Market Power

Economic Masochism: It Hurts So Good

What's wrong with a little economic masochism?

During the run-up to the Christmas season, Olevia sold LCD high-definition television sets for less than their average costs and probably less than the marginal costs of producing them. From the NYTimes:

<snip>On the day after Thanksgiving, Mr. Sollitto, the chairman and chief executive of Syntax-Brillian, had 32-inch Olevia liquid-crystal display TV sets selling at Circuit City for $475, almost half its regular price.

This is an excellent example of promotional, not predatory, pricing.

Meaning, of course, that the firm willingly accepts a lower price to get the name of the brand out.  Students of economics will readily note that this type of promotional cost is an opportunity cost, not an explicit cost.

<snip>This cannot possibly be predatory pricing. Even if Olevia were to drive other producers out of the market, they would not be able to raise the price to monopoly levels to extract supra-normal profits because the high prices would attract entry from large, well-established firms with deep purses who could withstand a price war much more easily than Olevia.

So, as a consumer, all I can say is, "Hurt me some more."

I couldn't have said it better.  Predatory pricing legislation are often said to be in place to help consumers in the long term.  But too often, laws against predatory pricing are in place to help special interests with deep pockets for politicians, not to help consumers.

Economic Impact Statements

The city of Mankato is getting a new hotel financed partly with public funding:

The Garden Inn, built with $1.64 million in direct city help, is expected to be completed in September.

The best line comes from the first paragraph of the article (emphasis mine).

After a year of modest increases to room revenues, area hotels are awaiting the opening of the first downtown hotel in decades while the 15 restaurants that allow smoking have only four months left on their exemptions from the local ban.

I guess we really needed it.  Of course no private investor was willing to front his/her own money to place a new hotel downtown for decades, which makes me wonder what politicians (people no smarter than your average person but with bad incentives (see this)) playing with other people's money know that private investors don't.

So far, four conventions bound for the Civic Center in 2007 or 2008 are using Garden Inn rooms. Together, they will have an estimated economic impact of nearly $600,000, according to the CVB.

Is this a marginal impact?  In other words, would these conventions not have come without the Garden Inn and did these conventions push any other conventions out of the picture? 

Even though the horse is gone and it's kind of late to close the door, the experience of Washington DC should be noted:

Nearly four years ago, city officials opened the $850 million Washington Convention Center with a string of superlatives. The largest publicly financed project ever built in the city, they said, would attract more than a million visitors a year, fill hotels and set off an economic boom.

Instead, convention attendance is dropping, the surrounding neighborhood is yet to be transformed by the promised new development, and conventioneers are filling fewer hotel rooms than expected.

And what about the economic impact of WashDC's center (emphasis mine)?

To pay for the center, the city raised its tax rate for all hotel rooms and restaurant meals. It is hard to measure how much of the promised $1.4 billion boost to the local economy has occurred, and convention center supporters no longer cite the regional economic impact figure because they admit it is nearly impossible to track.

When they need the money they flaunt you around like the school supermodel.  But once they got the cash: See ya!  Wouldn't wanna be ya!  Man, talk about being used!  But am I surprised?  Non! 

Kip has some good thoughts here about the DC experience.

Everybody Panic!

There's nothing like a little sensationalism to direct your attention towards a headline.

Thousands could die if a giant tornado ever hits Houston
  Experts say toll might surpass the 8,000 of the Galveston Hurricane of 1900

The worst-case scenario for a large tornado striking Houston makes a hurricane look like high surf.

Spinning at 225 mph, the tornado touches down in southwest Houston, skirting the Astrodome and barreling through parts of River Oaks, Montrose and the Heights before exiting the city's northeast edge.

At the end of its run, the tornado will have killed as many as 23,700 people whose residences and business cannot withstand the deadly wind.

The response by the submitter at Fark is beautiful:

Well, if the Earth is swallowed by a huge demon goat, everyone will die.

To be fair, the various folks interviewed correctly note the low chance that such a tornado would occur.

Markets in Everything: Fetish Restaurants

Even though the duo at MR (and the duo at Car Talk) cringe when I use their slogan (and saying), here's a candidate for "markets in everything:"  fetish restaurants.

Named after a manga comic book and a short-lived '90s TV show about six Japanese "office ladies," Shomuni features an all-you-can-eat, all-you-can-drink menu served by 15 costumed waitresses who start off dressed like receptionists and end up handcuffing patrons to their tables in sexy police uniforms.

