Market Power

A La Carte Cable

From USA Today:

In a sharp reversal, the chairman of the Federal Communications Commission said Tuesday that the agency now thinks cable companies should stop forcing people to subscribe to bundles of channels and give them the option of choosing individual channels.

Kevin Martin, FCC chairman since March 16, asserted that a la carte pricing could both allow parents to block offensive programming and lower their surging cable bills. His stance might push Congress to require cable and satellite companies to offer the option.

I'm all in favor of letting the customer choose what channels to watch.  At my house, our TV is tuned to one of the following:  ESPN,  Comedy Central,  History Channel, PBS Kids, Boomerang, Fox Sports Midwest, Fox Sports Rocky Mountain, VH1 Classic, or Noggin.  During the baseball season, I can often be found doing something around the house with WGN on showing a Cubs game.  We do watch other channels, but these are the basics we watch.

Not being a cable customer (I'm a proud renter of DSS systems), I must ask the following: why isn't the ala carte option already out there?

On a side note:  a year or so ago, I actually had a young man from the local cable monopoly stop at my house and try to sell me cable service.  He was traversing the neighborhood and saw I had a DSS dish at my house.  He stopped by and gave me a flyer that read "I see you have DSS disease."   I proudly told him "no, thank you."

Arbitrator Exchangeability

A common way to choose arbitrators is where the disputants have a list of arbitrators and each side takes turns striking names of perceptibly-biased arbitrators from the list.  Since arbitrators can earn good incomes in hearing cases, they have an incentive to appear not to be biased - i.e. to be virtually exchangeable for one another.  In a nutshell, this is Orley Ashenfelter's "arbitrator exchangeability hypothesis."

In some particular rulings, you are damned if you do/damned if you don't.  Is the recent ruling by arbitrator Richard Bloch in the Terrell Owens dispute that I blogged about here a case in point?

Arbitrator Richard Bloch wrote in his 38-page decision that there was "no violation of the labor agreement inherent in the club's decision to pay Mr. Owens but not to permit him to play or practice due to the nature of his conduct and its destructive and continuing threat to the team."

After the ruling, the Eagles released a one-paragraph statement thanking Bloch for considering the matter and saying Philadelphia is looking forward to "moving on with our preparations for Sunday's game vs. Green Bay and the rest of the 2005 season and will have no further comment on this issue."

As I noted in my previous post, this issue involved a gray area in the NFL collective bargaining agreement that was open to interpretation. Article VIII of the NFL collective bargaining agreement clearly says that a player who acts in a manner detrimental to the team can be punished with a suspension without pay for a period of no more than 4 games.  Bloch agreed with the Eagles that they can also decide deactivate him - not to play him again while still paying him - a call the NFLPA did not agree with.  One thing's for sure.  Bloch probably won't be arbitrating any more cases between the NFL and the NFLPA.

The players association was so incensed, however, that executive director Gene Upshaw said he would have Bloch removed from the list of approved arbitrators next month when the union and management are given that option.

"He piled on," Upshaw said. "He went beyond what we have in the agreement."

Here is the text of Bloch's decision.  In it he details, among other things, Owens' disatisfaction with his contract situtation and Owens' plans to be disruptive to the team as well as the repeated warnings from Eagles coach Andy Reid that such behavior will not be tolerated.  Perhaps I missed something, but I don't see how Bloch, based on the evidence presented in his decision (evidence which is consistent with what I have casually observed since the summer), could have ruled any other way.  Had Bloch tried to, for some reason, appear "exchangeable" by ruling in favor of TO, he may not have been arbitrating many cases period, let alone in the NFL.

University High

In the name of amateurism, players competing in the so-called money sports in collegiate athletics - football and men's basketball - generate value that far-exceeds the amount by which he's compensated.  This gulf creates all kinds of problems, one of which is the fact that some high-level athletes do not have the requisite academic skills to succeed in the college classrom.  How do some of these athletes qualify?  Well, as the folks at MR would say, there's markets in everything.

The New York Times (reg. req'd) gives the skinny on University High in Miami, Fl.

By the end of his junior year at Miami Killian High School, Demetrice Morley flashed the speed, size and talent of a top college football prospect. His classroom performance, however, failed to match his athletic skills.

He received three F's that year and had a 2.09 grade point average in his core courses, giving him little hope of qualifying for a scholarship under National Collegiate Athletic Association guidelines.

