Market Power

This is a Robot?

How about this lifelike female robot?

Yowza!  What a babe! :-)  On PTI just now, Tony Kornheiser said that his belief is that its creator couldn't get a date.  I don't know whether to be smitten or creeped-out by this robot.

Hmmm.  There's got to be a capital-for-labor substitution story here.

Substitutes in Production - Baseball Labor

Sammy Sosa has been getting little love in Baltimore (although this blogger extends congratulations to Sosa on his 586th homer).  He got little love in his last two seasons with the Cubs as his productivity, but not his ego, waned.  So the Cubs sent him off to the Orioles for Jerry Hairston and two minor leaguers .  The Cubs needed a right fielder to replace Sosa, so they went out and got Jeromy Burnitz, a player whose uniformed physique resembles a bag of oatmeal.  Just for the way he looks at the plate, you could call him a throwback.  Jeromy, while not a spectacular player, is a solid right fielder and a good hitter.  Meanwhile, Hairston has moved into centerfield and started hitting lead-off.  So, from the Cubs' point of view, were these good transactions?  According to this Chicago Tribune article, the deal is paying off:

Though Burnitz isn't known for his defense, he has played fearlessly in right, crashing into walls, hitting the cutoff man and positioning himself perfectly.

"'Burny' is playing about as good a right field as I've seen," Baker said. "Not only catching the ball, but throwing the ball, holding runners. Guys around the league know you don't run on 'Burny' unless you just have to. He has been a complete ballplayer."

Players contribute something to their team and since fans are willing to pay for that contribution, that player generates revenue for the team.  Subtracting out the player's salary and fringe benefits leaves a surplus that goes to the team.  The various business decisions made by teams in the labor market, from signing free agents to trading players revolves around this surplus. For example, supppose Sammy Slugger plays for the fictional Scrubs and Billy Bunter plays for the equally-fictional Gnats.  The Scrubs and the Gnats will have an incentive to trade these players if Billy is expected to generate a larger surplus for the Scrubs than Sammy would *and* if Sammy is expected to generate a larger surplus for the Gnats relative to Billy.  It doesn't just matter how much Sammy makes.  What matters is how much he makes relative to what he produces in terms of the team's bottom line.  The same goes for Billy.

Two years ago, Sammy Sosa had been the hottest draw in Chicago sports.  He was powerful.  He was affable.  He put on a great show.  But then things went wrong.  He got caught using a corked bat.  He became susceptible to injury.  He kept striking out but his hitting prowess fell.  He complained about his line-up spot.  He left the last game of last season early.  He was being booed mercilessly when he was in the line-up.  He was no longer contributing to his team, and that contribution fell off quickly.  If Sammy were a stock, you could call him Enron.  Mark Stratton has this to say:

Remember the big stink over Sam-Me Sosa leaving the final game of last season early? How they caught him on the security camera's bolting the Cubs and his frustrating season without so much as a by your leave? Remember how Sam-Me kept saying last season that he wasn't a #6 hitter? That he was paid to drive in runs and blah, blah, blah? That he was getting disrespected and blah, blah, blah? That Sam-Me was being Sam-Me and not the funny guy in the Pepsi commercials and not the loveable camera mugger and devil-may-care free swinger who literally exploded on the scene in 1998 with the stuffier Mark McGwire?

In evaluating the transactions, it's not appropriate to compare what they have done so far this year.  As far as the Cubs' decision, what matters is what they believed the players would do.  The question is who do you compare to Sosa?  Is it Hairston or Burnitz?  Although a case can be made for both, I think it's Jeromy because he is the one who plays right field and who bats in a line up position comparable to where Sammy would have batted.  That being said, here are the players' 2005 salaries (which were known to the Cubs).

Sammy $17,875,000
Jeromy $4,500,000

The Cubs are also on the hook for $12 million of Sammy's salary.  Economically, from the Cubs' point of view, this is the same as paying Jeromy $16,500,000.  So, were the transactions worth it?
Here are the difference between Burnitz and Sosa's statistics for the past two years and last year:

The two players compare very favorably in terms of hitting.   For example, over the last two complete seasons, Burnitz has played in a few more games (6.5 more), had nearly the same OPS, and struck out 20 fewer times than Sammy.  Plus, Jeromy is a lefty slugger, something the Cubs didn't have last year.  Defensively last year, they also had similar productivity.  But it became obvious that Sammy was a distraction, and very well could have been bringing down the rest of the team. 

