interest? It is particularly tragic because we could rely on that consistent force of nature (and if you've ever seen a plant turn its leaves to light, you've seen greed as a force of nature) to transform that force into something productive.
Instead of relying on benevolent governments to determine the best way to reduce pollution, tax pollution and give people the incentive to find the best solution.
Instead of relying on good feelings to ensure we have good teachers, let there be a marketplace for education so the good teachers are rewarded and the bad ones are punished.
Instead of forcing experience and credentials to ensure everything from doctors to hairdressers make a quality product at a low price, remove barriers of entry and allow consumer sovereignty and competition to encourage a better world.
Instead of capping liability damages and relying on a regulatory agency to make sure firms don't skimp on safety, let's instead make sure that the firm will swallow the full cost of its carelessness.
If you think it's hard to change laws, you are absolutely right. But it's as impossible to repeal greed as it is to repeal gravity. Best to learn to live with it.
How we feel depends on what we're talking about. No one could fall to their death and flying around would be really easy. Launches to space could happen almost accidentally. But at the same time liquids would get in all sorts of electronics and ruin them. Hydroelectric dams won't work. Plumbing, irrigation, and natural gas lines would fail. Assemblies lines would be chaos. Drinking would be hard.
Our civilization is built with gravity in mind. This counts not just preventing the bad stuff that comes with gravity (we have rails to prevent falls) but leveraging its reliable existence into something that benefits us. The constant gravitational pull lets us generate enormous quantities of power very cheaply. We'd be fools to ignore it.
Why then are we so reluctant to build our world assuming greed is as consistent as gravity? Why do we often assume that we live in a world without greed, where teachers, politicians, labor unions, and even companies will not act in their best interest? It is particularly tragic because we could rely on that consistent force of nature (and if you've ever seen a plant turn its leaves to light, you've seen greed as a force of nature) to transform that force into something productive.
Instead of relying on benevolent governments to determine the best way to reduce pollution, tax pollution and give people the incentive to find the best solution.
Instead of relying on good feelings to ensure we have good teachers, let there be a marketplace for education so the good teachers are rewarded and the bad ones are punished.
Instead of forcing experience and credentials to ensure everything from doctors to hairdressers make a quality product at a low price, remove barriers of entry and allow consumer sovereignty and competition to encourage a better world.
Instead of capping liability damages and relying on a regulatory agency to make sure firms don't skimp on safety, let's instead make sure that the firm will swallow the full cost of its carelessness.
If you think it's hard to change laws, you are absolutely right. But it's as impossible to repeal greed as it is to repeal gravity. Best to learn to live with it.
Thursday, August 30, 2012
A True Coasean
In India, Rajesh Shah opened a menswear shop called "Hitler." Naturally the local Jewish community is rather upset and demand that he changes the name.
Mr. Shah's response?
If the Jewish community really wants the name changed, they can pay for it, Mr. Shah said. “I have spent too much on branding for my shop,” he said.Ronald Coase would be proud.
Thursday, June 28, 2012
The Real Health Care Surprise
I was surprised this morning AHCA was upheld. When the whole Supreme Court thing started, I thought sure it would be upheld but the Intrade predictions (bouyed by the hearings, commentaries, etc.) changed my mind. Here's the Intrade chart as of today:
For those who don't know, Intrade creates these tickets where are worth $10 if some event happens and $0 if it doesn't. By seeing how much people are willing to pay for the ticket, we estimate how likely an event it. Rather than rely on predictions of people who lose little-to-nothing if they are wrong, prediction markets like Intrade make people put their money where their mouth is.
Thus Intrade is usually very accurate, predicting presidential elections, economic conditions and academy award winners very accurately. This morning, a ticket that the SC would rule the mandate unconstitutional was going for $7, or a 70% chance they will do just that. But Intrade was very, very wrong. Why? Two theories.
Few Decision Makers. It's very hard to predict anything that a very small number of people decide. Here, there were really only two decision-makers. In fact, most thought it was just one--Justice Kennedy--who indeed sided with conservatives. But no one predicted Justice Roberts would switch sides. Like a sample size that's too small, it's really hard to predict what will happen when so few determine the outcome.
Sample Bias. Go ahead and try to set up an account. If you try to get starting money via a card from your American bank account, you'll see this message:
Thus Intrade is usually very accurate, predicting presidential elections, economic conditions and academy award winners very accurately. This morning, a ticket that the SC would rule the mandate unconstitutional was going for $7, or a 70% chance they will do just that. But Intrade was very, very wrong. Why? Two theories.
Few Decision Makers. It's very hard to predict anything that a very small number of people decide. Here, there were really only two decision-makers. In fact, most thought it was just one--Justice Kennedy--who indeed sided with conservatives. But no one predicted Justice Roberts would switch sides. Like a sample size that's too small, it's really hard to predict what will happen when so few determine the outcome.