In December of his senior year, Morley led Killian to the 2004 state title while taking a full course load. He also took seven courses at University High School, a local correspondence school, scoring all A's and B's. He graduated that December, not from Killian but from University High. His grade point average in his core courses was 2.75, precisely what he wound up needing to qualify for a scholarship.

Morley, now a freshman defensive back for the University of Tennessee, was one of at least 28 athletes who polished their grades at University High in the last two years.

The New York Times identified 14 who had signed with 11 Division I football programs: Auburn, Central Florida, Colorado State, Florida, Florida State, Florida International, Rutgers, South Carolina State, South Florida, Tennessee and Temple.

The school's program illustrates that even as the N.C.A.A. presses for academic reforms, its loopholes are quickly recognized and exploited.

The way to stop this nonsense is to give the players a stipend that is commensurate with what they generate in terms of value for their schools.  As long as the gulf between pay and the value generated continues, you can be sure that any and all loopholes in the NCAA rulebook will be "quickly recognized and exploited."

King at SCSU Scholars (and cross-posted at The Sports Economist) has more here.

Antitrust Violation?

Senator Arlen Specter thinks that the Eagles might have violated antitrust laws in their handling of the Terrell Owens case.

We're One-at-a-Timin' Here?

Co-blogger Skip Sauer at The Sports Economist has some thoughts on the recent announcement that the Florida Marlins have been given permission to seek to relocate:

The raid on local taxpayers continues. If I were a city in search of a team, I might inquire whether more than one team at a time gets such "permission." If the policy is one at a time, can there be any explanation other than wilful and deliberate exploitation of monopoly power?

Well, the Twins still are trying to get public money for a new stadium.  But do we really expect Bud Selig et al to let cities play the Twins and the Marlins off against one another?

Paying a Fee to Smoke at Work

A recent Des Moines Register article alerts us to a situation where employers are requiring employees who smoke to pay insurance surcharges:

Employers straining to hold down soaring health care costs have turned to more aggressive tactics, such as penalizing workers who smoke.

A few employers — including Northwest Airlines, Northwestern Mutual Life Insurance Co. and the state of Georgia — have started levying surcharges for employees who smoke. Gannett Inc., which publishes The Des Moines Register and has 1,150 employees in Iowa, will add a $50 monthly surcharge starting in January for smokers who use its insurance plans.

One consultant designed surcharges for the wrong reasons:

"As health care costs continue to increase, these are going to be huge issues," said Jennifer Browne, president of Benefit Source Inc. Her West Des Moines company works with employers on health care plans, and she said she tries to design incentives to nudge their staffs toward healthier lifestyles.

In a sense, this is admirable, but should employers make smokers pay a surcharge because the employer knows what's best for the employee?  My response is "no, not for this reason."  Instead, a better rationale is to make smokers pay a surcharge because smokers are more-likely to use health care services and the employer is going to be more likely to have to pay insurance claims for smoking employees.  In other words, it costs more at the margin to provide insurance to them.

Some have fears that others with risky "behavior" will pay more:

"What about people who eat 15 Hershey bars a day? Are you going to go after them?" asked Skip Lowe of West Des Moines benefits consulting firm Bernie Lowe Associates Inc.

Since obese folk are more likely to need to use medical services, they become more risky to provide insurance to and in a non-group insurance setting, that person will pay a higher premium.  That's what happens with things like, say, auto insurance.  When a 17 year old boy buys auto insurance, it's going to cost him more to get it than it will cost, say, a 35 year old father of 2 because the 17 year-old is more likely to be involved in an accident.

One of the problems with widespread group insurance is that it puts upward pressure on the prices of various medical products and services.  My favorite analogy :  going to a restaurant with a group of people and deciding beforehand that everyone will evenly split the check.  More often than not, that group will end up spending more than it would had each person been responsible for his/her own check.  Given enough groups that do this sort of thing, we'd see upward pressures on the prices of restaurant meals.  With group health care, the costs of medical care are shared by the employers and the employee and given that different employees pay the same copays for office visits and medicines, we end up with the "Shared Restaurant Bill Effect."

The key to designing an efficient health insurance program is to have employees share more of the expected cost of health care provision with their insurance provider (their employer) and less with their fellow employees, and this means charging different insurance premiums to different employees based on some observable qualities (smoking, obesity, age) that are related to the likelihood a person will use health care.