By trading Sammy and bringing in Jeromy, the Cubs saved about $1.375 million and they don't have Sammy to distract them.  The evidence suggests that the series of transactions that brought Jeromy to Chicago to replace Sammy was a very good one.

Liquid Candy

Should there be more regulation on soda manufacturers, such as placing warning labels on cans and raising taxes on soda?  The Center for Science in the Public Interest thinks so.

Soft drinks provide large amounts of sugars (mostly high-fructose corn syrup) to many individuals' diets. Soda pop provides the average 12- to 19-year-old boy with about 15 teaspoons of refined sugars a day and the average girl with about 10 teaspoons a day. Those amounts roughly equal the government's recommended limits for teens' sugar consumption from all foods.

Soft drinks are a problem not only for what they contain, but for what they push out of the diet. In 1977–78, boys consumed more than twice as much milk as soft drinks, and girls consumed 50 percent more milk than soft drinks. By 1994–96, both boys and girls consumed twice as much soda pop as milk. Heavy soft drink consumption is associated with lower intake of numerous vitamins, minerals, and dietary fiber.

The authors of the article then go on to suggest that warning labels be put on cans and that taxes on sodas be raised. 

The economic case for taxes on products generally falls on whether a third party is harmed by its production/consumption.  For example, an economic case can be made for taxes on cigarettes because third parties are harmed by their proper use.  But this is not the case with soft drinks.  If someone is drinking a soda in my presence, that person is benefitting and I am not being harmed at all.  The harm comes to those who drink a lot of soda over time.  But according to the folks at the CSPI , they not only need to be informed, they need to saved from themselves.  I'm all for calling attention to problems, but levying taxes and regulating packaging simply amounts to busy-bodying. 

Baseball Cards and Market Concentration

From the Washington Times:

Not so long ago, baseball cards were the sun of the sports memorabilia universe. Kids couldn't get enough of them. Grownups treated them like shares of Microsoft, with hot-blooded rookie card speculation forming sort of an early version of day trading. Hotel ballrooms from coast to coast were booked with card conventions.

As a child, my favorite sport was football and I used to collect football cards.  When I became a baseball fan in my late teens, I couldn't get enough baseball cards.  I bought everything I could get my hands on and my buddies and I would get together and trade cards.  But after I graduated from college in 1988, other things became more important: I went to graduate school, got married, and started working full time.  My collecting fell by the wayside.

It wasn't my fault, honestly, but the market took a steep dive over the next decade.

Those days are gone, left in the wreckage of a baseball card crash that in the last month has claimed Fleer and Donruss as players in the industry.

Both companies were major pioneers, helping to break a 30-year monopoly held by Topps Corp. and usher in an expansive new era in collecting that saw the introduction of holograms and bits of game-used jerseys and bats in card packs. But a perfect storm involving an oversupply of card releases, out-of-sync pricing at retail and flagging fan demand prompted a $1.2 billion industry in its go-go days of the early '90s to collapse to less than $270 million in projected revenues this year.

This has led to a restructuring of the baseball card market, a movement led by the owners of the rights to images of baseball players:  the Major League Baseball Players' Association.

With the card industry in tatters, Fleer Corp. fell $33 million into debt, declared bankruptcy and had its assets purchased by Upper Deck Co. And last week, the Major League Baseball Players Association, which licenses the production of big league baseball cards, gave new contracts to just Upper Deck and Topps in the hope of sharply reducing marketplace clutter and reviving interest in perhaps the most classically American of hobbies.

The demand for cards has fallen and there was too much competition amongst producers for what was left.  So the MLBPA has whittled the supply side of the market down to two producers and has placed restrictions on the products they can sell.

"There's been simply way too much high-end, short-run product out there, all chasing the same customers," said Evan Kaplan, the union's director for trading cards and collectibles. "Not enough is being done to broaden the base of collectors and engage kids back into baseball cards. The idea of just going forward with two companies is to halt the decline, clean up the market and really move forward in an aggressive and organized fashion."

There are also new restrictions on who can appear on a baseball card.  To decrease speculative activity, only players who play in the majors can be on trading cards.