Sample Bias. Go ahead and try to set up an account. If you try to get starting money via a card from your American bank account, you'll see this message:
If your credit or debit card was issued by a US bank then unfortunately you will not be able to use this card to fund your account. This not the decision of Intrade but due to regulations in the US that restrict what US residents can do with their cards.So that puts a bias on who uses Intrade and it makes sense that non-Americans wouldn't be very good at predicting what our highest court does, especially since American's can't seem to predict it, either. It is worth noting that every expert, not just Intrade, was surprised by how the Supremes ruled.
Wednesday, September 14, 2011
Is Free Food Price Discrimination?
While preparing for my lecture on price discrimination, I stumbled upon this Yahoo! question: "Are free desserts for your birthday an example of price discrimination?" The answer appears to be "no." I disagree.
Price discrimination is when sellers charge different prices of the same good to different customers. This is often a way to take advantage of different sensitivities in price. For example, students have more free time than the average person so, with more time to shop around, companies offer them student discounts to entice them to patron their store.
In the case of the birthday dessert, if it's your birthday you generally get to decide where you and your friends will eat. You will probably also want a dessert. Even if you're not paying, you probably have some empathy for your friends's bank accounts. If you can get a good deal, you'll prefer it. And since it's your birthday, you have time to plan which means you are going to be more sensitive to prices (just like a student, who also has time to plan). Thus restaurants give out free desserts, lowering the price of the meal for people who are particularly sensitive to price.
If you need further convincing, note that there is a type restaurant where free desserts is not the case: fast food. These are also places where you are unlikely to insist on going for your birthday meal.
Price discrimination is when sellers charge different prices of the same good to different customers. This is often a way to take advantage of different sensitivities in price. For example, students have more free time than the average person so, with more time to shop around, companies offer them student discounts to entice them to patron their store.
In the case of the birthday dessert, if it's your birthday you generally get to decide where you and your friends will eat. You will probably also want a dessert. Even if you're not paying, you probably have some empathy for your friends's bank accounts. If you can get a good deal, you'll prefer it. And since it's your birthday, you have time to plan which means you are going to be more sensitive to prices (just like a student, who also has time to plan). Thus restaurants give out free desserts, lowering the price of the meal for people who are particularly sensitive to price.
If you need further convincing, note that there is a type restaurant where free desserts is not the case: fast food. These are also places where you are unlikely to insist on going for your birthday meal.
Monday, September 05, 2011
More People Means More Chickens
Apparently Bill Clinton switched to a vegan diet last year.
Apparently, in December of 2010, PETA applauded this decision, saying Clinton will save 200 animals a year.
Apparently PolitiFact recently checked this number and called it "Half True."
Apparently most PolitiFact readers were upset because the fact checker didn't consider sea creatures to be animals.
But, thankfully, at least one reader got it exactly right:
Apparently, in December of 2010, PETA applauded this decision, saying Clinton will save 200 animals a year.
Apparently PolitiFact recently checked this number and called it "Half True."
Apparently most PolitiFact readers were upset because the fact checker didn't consider sea creatures to be animals.
But, thankfully, at least one reader got it exactly right:
You completely missed the mark on this one. While you are correct about the shellfish, no farm-raised animals would be spared. At best they would never be born. Comercial farms do not spare any of the animals they have raised because somebody is a vegan. They only produce what will be consumeed as the marekt demands. It’s not as if a bunch of chickens and cows were freed because Bill Clinton stopped eating meat. Therefore, your explanation, and PETA's, is not well founded.
Sunday, May 01, 2011
False Dichotomy
Talk about why the price of oil is raising now seems to be framed as a mixture of genuine supply and demand forces and of speculators causing the price to raise. First, let me joyfully acknowledge that supply and demand are not being seriously considered by mainstream media--a definite improvement over previous discussions which focused on "how greedy/evil are oil companies?" But the current debate isn't much of an improvement.
Asking how much of the increase is due to supply and demand and how much is due to speculation is like asking "is my car not running because there's something wrong with it or because the engine's broken?" One is a subset of the other. Speculators, like other economic actors, respond to supply and demand forces. The only difference between them and us is that they are responding to future supply and demand. But it's still all about the fundamentals.
Here's Mark Perry on speculation.
Asking how much of the increase is due to supply and demand and how much is due to speculation is like asking "is my car not running because there's something wrong with it or because the engine's broken?" One is a subset of the other. Speculators, like other economic actors, respond to supply and demand forces. The only difference between them and us is that they are responding to future supply and demand. But it's still all about the fundamentals.
Here's Mark Perry on speculation.