Here is a previous post on another more-drastic step taken by another employer to curb its health insurance costs.

Wal Mart Stuff

Harold Jenkins has some thoughts in this recent Wall Street Journal column about why a new Wal-Mart in some region may drive down the average wages of workers.

...It's easy to believe, as claimed by one study last week, that when Wal-Mart opens a new supercenter in a county, the average retail wage in that county falls. That's the effect of Wal-Mart taking out traditional unionized supermarket jobs. And not just Wal-Mart. The unionized grocery sector is under siege from a host of new competitors: Whole Foods, Costco, Dollar General, SuperTarget, as well as classic supermarket chains like Save-a-Lot and Harris-Teeter. All are non-union. Even Sears is adding groceries because it sees an opportunity.

In most industries, unionized jobs pay better than non-unionized jobs.  Believe it or not, there are some occupation al groups where union jobs, excluding all benefits but the size of the paycheck, pay less than non-union jobs, at least on average.  "Computer and mathematical occupations" is one occupational group.  Finance and Insurance occupations are another.  But retail trade is not one of those occupational groups.

When unionization leads the employer to provide less value at the margin to its customers, this opens the doors to entrepreneurs to enter the market and compete.  For example, unionization can lead to more bureaucracy at the firm which could, in turn, make the firm less fluid when it comes to customer service.  It's not only happening in retail but it's also happening in the airline industry with employers such as Northwest Airlines and the auto industry with employers such as GM who are heavily unionized.

More on The Bloch Arbitration Ruling

The big issue in the recent arbitration ruling by Richard Bloch involving Terrell Owens' suspension and subsequent deactivation by the Philadelphia Eagles involved not whether the coach could choose who to play but that he could choose who to practice.  The Eagles contended that the coach should have this discretion.  The Owens' side said that the coach did not have this discretion.  Here is a part of Bloch's written ruling (Italicized emphases are Bloch's.  Bold, italicized emphases are Phil's):

The events of this highly unique case reveal a potential tension between the bargained disciplinary constraints of Article VIII, on the one hand, and the important managerial prerogatives reserved to the coach and to the club, on the other. In considering the Coach's decision to keep Terrell Owens away from the team, the attempt must be to assess the limits of the respective boundaries. If the maximum penalty provisions of Article VIII are to have meaning, it follows that a club cannot expand or extend them merely by crying "coach's discretion." Thus, for example, one who fails to promptly report an injury to the team physician or trainer ($200.00 maximum fine under VIII(I)(a)) should not be suspended for the same misconduct under the claimed shelter of coaching prerogative. At the same time, one may not claim that mere professional disadvantage to a player withheld from play or practice is necessarily disciplinary action as contemplated under Article VIII. Recognizing there may be situations that touch both the disciplinary and the discretionary arenas, what counts are the precise circumstances at issue.

The Association concedes the coach has the final say as to who actually plays the game, at least on a week-to-week basis. It claims, however, that this same discretion cannot extend to questions of who practices and otherwise participates off-field. The coach may bench the player, says the Association, but he can't send him home. The "practice/play" distinction, if there be one, is particularly important in this case where, uniquely, the Player's on-field performance has been superb, and is not at issue. The Club's concern is focused, instead, on his articulated intent to engender disruption and dissent off the field. May a coach consider these factors in deciding how to form and field a team? The answer must be "yes". It cannot be that a coach's discretion is limited to Sundays. Surely, the coaching elements of team management take place not only in the games, but in the weeks preparing for them. None of the parties to this relationship, it is fair to say, envisioned the prospect of an arbitrator reviewing a coach's decisions as to, for example, how many reps a player should take in practice, the particular squad to which he should be assigned or, indeed, whether he should practice at all. Nothing in the CBA or in the Player's individual contract requires a contrary conclusion. Concededly, a coach's decision to preclude both practice and play will disadvantage a player, arguably more so than merely riding the bench. This, and the potential overlap between the discretionary and the disciplinary elements of this CBA, is why careful scrutiny is required of all relevant facts of a given case.