Won't the decreased number of competitors for the rights to baseball player images decrease the licensing revenue the MLBPA can expect to earn?  Not necessarily.  Reducing the number of buyers gives the remaining buyers some power in negotiatons with the MLBPA.  But since those buyers are not the ultimate consumer of the final product but are, instead, middlemen, consumer choice will be restricted in the market for cards.  All else equal, this gives Topps and Upper Deck more market power in the market for cards, increasing their ability to earn a profit and, in turn, will likely increase the licensing fees the union can get.

HT to Mark Stratton

Weddings, Barter, and Property Rights

A man from Kenya has offered Bill Clinton livestock for Chelsea's hand in marriage. 

A Kenyan says he offered Bill Clinton 40 goats and 20 cows for his daughter's hand in marriage five years ago -- and is still waiting for an answer.

In our country, adult women, not their fathers, own the property rights to themselves.  They make up their own mind about who to marry.  Perhaps the smitten fellow should see if Chelsea wants the goats and cows.  If so, she might want to write them into a prenup.

Better yet, we have learned how much better a monetary system works relative to a barter system at facilitating transactions.  Why not sell the livestock first and give the cash to Chelsea?  Assuming the cows are heifers (technically, a cow is a female, so a bull or a steer is not a "cow") weigh 700 pounds each and sell for a dollar a pound, the cows alone would bring $14,000.***

The man is waiting for an answer:

Chepkurgor vowed to remain single until he gets an answer to his proposal to marry Chelsea, 25.

But will he remain faithful????????

*** Update - Crude estimates for the goats' worth:  assuming they are billies or bucks, weigh 100 pounds each, and sell for $65 per hundreweight, the goats have an estimated market worth of $2,600.  Chelsea has revealed that her hand in marriage is worth more to her than $16,600 minus the cost of selling the livestock.

Dumb Sports Rules

ESPN.com has a list of dumb sports rules.  My favorite is the following:

Amateurism in College Sports
We live in a free society. We believe in free markets. Should we subject some of our best and brightest athletes to an outdated, bunkum philosophy that runs contrary to both?

Amateurism began as a myth, concocted by snooty English aristocrats who didn't want to dirty their hands -- let alone get their keisters kicked -- by competing against working-class opponents. It persists as a way to keep athletic departments rich while student-athletes rely on under-the-table booster handouts -- handouts that would be legal in any other context.

Since when is it a crime to accept a bill-stuffed envelope from someone dumb enough to give it to you?

Law students intern at local firms. Accounting majors work at banks. Physical education students appear in Playboy's "Girls of the Pac-10" issue. Athletes get the shaft. In a 1995 book, former NCAA executive director Walter Byers wrote that amateurism in college sports amounted to "economic tyranny." We couldn't agree more.

I'll second that, but especially for men's basketball and football (and in some select schools, women's basketball and baseball).  For those programs, the players generate a lot of income for the schools, but they do not get the spoils.  It's a travesty.

The Nats and the Stadium Game

Eric Miller gets it:

So far, the Nationals have attracted more than a million fans to RFK Stadium, the team's current home. After more than 30 years without professional baseball, it is hardly a surprise that a new team is able to satisfy the pent-up demand of D.C. baseball fans. However, this level of fan enthusiasm is not guaranteed if the Nationals deliver several years of mediocre performances.

The D.C. area contains many entertainment venues and is home to four other professional sports teams. With this abundance -- possibly an overabundance -- of entertainment opportunities, high attendance at Nationals games almost surely must come at the expense of already established venues. New wealth won't be created by a new stadium but simply shifted within the city.

I just want to add one more thing:  DC baseball is new to most residents of the area.  All else equal, that newness will wear off and other new things will pop up around the city.  .

HT to the Emirates Economist

Employment Growth in Right to Work States

The Teamsters and the Service Employees International Union have split from the AFL-CIO.  For the last half century, union membership as a proportion of employment has been falling in the United States.  There are lots of reasons for this, but in this short post, I focus on one of them:  employment growth and union membership in "Right to Work States."