Thursday, November 11, 2010
A Theory of Book Survival
Russ Roberts believes the days of the physical book are numbered.
Books as yard signs. Because books have that hefty annoying mass, they can be displayed in a home. I once heard that most people who buy books written by popular public figures don't actually read them, or read very little of them. They mostly have them to display in their bookcases. "Look what team I'm on," they scream. Displaying your copy of a hip new author plays a similar role.
Books as uncomfortable shoes. We wear uncomfortable clothes when we're trying to be serious because genuinely serious people are more willing to tolerate such discomfort. Similarly, "true readers" will read the book in the physical form because it's a pain to do. Only people who want to be part of that "serious readers" club will tolerate a physical book. Oh they'll fool themselves that the minor differences between the physical and the digital matter, e.g. the smell of the book, but it will really be about signalling.
Books as candles. While I think most of the "smell of the book" stuff is nonsense, it's true that people like nostalgia and novelty. Yeah, I think candle light's romantic but I might think that because I grew up with electricity. Old stuff always seems exotic and cool.
GRANTED, there's lots of old media where new stuff doesn't exist. Vinyl records. VHS. Cassette tapes. But such things weren't around very long. They didn't have the opportunity to entrench themselves as a nostalgic enough to warrant making new ones and they make even poorer signalling. But physical books have been around for a while and when you add in print on demand services, I think we'll be seeing new physical books around for a long time.
Bookstores, however, are a different story.
So while there are some advantages to physical books, I’m predicting that the advantages of digital books will crush them. And it won’t take long...There will be one exception. The Jews. We will still publish prayer books and Bibles and Talmuds for use on the Sabbath when the iPad and the Kindle take a rest. But for the most part, I think that’s going to be it.No doubt investing big in a physical book market is a fool's errand. But I don't think new physical books will become extinct. In fact, I think the disadvantages of such books will be the key to their (muted) survival.
Books as yard signs. Because books have that hefty annoying mass, they can be displayed in a home. I once heard that most people who buy books written by popular public figures don't actually read them, or read very little of them. They mostly have them to display in their bookcases. "Look what team I'm on," they scream. Displaying your copy of a hip new author plays a similar role.
Books as uncomfortable shoes. We wear uncomfortable clothes when we're trying to be serious because genuinely serious people are more willing to tolerate such discomfort. Similarly, "true readers" will read the book in the physical form because it's a pain to do. Only people who want to be part of that "serious readers" club will tolerate a physical book. Oh they'll fool themselves that the minor differences between the physical and the digital matter, e.g. the smell of the book, but it will really be about signalling.
Books as candles. While I think most of the "smell of the book" stuff is nonsense, it's true that people like nostalgia and novelty. Yeah, I think candle light's romantic but I might think that because I grew up with electricity. Old stuff always seems exotic and cool.
GRANTED, there's lots of old media where new stuff doesn't exist. Vinyl records. VHS. Cassette tapes. But such things weren't around very long. They didn't have the opportunity to entrench themselves as a nostalgic enough to warrant making new ones and they make even poorer signalling. But physical books have been around for a while and when you add in print on demand services, I think we'll be seeing new physical books around for a long time.
Bookstores, however, are a different story.
Monday, November 08, 2010
The Most Expensive Liquid You Can Buy
I'm in the market for a new printer. My existing one, a cheap Canon printer I've been using for over five years, is wearing down. It jams and the head occasionally prints a letter out of alignment. Since I'm sending out job applications, a new printer would be a big help.
But printer ink's the most expensive liquid you can buy. Printer manufacturers claim it's the technology which drives up the price. And yes, ink technology has noticeably improved over the past 20 years. A single cartridge for my printer runs $23.49 at Office Max and contains about 12 ml of ink, or $7,409.94 per gallon. I'm not buying the technology story.
I trust the tying pricing model, a form of price discrimination. Manufacturers sell a cheap printer (another reason to discredit the technology story: about half to one-third the price of the printer is eaten up by the ink it comes with) but charge a lot for ink. They are able to charge more for people who like to print and less for people who don't print very much, capturing the gains from those who are willing to pay a lot while still getting profit from those who are willing to pay only a little.
I tell my students to make sure you know the whole price of a good before you buy it and so I called Cartridge World to verify they carried cartridges of a printer I'm looking at, the Epson Stylus NX125 (the web site says it's $50 but I swear when I saw it in the store it was $40). They do not...yet. Cartridge World takes the empty cartridges people bring in (presumably for some store credit or a discount), fills them up, and sells it back. But the NX125's a new model and they don't have any cartridges yet. Moreover, manufacturers know places like Cartridge World exist and reformulate their ink so it only works with that cartridge (the printer head's a patented piece of technology), requiring other guys to figure out the formula so they can produce it for the manufacture's competitors.