This case, then, is about the challenge faced by this team, dealing with this player in these particular circumstances. Mr. Owens and his agent threatened a campaign of disruption and implemented it through repeated acts, large and small, of disrespect, dissent and insubordination, culminating with a well-publicized verbal assault on the team and on the quarterback. The Coach could properly conclude that, however excellent Owens' performance was on the field, his off-field conduct and demeanor were seriously devitalizing the organization. Moreover, and this is important, there was ample reason for the Coach to conclude, in November, that the problem was by no means resolved. At the moment of his being warned of the impending discipline, Mr. Owens was, after all, willing to "sit" rather than attempt to work things out with the team. Indeed, even at the arbitration hearing, the Player made it abundantly clear that his contract issue -- the one that inspired his marked change in attitude during the current season- - was still alive. And, he made it clear, as well, that his view of his obligations to co-exist as a teammate had not changed: In his view, for example, speaking to his quarterback was still not necessary.

Significantly, this is not a case of a coach or a team responding to a discrete event by extending otherwise contractually limited disciplinary sanctions. Involved here was not simply past bad behavior but a current and ongoing threat of continued disruption. This was not merely a question of dealing with the Player's misconduct, a matter to which traditional concepts of discipline are applicable, as discussed earlier in this opinion. The Coach and the Club were faced with far broader issues, given the clear disruption that had occurred: Team unity, cohesiveness and morale are all elements that rest squarely within the wide range of concerns to which a coach is expected to respond.

The Association argues that, to the extent the Coach wished to keep the Player from the fields or the locker room, he should have released him. It is a mark of the highly unusual nature of this case that this should be regarded not only as not disciplinary, but as the desired goal of the Player and his representatives. More to the point, while releasing the Player is an available option, it is not a mandatory one.

In summary, there is ample room to find that the Club could respond to this Player's actions, suspending him without pay to the limits permitted by the collective bargaining agreement for his behavior in this matter. Thereafter, the Coach properly exercised his inherent discretion to conclude that, on balance, the team would be better protected and better off by practicing and fielding a team that did not include Mr. Owens. The problem -- a continuing one -- was almost entirely off-field, and the response properly dealt with that reality.

Both responses, the disciplinary and the discretionary, were specifically understood by these parties and fully countenanced as part of this collective bargaining relationship. The disciplinary side of the equation is expressly established in Article VIII. The non-disciplinary response is part of the core and character of a coach's discretion; significantly, but predictably, it is nowhere constrained by the CBA.

The finding, therefore, is that the Club has shouldered its burden of providing clear and convincing evidence of the Player's misconduct and, moreover, that the four-week suspension was for just cause. Additionally, there was no violation of the labor agreement inherent in the Club's decision to pay Mr. Owens, but not to permit him to play or practice, due to the nature of his conduct and its destructive and continuing threat to the team.

From this, it sounds as if Owens and his agent (and the players' association) would have been happy with Owens being released.  That way, he'd possibly (probably?) join another team and would have continued to play and practice in addition to being able to get a contract (possibly) more to his liking.  But in being deactivated by the Eagles, he won't be able to practice, play, or negotiate a new contract with a new team.   He'll have to work out on his own and wait until the offseason to negotiate with a new team.

We know that Owens is a great player and a difference-maker on the field.  There's no doubt about that.  But how will this episode affect him financially for the remainder of his NFL career? 

Coaching, Compensating Differences, and the Little Apple

For obvious reasons, Manhattan, Kansas is referred to as "The Little Apple."  From 1988 to 2005, arguably one of the best college coaches in the history of the game, Bill Snyder, brought national prominence to a horrible program, the Kansas State Wildcats.  Why would Snyder, who once could have almost picked to coach anywhere, choose to coach in Manhattan, KS?  I think a good portion of this can be explained by compensating differences - a term used by labor economists for a positive job characteristic that compensates a worker for a low salary.  Jason Whitlock sheds some light.

The national media might be reluctant to cast Snyder in his proper light. Snyder never cooperated with the media. He never let anyone in the media get too close. We had to enjoy his brilliance from afar.

Snyder had the reputation as a control freak and I imagine he probably got more distaste from media-member-prying than the average coach.  Imagine how his life (from his perspective) would have been if he had coached in, say, The Ohio State University or at Texas,  where there is much more media scrutiny of the football program.  I don't think its a stretch to say that Snyder willingly gave up some of the spotlight (and a higher salary) to avoid some of that media scrutiny.

See The Mountains!

Can't make it to the Rocky Mountains?  But you'd like to see what things look like?  Check out the Tundra Cam.