If a person lives in a Right-to-Work state, that person can work in a unionized establishment without having to join the union (there are some exceptions - railway workers are not covered by these laws).  Right to Work states are clustered in the southeast, in the mountain west (Idaho, Utah, Nevada, Wyoming, and Arizona) and in the high plains.  Generally speaking, it will be more difficult for unions to do their thing in right to work states and, as a result, it will also be more attractive for firms to do business there.

It's hard to say exactly what the effect of right-to-work laws on union status goes because right-to-work laws are going to be more prevalent in states where unions are not highly-regarded.  But that's not the point of this post.

I went to unionstats.com and obtained their data on employment and union membership.  I calculated union membership as a proportion of employment and year-ago employment growth rates for Right to Work states and Non-Right to Work States from 1983 to 2004. 

Not surprisingly, membership rates have been falling in all states but have been lower in the right-to-work states.

And with only a few exceptions, employment growth has been higher in the Right to Work states. 

A part of the larger growth in the right-to-work states is due to the lower chance of union activity in those states.  Competition between firms pushes them to 1. provide what customers want and 2. do so at the lowest cost.  Since, to my knowledge, there is nothing in US labor law that prohibits companies from locating in particular areas, businesses will seek to establish sites in geographic areas where the chances of union activity are smaller.   Like I said in an earlier post, while this is bad for those associated with big labor, it's good for the bottom line:  no, not that bottom line... the customer.

A big HT to Barry Hirsch and David Macpherson for their unionstats.com site.

Update:  John Palmer pointed out that my initial post had the color codes switched around in the legend for the union membership graph.  I have fixed the legend and uploaded the correct graph.

Big Labor Splits

Two major labor unions have split from the AFL-CIO.  It marks the biggest split in organized labor since the CIO left the AFL back in the 1930's.

The Teamsters and a major service employees union on Monday bolted from the AFL-CIO, a stunning exodus for an embattled movement already struggling to build its ranks and cope with a rapidly changing work environment.

... "In our view, we must have more union members in order to change the political climate that is undermining workers' rights in this country," said Teamsters President James P. Hoffa. "The AFL-CIO has chosen the opposite approach."

... In the current envivornment, "We've lost the ability to organize," Hoffa told reporters. "What we find is there is not enough effort going on...We believe we have the energy to go out and organize. There are unions in the AFL-CIO that are basically bound to the past, they're living off the past."

..."At a time when our corporate and conservative adversaries have created the most powerful anti-worker political machine in the history of our country, a divided movement hurts the hopes of working families for a better life," (AFL-CIO president John) Sweeney said in his keynote address.

And in this last paragraph we see one of the big problems with the attitude of those in big labor:  they blame corporations and conservative politicians for the problems.  The main "problem" is that the economic climate is much more competitive today than it was, say, 30 years ago.  And while that may be a bad thing for big labor, it's a good thing for people in general.  I'll have more to say about this issue in a later post.

The Nats

Harold Brazil, a former member of the DC city council, is angry, with good reason, that the rights to televise Washington Nationals games belong to Peter Angelos, owner of the Baltimore Orioles, and a direct competitor for the baseball fans' dollars in the DC area.

Angelos has the power to decide how many Nats games to televise and to whom, and he is exercising this power by preventing Nats fans in Howard County and other areas between Washington and Baltimore from seeing Nationals games on TV.

But that is only part of the tangled web. Angelos created a regional sports network called the Mid Atlantic Sports Network to compete with the likes of ESPN and Comcast Sports Net. The problem is that he already has a deal with Comcast to broadcast the Orioles' games.

Comcast is the largest cable operator in the region, and it is critical that it carry the Nats' games. Comcast says that the Mid Atlantic Sports Network exists only because Angelos is in breach of his contract with Comcast and that it will not air his network. Angelos disagrees and says that the contract allows him to start his own sports network.

This dispute is now in the courts, leaving the rest of us stranded on base in the bottom of the ninth inning.

I disagree with his latter assessment.  It's more like being down 21-0 in the top of the second with two down and none on. 

Anyways, Angelos has the rights to the Nats broadcasts as part of a compensation deal reached between him and Major League Baseball for moving the Montreal Expos to DC during the offseason.  Since the Orioles drew from the DC area, Angelos had a case for compensation.  But the Major League front office gave him way too much.

Here's a riddle. 
What do you call the Washington Nationals with highly limited media revenue? 
Answer:  the Montreal Expos.

HT to the Emirates Economist