It's around this point in our conversation I realized printer pricing is backwards from pricing of virtually all other consumer products: the new stuff isn't more expensive than the old stuff. It's cheaper.
If you buy an old printer, the manufacturer knows they can't get as much money from you since you can reliably buy ink elsewhere. They have competition from a key source of revenue. So they charge more for the printer to (a) capture some of the value when they can and (b) discourage you from buying the old printer in favor of the new one. I doubt new technology's driving up the price of ink but it looks like it's driving down the price of printers. Weird.
Note this also puts manufacturers in a tough place when it comes the planned obsolesce. They want you to buy a new printer but they don't want your printer to fall apart so fast you go to another manufacturer.
If my current printer didn't work, I'd probably buy a "old" printer since I print a lot. But most of my printing are things like rough drafts of papers, things where great printer quality isn't an issue. So I'll probably buy a new printer and live off the ink it comes with, printing only professional documents. The only thing is I'm not sure how annoying it will be to constantly plugging and unplugging printers. But it will make me feel like I'm outsmarting these manufacturers and I do like feeling clever...
But printer ink's the most expensive liquid you can buy. Printer manufacturers claim it's the technology which drives up the price. And yes, ink technology has noticeably improved over the past 20 years. A single cartridge for my printer runs $23.49 at Office Max and contains about 12 ml of ink, or $7,409.94 per gallon. I'm not buying the technology story.
I trust the tying pricing model, a form of price discrimination. Manufacturers sell a cheap printer (another reason to discredit the technology story: about half to one-third the price of the printer is eaten up by the ink it comes with) but charge a lot for ink. They are able to charge more for people who like to print and less for people who don't print very much, capturing the gains from those who are willing to pay a lot while still getting profit from those who are willing to pay only a little.
I tell my students to make sure you know the whole price of a good before you buy it and so I called Cartridge World to verify they carried cartridges of a printer I'm looking at, the Epson Stylus NX125 (the web site says it's $50 but I swear when I saw it in the store it was $40). They do not...yet. Cartridge World takes the empty cartridges people bring in (presumably for some store credit or a discount), fills them up, and sells it back. But the NX125's a new model and they don't have any cartridges yet. Moreover, manufacturers know places like Cartridge World exist and reformulate their ink so it only works with that cartridge (the printer head's a patented piece of technology), requiring other guys to figure out the formula so they can produce it for the manufacture's competitors.
It's around this point in our conversation I realized printer pricing is backwards from pricing of virtually all other consumer products: the new stuff isn't more expensive than the old stuff. It's cheaper.
If you buy an old printer, the manufacturer knows they can't get as much money from you since you can reliably buy ink elsewhere. They have competition from a key source of revenue. So they charge more for the printer to (a) capture some of the value when they can and (b) discourage you from buying the old printer in favor of the new one. I doubt new technology's driving up the price of ink but it looks like it's driving down the price of printers. Weird.
Note this also puts manufacturers in a tough place when it comes the planned obsolesce. They want you to buy a new printer but they don't want your printer to fall apart so fast you go to another manufacturer.
If my current printer didn't work, I'd probably buy a "old" printer since I print a lot. But most of my printing are things like rough drafts of papers, things where great printer quality isn't an issue. So I'll probably buy a new printer and live off the ink it comes with, printing only professional documents. The only thing is I'm not sure how annoying it will be to constantly plugging and unplugging printers. But it will make me feel like I'm outsmarting these manufacturers and I do like feeling clever...
Monday, August 23, 2010
The Government Reflex
Another case of libertarianism run amuck. Gourmet cupcakes only exist because of... zoning laws and (local) government planning! It's always hilarious when 'pro-market' folks see a type of consumer good they don't like, so let's blame it on government!That's Jeremy Horpendahl's comment via Google Reader on this article. It's about those tiny stores--specifically cupcakes--which sell expensive gourmet treats and how they are really the engineering of government action.
Consider the cupcakes. Sure, there is clearly a market for gourmet cupcakes with high-end ingredients. But it’s probably not a viable storefront business in most locales. Except due to zoning and government planning, there are commercial districts with “excess” capacity. Simultaneously, governments strongly discourage home-based and informal businesses that promote trade outside designated “commercial” areas. Planners also want commerce concentrated in areas where customers are more likely to pay upscale prices — and thus higher sales taxes — which contributes to the appearance of economic growth.Its tortured logic. Planners want cut gourmet shops. They have the ability to make easy for some shops to open and hard for others. We have many gourmet shops. Ergo, they are they because of government.
Gourmet cupcakes are a city planner’s dream business. It’s an impulse purchase that fits into high-foot-traffic areas (no cars!) and provides the customer with the illusion of luxury. It also tends to bring attention from fad-conscious media outlets — there’s a cable television series devoted to a Washington, DC cupcake store — which also feed the illusion.
