Market Power

Beer Geek

I'm a geek.  Not just any kind of geek.  I'm a beer geek.

When I was a little boy, my father, Dr. James Merle Miller Jr***. former professor of History at Morningside College, used to give me small sips of his beer - usually a Falstaff or a Grain Belt.

This morning's Wall Street Journal has an article entitled "Dear Beer" (paid subscription required) on expensive beer - $15 - $20 a bottle, sometimes even higher.  Such beer is often aged.

The concept of "aged" beer itself flies in the face of conventional wisdom that beer is meant to be drunk within a few weeks of its production (and almost all beer is). But aged beers -- many of them brewed with lots of hops and high-alcohol levels, both acting as preservatives -- have become a staple of what might be called the high-end beer market.

Even though I'm a beer geek, I have nothing against the mass-produced lagers such as Budweiser, MGD, etc.  Their mass production allows them to produce beers at a low cost that competition allows to be passed onto consumers at low cost.  But Anheuser-Busch's use of the "born-on date" on their bottles is a little bit deceiving.

Beer is a food product and it will deteriorate as it ages.  But the combination of alcohol and hops are natural preservatives that allow beer to keep over a period of time.  Indeed, the India Pale Ale style, a beer known for its hoppy character, was a beer style originally brewed in England for the British troops stationed in India in colonial times.  The brewers added extra hops to the brewing process so that the beer would keep in the long boat ride from England to India.

I've still got some beers in my basement that I had my sister bring me from Colorado last April (regular readers of this blog know I have an affinity for beers from the Flat Branch Pub and Brewery in Columbia, Mo. and from the various breweries in and around Boulder, Co.).  The only one I've had trouble with is this one that, when I pour it, is almost all head in the glass.  I'm not sure what causes this to happen with this particular beer, but I have had problems like this with beer that I have brewed.

After I my homebrews have fermented, I add corn sugar to the fermented brew before bottling.  The yeast would consume the corn sugar, making the carbonation.  Overtime, needless to say, a lot of carbonation would build up.  I've  heard of some people who have experienced the "bottle bomb", where so much carbonation would build up that the bottle caps would pop off.  I've never had that happen, but I have gotten too much carbonation.  But other than that, I had some beers that sat around for two years and tasted fine upon drinking.

*** Morningside College honored my dad by naming their Blackboard system "Miller Hall."

Life

Although I have never seen proof, I believe that there are other forms of life out there... there may even be other human beings somewhere in that vast universe we live in.  Why do I believe that?  Because when I see pictures like this and this, I can't believe that there are not other forms of life out there.  Call it a hunch.

Why I Chose to Go Into Academics

When I went to Morningside, I had a double-major in Business Administration and Economics.  I originally chose to major in Business, but because majoring in Econ only required 4 additional classes that would count as electives to my Business degree, I majored in it too.  I did well in my Econ classes and it interested me.

During my junior year, I took a class as part of my Business Administration major in which my classmates and I had to double up and make a class presentation.  My partner and I did a study and presentation on Polaroid.  When I gave my part of the presentation, it came so naturally and I got such a good response from my peers that I realized I had a talent for teaching.  So I chose to pursue a career in academics as an economist.

Departmental Mascot

The Department of Economics at the University of Wisconsin-Eau Claire has a mascot:  a flying pig.

Economics at Work in Maine

The timber industry is in a bit of a quandary in Maine - a quandary over the visa status of Canadian loggers.  The visa that Canadian loggers get is called a H2-B visa and it allows them to work cutting down trees in the US.  But there is a cap on the number of these visas that can be dolled out, and that cap hwas met for the first time last year.  Loggers must compete for the visas with workers in other industries, and many have been unable to get them.  Here is a Wall Street Journal article on the subject (paid subscription required).  The article demonstrates how immigration restrictions in the name of protecting domestic jobs ends up costing domestic jobs and raising the prices domestic residents pay for products, lowering their welfare.  A few quotes:

Wary of heightened immigration enforcement, employers of all kinds are trying to hire foreign workers legally. Demand for temporary seasonal visas is overwhelming a limited supply. As a result Mr. Pruneau and several hundred fellow Canadians have found themselves being booted out of the country after only six months, for the second year in a row. Yet few Americans have rushed to fill their places. In Maine, that has led to a shortage of loggers, a supply crisis at sawmills and a profit squeeze at pulp mills as printers shop for lower-cost paper on other continents. ...