I don't know if we have "many" of these shops or "too many" of them. I have not idea what that means. I know that once Tanya and I ducked into a gourmet cupcake one in Georgetown (not the one on the show). It's off the main street, a bit hard to find actually, and it was so crowded we could barely walk around. Yeah it was a weekend, but it was about as stuffed as a Starbucks on a Monday morning.
Is it so hard to believe that if people are willing to pay a premium for coffee (which is one of the easiest things you can make in your kitchen), they won't also pay a premium for hot dogs, ice cream, and cupcakes? That these aren't daily purchases only translates into fewer stores. A struggling Cold Stone Creamery is more likely the result of the recession, not the beginning of some sort of gourmet bubble.
I assume that, like restaurants, these stores have a high failure rate. That is hardly grounds to weave an elaborate story involving sugar, bureaucrats, and dreams of a centrally planned future. It's haphazard and sloppy. It's embarrassingly knee-jerk. It's intellectually lazy. It speaks to everything people hate about libertarians.
Sometimes a short comment says a lot more than a long article.
Tuesday, April 20, 2010
Show Me the Broccoli (Ads)!
Matthew Yglesias asks, "Where are the Broccoli Ads?"
Couldn't all fruits and vegetables have packaging? In theory, sure, but such foods spoil more easily (they are often sprayed with water to keep them crisp, something packaging would prevent). Note that Express salad mix is a mix, not just a head of lettuce in bag so there's good reason to give up a bit of freshness for the convenience (their ads also underline how fresh their mix is). Many customers like to investigate such foods before buying them. If you package your food, that makes it harder to inspect and customers might think you're hiding something.
So why don't we see ads brought to us by broccoli farmers? I've seen ads for why natural gas is so great and high fructose corn syrup isn't as bad as we think it is. Surely there's a national association of broccoli growers out there to wanting to get people off the sugar stuff.
And there is (unfortunately I couldn't embed the video).
Why is it that nobody’s marketing broccoli and bananas? This stuff is sold in stores, in exchange for money. Presumably there are for-profit enterprises out there with a vested interest in selling more.In contrast to candy bars and potato chips, most fruits and vegetables have no packaging and thus no easily identifiable brand name. An ad for Bob's Broccoli will probably help Betty's Broccoli sales since it's not clear which is which. Advertising for healthy foods becomes a public good and, thus, under-provided. Note that some vegetables do advertise--Express Salad Mixes keep popping up--but these vegetables have packaging.
Couldn't all fruits and vegetables have packaging? In theory, sure, but such foods spoil more easily (they are often sprayed with water to keep them crisp, something packaging would prevent). Note that Express salad mix is a mix, not just a head of lettuce in bag so there's good reason to give up a bit of freshness for the convenience (their ads also underline how fresh their mix is). Many customers like to investigate such foods before buying them. If you package your food, that makes it harder to inspect and customers might think you're hiding something.
So why don't we see ads brought to us by broccoli farmers? I've seen ads for why natural gas is so great and high fructose corn syrup isn't as bad as we think it is. Surely there's a national association of broccoli growers out there to wanting to get people off the sugar stuff.
And there is (unfortunately I couldn't embed the video).
Saturday, February 27, 2010
Six Percent and the Secrets of Real Estate
Several years back, Alex Tabarrok pointed out the mystery of real estate commission. No matter where you go, or what's being sold, real estate agents take 6% of the home's selling price (typically, 3% goes to them and 3% goes to the the agency they work for). This is bizarre: why would agents in Montana be charged the same percent as agents in California, where homes are much more expensive? Is the increase in work to sell a home really so perfectly proportional to its price? Seems unlikely.
I ran into a real estate agent on the train while traveling to New Haven, CT on Thursday and asked her about it. She insists it's not true. Even before the crash, commission's negotiable: she's done 4% or 5% for some buys and she's charged 7% for major sales (such as if selling the home requires that she rents a helicopter and takes aerial photographs). If she's selling a home and finds a buyer willing to be represented by her, she takes a smaller commission on each (though she gets more overall; 4% twice is more than 6% once). "Everything's negotiable," she says. That's reassuring.
While she's been in the business since the mid 1990s, this is just one data point. Still, with so much freedom of entry and variation across real estate markets, I'm more likely to believe that this 6% level is more urban legend than industry practice.
I ran into a real estate agent on the train while traveling to New Haven, CT on Thursday and asked her about it. She insists it's not true. Even before the crash, commission's negotiable: she's done 4% or 5% for some buys and she's charged 7% for major sales (such as if selling the home requires that she rents a helicopter and takes aerial photographs). If she's selling a home and finds a buyer willing to be represented by her, she takes a smaller commission on each (though she gets more overall; 4% twice is more than 6% once). "Everything's negotiable," she says. That's reassuring.