Here's the usual argument for immigration restrictions:

Troy Jackson, a logger and state legislator, believes the visa program denies work to U.S. citizens. He calls the H-2B program "cheap labor for big corporations," and is happy to see the Canadian loggers kept out. ...

Never mind that the little guys get hurt by the restrictions.  Such restrictions don't do anything to employment of domestic residents, right?  Labor demand curves are vertical and never shift, right?  Wrong.

"If Canadians don't put wood on the ground, this crane won't put wood on the trucks," Mr. Staples said, taking a breather. "If our drivers don't have wood to haul, the mills are going to starve. If the mills starve, they won't be making lumber and paper. They'll be laying people off. That's what you call a chain reaction." ...

Normally, Mr. Vir runs four logging crews, from Bingham north to the border. "I got to go where the wood is," he says. He has a 36-man payroll: 16 Americans, five Canadians with green cards, and 15 H-2B workers. Last summer, none of those visas came through and he ran only one crew. He lost three contracts and let five Americans go. ...

For at least one industry in one isolated place, the proof is in. Between the deep north woods and Fenway Park, Maine's timber industry creates work for at least 25,000 Americans. A mere 760 Canadians fell a third of its trees. When Canadian loggers were banished from the woods a year ago, the impact was immediate and measurable: The price of wood went up. In 2002, a cord of Maine pulpwood -- the equivalent of 128 square feet -- cost $57. In 2004, the same cord cost $78. ...

With his Canadians missing, Mr. Vir's summer harvest sunk to 18,000 tons in 2004, compared with 34,000 in 2003. Production collapses like his all over Maine were followed by a leap in wood prices. But another shock came, too: a bidding war for the remaining 3,000 or so American loggers who still cut two-thirds of the state's trees. ...

"Certainly, there's some level of wage that would attract American workers," says Lloyd Irland, a forestry consultant who helped write the study. But that would necessitate raising pay not only for a few hundred Americans who would replace the Canadians, but for the American loggers and thousands of others doing related jobs. ...

Why would wages have to rise in other occupations?  Because raising the wages of loggers attracts workers from other occupations, creating shortages in those other occupations.  To clear the shortage, wages must rise there as well.  Of course, the implicit assumption is that companies who buy wood products won't begin to search for wood produced in other countries.

Twins Thoughts

King at SCSU Scholars has some more thoughts on the Twins stadium deal.  It looks like governor Tim Pawlenty thinks it's a good deal.  Too bad taxpayers won't have a say.

More Wi-Fi

Dayton, OH is going wireless.  Here's Division of Labour's point of view.  Here's essentially the same point that I made here regarding Minneapolis' and St. Paul's decision.

It seems that cities believe that they are in some sort of Prisoner's Dilemma styled-game when it comes to the decision to go wireless.  If city A doesn't go wireless, city B will go wireless and will attract all kinds of businesses.  So city A decides to go wireless.  City B, thinking in a similar kind of manner and will also go wireless.  So besides 1.  private markets already provide wireless services and 2.  wireless networks failing the public goods test, cities are going wireless.

Realtors

From the Washington Post:

The Department of Justice has two blunt warnings for the American home real estate establishment:

• Do not block efforts to save consumers money through rebates of real estate commissions.

• Do not stand in the way of discount "fee-for-service" firms that will list sellers' properties for a fixed-dollar amount but not perform all the traditional brokerage services, such as holding open houses or advising on buyers' offers.