While she's been in the business since the mid 1990s, this is just one data point. Still, with so much freedom of entry and variation across real estate markets, I'm more likely to believe that this 6% level is more urban legend than industry practice.
Thursday, February 11, 2010
Pictures From Snowmageddon
I normally don't do personal stuff here but the pictures from the twin blizzards are pretty interesting (and should be convincing to those knowledgeable of Midwestern winters that if I complain about the snow, it's not because I've gone soft).
The first shots are from the first blizzard. In this shot, I've already dug out the back area (which took about an hour). Yes, I actually had to do some digging to confirm the car was mine (the snow was originally hiding the plate and my IHS bumper sticker).
There is, of course, some economics in this post. For one, I note a similar mystery that Bryan Caplan pointed out. For example, here's the milk section at the local supermarket I visited today (note the soy milk, way at the end, is pretty well stocked).
Bryan thinks it's strange that the brand name stuff is grabbed more than the off brand. As staple products, if people like them five times as much, why isn't there five times as many of it? Several days into the storms, I still found other strange juxtapositions.
Some of this might have been due to constant restocking but based on Caplan's observations (and others that went out right before the storm concur), it's equally possible that this is not the case.
It also highlights the problem of inflexible prices, especially during a crisis. It's probably due to price-gouging laws, which exist is most, if not all, states. Luckily when I went today, I was able to get everything I needed (but only because the nearby Wal-Mart just restocked its milk).
The first shots are from the first blizzard. In this shot, I've already dug out the back area (which took about an hour). Yes, I actually had to do some digging to confirm the car was mine (the snow was originally hiding the plate and my IHS bumper sticker).
There is, of course, some economics in this post. For one, I note a similar mystery that Bryan Caplan pointed out. For example, here's the milk section at the local supermarket I visited today (note the soy milk, way at the end, is pretty well stocked).
Bryan thinks it's strange that the brand name stuff is grabbed more than the off brand. As staple products, if people like them five times as much, why isn't there five times as many of it? Several days into the storms, I still found other strange juxtapositions.
Some of this might have been due to constant restocking but based on Caplan's observations (and others that went out right before the storm concur), it's equally possible that this is not the case.
It also highlights the problem of inflexible prices, especially during a crisis. It's probably due to price-gouging laws, which exist is most, if not all, states. Luckily when I went today, I was able to get everything I needed (but only because the nearby Wal-Mart just restocked its milk).
Friday, October 09, 2009
The Economics of the Movie Ticket
A couple of days ago, Nicholas Tabarrok noted the strange economics of the film industry at MR. Movie theaters do not charge lower prices for movies that are unpopular. Similarly, highly anticipated movies have the same ticket price as movies that are proven flops. Why is that?
If the movie theater charged different prices for movies, it would need to hire individual ticket takers for multiple theater entrances at the multiplex--one for each theater that's seating at the time (otherwise people would just buy the cheapest ticket). This is a drastic increase in costs both in payment to the employees and to management, who must now organize a complex system of employees.
Instead, the theater simply adjusts how long a movie is being shown. Good movies are shown for a while, bad movies leave the theater quickly (making room for theaters showing the good movie). It's not as direct as individual pricing, but it's much more cost effective.
If the movie theater charged different prices for movies, it would need to hire individual ticket takers for multiple theater entrances at the multiplex--one for each theater that's seating at the time (otherwise people would just buy the cheapest ticket). This is a drastic increase in costs both in payment to the employees and to management, who must now organize a complex system of employees.
Instead, the theater simply adjusts how long a movie is being shown. Good movies are shown for a while, bad movies leave the theater quickly (making room for theaters showing the good movie). It's not as direct as individual pricing, but it's much more cost effective.
Monday, June 08, 2009
Too Cool For Grammar School
One of my mother's pet peeves is improper grammar, most potently using the phrase "I should have went" instead of the correct phrase "I should have gone." A couple of day ago, she read me an opinion piece by someone who shared her frustration, arguing grammar mistakes (even in casual conversation) demonstrate sloppy thinking, laziness, and a disrespect for the English language. I conceded that for instances such as job interviews, this makes sense: good grammar signals intelligence and etiquette. But something about the story didn't sit well with me and I let it go.
Later, I realized bad grammar is also an example of countersignaling. When you can send multiple signals, you are best to eschew weak signals and stick with strong ones, demonstrating that you are not be confused with those who are merely adequate (as average candidates will send the weak signals in case the strong ones aren't as strong as they think). This is why you don't put that part time job from high school on your post-college resume.
Good grammar is a weak signal (with the exception of, perhaps, English professors). By making (purposely or not) common grammar mistakes, people can show they are so qualified, they don't need obsess over the nuances of the English language. This, of course, does not work with rare mistakes. "I is interested in working with you" will not get you the job.
Later, I realized bad grammar is also an example of countersignaling. When you can send multiple signals, you are best to eschew weak signals and stick with strong ones, demonstrating that you are not be confused with those who are merely adequate (as average candidates will send the weak signals in case the strong ones aren't as strong as they think). This is why you don't put that part time job from high school on your post-college resume.
Good grammar is a weak signal (with the exception of, perhaps, English professors). By making (purposely or not) common grammar mistakes, people can show they are so qualified, they don't need obsess over the nuances of the English language. This, of course, does not work with rare mistakes. "I is interested in working with you" will not get you the job.
Saturday, February 07, 2009
Economics, the Law, and Treasure Hunting
Last week, deep-sea explorers announced they found the shipwreck of the original HMS Victory which sank in 1744. This is certainly a victory for the decedents of her captain (as the location of the ship demonstrates it sank due to a storm, not mistakes on the captain's part). But that is not the interesting part of the rest of us: it's the treasure.
Well, the legal battle for the treasure is what's interesting as the treasure is mostly large bronze cannons of historic significance. There also might be as much as four tons of gold, but that's just a theory. Due to the decay of the site, we're a long way off from a good estimation of value.
But that hasn't stopped the British government from claiming "dibs," though the site's in international waters. Lost for over 250 years, the government argues they never explicitly gave up sovereignty of the ship and its contents.
Safe to say, it creates a mess for the people who found the ship to sort out. It also cuts on their profit margin. This is where law and economics can help. The boringly named field of law and economics uses economics to better form the law so it encourages efficiency.
In this case, the law allowing a country to claim sovereignty on a wreck someone else found makes it less profitable for other people to find and recover wrecks. Thus more ships sit at the bottom of the ocean, slowly decaying into nothing. There are few examples so illustrative of waste as that one. Granted, there's a good argument for claiming sovereignty on a ship that sank last week. It takes time to find wrecks and if somebody just stumbles upon it in the meantime and gets to claim it all, that would have its own unintended consequences on how willing people are to use ships (or even build them in the first place). But that argument doesn't spill over to a quarter of a millennium. This looks a lot more like theft then maintaining sovereignty. I hope the British government aren't looking for any other important ships, of their own sake.
Well, the legal battle for the treasure is what's interesting as the treasure is mostly large bronze cannons of historic significance. There also might be as much as four tons of gold, but that's just a theory. Due to the decay of the site, we're a long way off from a good estimation of value.
But that hasn't stopped the British government from claiming "dibs," though the site's in international waters. Lost for over 250 years, the government argues they never explicitly gave up sovereignty of the ship and its contents.
If it really is the HMS Victory, "her remains are sovereign immune," the British Ministry of Defense (MOD) said in a statement on its blog Monday.They also want a cut of what's found, though the exact size is under negotiation (but you can bet it'll be a sizable one).
"The wreck remains the property of the Crown. We have not waived our rights to it. This means that no intrusive action may be taken without the express consent of the United Kingdom."
Safe to say, it creates a mess for the people who found the ship to sort out. It also cuts on their profit margin. This is where law and economics can help. The boringly named field of law and economics uses economics to better form the law so it encourages efficiency.
In this case, the law allowing a country to claim sovereignty on a wreck someone else found makes it less profitable for other people to find and recover wrecks. Thus more ships sit at the bottom of the ocean, slowly decaying into nothing. There are few examples so illustrative of waste as that one. Granted, there's a good argument for claiming sovereignty on a ship that sank last week. It takes time to find wrecks and if somebody just stumbles upon it in the meantime and gets to claim it all, that would have its own unintended consequences on how willing people are to use ships (or even build them in the first place). But that argument doesn't spill over to a quarter of a millennium. This looks a lot more like theft then maintaining sovereignty. I hope the British government aren't looking for any other important ships, of their own sake.
Tuesday, January 20, 2009
Life Follows Death
During his inaugural address, President Obama rightly reminded us that it is the risk takers that ensure a better tomorrow. Yet he paradoxically argued that the current economic slowdown is the fault of greed and the market needs a "watchful eye." One cannot have both. Risk takers have to fail; otherwise it would not be risk. Pointing to mistakes as evidence of too much risk, of a need to remove bad decisions, necessarily curtails the capacity to make the right ones. We cannot have growth without bankruptcy nor more than we can have evolution without extinction.
Wednesday, November 12, 2008
No, You Can't
Lawmakers from all fifty states are being bombarded with requests for tickets to Obama's inauguration. When the norm is several hundred tickets each, some report several thousand requests. Questions arise as to how to divvy them up. Lottery systems seems most likely. A market does not.