The Justice Department has sent notes to legislators Oklahoma asking it not to support legislation meant to keep competition out of the real estate market.  It also sued the Kentuucky Real Estate Commission for other measures that limited competition in the marketplace.  The realtors' groups say they want to ensure that people get competent representation:

"The state association [of Realtors] came to us and said, 'We think you should do this,' " Thorburn said. Setting minimum standards for services -- including requiring brokers to assist clients with offers and negotiations -- would help ensure that home sellers would have competent representation during a sales transaction, Thorburn said. It would, for instance, eliminate the possibility that discount brokers could simply "charge $500 up front and tell [sellers] that 'I'll list your property, I'll put you on the MLS, I'll give you a sign for the front yard and then say, you're on your own, good luck.' " Some sellers might find themselves confronting a well-trained buyer's agent in negotiations, said Thorburn, and might not make smart decisions -- a result that would not be in the seller's best interest.

So, necessarily, we must take away that choice.  We also must ensure that consumers face no risks in the house-buying experience.  We simply aren't smart enough to make our own decisions.  HOGWASH!  The real motivation is to keep comptetitors out.

Hewitt quoted comments made to Justice Department investigators by Kentucky Realtors who oppose competitors' offering commission rebates: "I think this would just take money right out of our pocket," one said. "We work too hard to give it away," said another. "I am for the [rebate ban] as it stands now. If inducements were allowed, they could lead to competitive behavior."

We certainly don't want that.  From Truck and Barter (out to whom goes a hat tip for the link):

This is an excellent example of what public choice economics teaches you about government regulation; concentrated benefits and disperse costs means those who benefit will have legislation and regulation written to enhance their "professionalism", market power, political influence, and profit.

People often think of regulation as a way for the public to fight the big guys who try to take advantage of the little guys.  But far too often, those being regulated hide behind the regulation - they actually prefer it.  The millions of consumers who stand to gain from competition will likely gain much more than the concentrated interests stand to lose.  So why don't they band together and fight?  Each consumer gains so little at the margin that it little behooves any one of them to orgainize an attack on regulation lobbied for by concentrated interests such as realtors' groups. 

Just the opposite is true for the concentrated interest.  What it stands to receive from the regulation is not widely dispersed, so for individuals within the interest, their gains at the margin do provide incentive to fight.  So the concentrated interests put forth resources to enact or enhance regulatory legislation while consumers take it up the driveway.

I applaud the Department of Justice in their actions.

Might as Well Go for a Soda

The Onion says that life ain't worth living.

HT to my colleague Michael Spencer for the link.

College Athletics

In class this week, we discussed cartelization and collusion.  Although collegiate athletic departments are not-for-profit institutions, much of what they and the NCAA do can be understood using the basic tools of economic analysis of profit-maximizing monopolies. 

The University of Kansas has sold the media rights to its basketball games to ESPN.

Contract figures revealed by the school Thursday showed a more than 300-percent increase in the yearly income KU will receive from ESPN. The deal will net Kansas $40.2 million, or about $5.74 million per year.

The Jayhawks' current contract with ESPN is worth $1.86 million a year. The new deal begins July 1, and supersedes an agreement that began in July of 1999 and would have expired in 2006.

The thing about being a not-for-profit entity is that the entity cannot distribute any surplus revenue to owners/managers.  But does that mean that they don't seek to earn surplus revenue?  No.  Being a not-for-profit restricts a firm's choices on what they do with their net revenue. 

What is KU going to do?  Most likely, they are going to put a large share of it into improving their facilities so that they can attract recruits.  Since the NCAA won't allow KU or any other school to pay athletes a market salary, non-price rationing takes it place.  See here for some non-price rationing at Texas.  Here is a link to strength facilities at Nebraska.   Here's a snippet on what KU will do with their cash.

Still, Kansas' increased income from ESPN will lead to departmentwide improvements in KU's athletic programs. Perkins said he'll use more than $4 million of the ESPN money to pay for a new scoreboard at Allen Fieldhouse.