Legislation looms to make scalping these tickets illegal. It seems like we should ensure that everyone should have an equal chance to get them, that we should combat those who would order a dozen, only to sell them for personal profit. But an a world of different preferences, a forced lottery system is more unjust than scalping tickets. The person who's mildly interested has the same chance as the die-hard fan. Without a market, there's no way to correct the randomization if the former wins. (Frankly, I'm surprised they aren't going by first come, first serve basis. That would solve a lot of problems. But part of the issue is the offices don't know how many tickets they are getting.)
Auctioning the tickets is not perfect, either. The curious but wealthy are preferred over the enthusiastic but poor. Without a prohibitively costly interview system, it's not possible to make it perfect. But denying trade makes it strictly worse.
Legislation looms to make scalping these tickets illegal. It seems like we should ensure that everyone should have an equal chance to get them, that we should combat those who would order a dozen, only to sell them for personal profit. But an a world of different preferences, a forced lottery system is more unjust than scalping tickets. The person who's mildly interested has the same chance as the die-hard fan. Without a market, there's no way to correct the randomization if the former wins. (Frankly, I'm surprised they aren't going by first come, first serve basis. That would solve a lot of problems. But part of the issue is the offices don't know how many tickets they are getting.)
Auctioning the tickets is not perfect, either. The curious but wealthy are preferred over the enthusiastic but poor. Without a prohibitively costly interview system, it's not possible to make it perfect. But denying trade makes it strictly worse.
Tuesday, October 21, 2008
The Speculators That Can't Be
History's a fickle mistress. It can teach us a great deal about ourselves and what to expect, but it can also delude us. Exceptions (which are always more memorable than the mundane) distort our view of how the world works. Writer David Liss referenced a speculator friend of Alexander Hamilton (the first United States Secretary of the Treasury) who used his inside knowledge to make quick profits. His actions nearly caused a financial catastrophe in the fledgling union. In light of the current crisis, Liss ponders when we will learn our lesson?
Liss paints speculators as wild-eyed children. They have no concept of the future, a strange attribute for people who make a living estimating what will come to pass. Speculators cannot survive as an occupation the way Liss described them. Not only would our current volatility be the norm, Warren Buffet would be broke.
Liss paints speculators as wild-eyed children. They have no concept of the future, a strange attribute for people who make a living estimating what will come to pass. Speculators cannot survive as an occupation the way Liss described them. Not only would our current volatility be the norm, Warren Buffet would be broke.
Wednesday, July 23, 2008
Coase on the Coast
Russ Roberts muses about applying Coase to traffic accidents while he's in California. Pedestrians, he notes, run wild in a way they wouldn't in DC because in traffic accidents the driver of the car is usually to blame. What a wonderful coincidence that we covered Coase on Monday in my principles of microeconomics course.
Coase notes the problem is not (in the case of traffic accidents) the car when it hits the pedestrian. The problem is that both the pedestrian and the car tried to occupy the same space at the same time. Remove one of these elements and you remove the problem (like all externality issues).
In brief, the question we should focus on is who is the least cost avoider--who is in the better position to avoid a collusion? Given the car extends well beyond what most grew up maneuvering in (ie, their body) and cars move much faster than people, pedestrians are the least cost avoider. The legal action should be to make pedestrians liable for being hit by cars.
This is not, of course, meant to be a hard fast rule. If you're hit while on the sidewalk or curb or crosswalk, that would still be the drivers fault. Again, the least cost avoider holds: it's less costly for drivers to stay in the street and watch lights than for pedestrians to be forever vigilant about where every car in the vicinity is. But in cases where a pedestrian crosses the street without warning, blame should lie with them.
Remember, economics is not about good guys and bad guys. It's about a bunch of people facing costs and benefits.
Coase notes the problem is not (in the case of traffic accidents) the car when it hits the pedestrian. The problem is that both the pedestrian and the car tried to occupy the same space at the same time. Remove one of these elements and you remove the problem (like all externality issues).
In brief, the question we should focus on is who is the least cost avoider--who is in the better position to avoid a collusion? Given the car extends well beyond what most grew up maneuvering in (ie, their body) and cars move much faster than people, pedestrians are the least cost avoider. The legal action should be to make pedestrians liable for being hit by cars.
This is not, of course, meant to be a hard fast rule. If you're hit while on the sidewalk or curb or crosswalk, that would still be the drivers fault. Again, the least cost avoider holds: it's less costly for drivers to stay in the street and watch lights than for pedestrians to be forever vigilant about where every car in the vicinity is. But in cases where a pedestrian crosses the street without warning, blame should lie with them.
Remember, economics is not about good guys and bad guys. It's about a bunch of people facing costs and benefits.
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