Shomuni is the latest addition to a growing number of fetish restaurants sprouting up around Tokyo.

HT to Fark.

Minnesota Senate Tackles Scalping

This bill won't make it to King's list of silly bills:  student Brian Rude notified me that the Minnesota senate has passed a bill to legalize scalping.  A little blurb from the article:

Legalization "would probably hurt my business, but it's a stupid law and it should be changed," said Tom, a Westbrook, Minn., resident who has earned both a living and a criminal record in 10 years as a scalper.

...Repeal of the law may only increase the dominance of Internet sites such as eBay in brokering tickets, Tom said.

Reselling tickets is already legal in all but about a dozen states, Gerlach said, adding that he expects the prices that Minnesota fans pay middlemen for tickets would decline with legalization.

In neighboring Wisconsin, decriminalization has spawned a vibrant legal ticket brokerage industry that pays taxes instead of court fines, Gerlach said.

Legalization also directs tickets to those who value them the most.  But what was the driving force for those who voted in favor of the bill:  the efficiency of such a market or the potential for increased tax revenues?

Addendum:  King has a great story.

My favorite is the purchase of a $75 seat cushion in front of Fenway, onto which two field box tickets were taped, because scalping in Massachusetts was illegal.

The Market for Human Eggs

Approximately two weeks ago, we discussed the US market for human organs in my Principles of Microeconomics course.  Here in the US, human organs cannot legally be sold, only donated.  Today's Houston Chronicle has an article on the market for human eggs, an article which describes many of the same concerns people have with the legal selling of human eggs and similar tradeoffs.  A snippet:

"Egg Donors Wanted" ads are common on the Internet, in college newspapers and on city trains. And with no federal laws limiting donor fees — and fertility doctors conceding the difficulties of policing their own industry — one ethicist says that eggs have quickly become "commoditized."

"It does feel a little more like the Wild West than it ought to," says Dr. Jeffrey Kahn, director of the University of Minnesota Center for Bioethics. And he only sees the problem growing as states such as California move closer to funding major stem-cell research, requiring more donor eggs.

"We worry that we offer people so much money that they are blind to the risk and their motivation is strictly the money," Kahn says.

That's the very reason, he notes, that it is illegal to sell an organ, such as a kidney, for donation. "So I'm not comfortable saying we should start that with human eggs," he says.

As usual, there are tradeoffs associated with banning voluntary exchanges such as this.

Kristin McKenna, a 25-year-old project manager at a marketing company in suburban Atlanta, donated eggs to help build her savings.

"It does feel weird to know there's a child out there," says McKenna, who's signed up to donate again. "But I'm just a small piece of the puzzle.

"If those two people (who got her eggs) weren't there wanting a child, that child would not exist."

In the market for human organs, shortages exist and a key reason is that the market price in the US has been effectively set at zero.  This results in patient deaths that otherwise would not have occurred and organs that otherwise would not have gone to waste.

Update:  Lynne at Knowledge Problem has a hopeful suggestion:

If we can do this for human eggs, why not for kidneys?

Congratulations to JC Bradbury

What a year this is shaping up to be for JC Bradbury.  His first book comes out in a month and he and his wife has just had their second daughter.  Congratulations, JC (and welcome to little Sarah)!

Not Playing to Win

From the "not playing to win" folder:

In his flu-ravaged team’s last home dual before the Big 12 Championships, Missouri wrestling Coach Brian Smith held out seven starters and wrestled only five matches in a 40-8 loss to 13th-ranked Tennessee-Chattanooga.

..."It wasn’t hard at all," Smith said of his decision to forfeit five matches. "I think it was silly to wrestle the dual. I tried to get the dual canceled."

Tennessee-Chattanooga Coach Chris Bono said Smith called him last week to see if he would be willing to call the match off. But travel arrangements had already been made and the Mocs (16-1) don’t have another competition until the Southern Conference Championships on March 3.

"Their staff made me well aware of the situation," Bono said. "We needed to make weight and wrestle, and I’m just happy he put five guys out there for us to do that."

It all sounds rather reasonable to me.

What I Think of Winter in February

The marginal utility of winter weather begins to become negative on, oh, about December 3rd.  So by mid February I am ready for winter to be over.  I ran across the following picture at Tigerboard that pretty much sums up my feelings.

This snow structure was obviously made by one of Doc's students.

Policy Guy Blogs

Policy Guy (i.e. John LaPlante) notes that the Policy Guy Blog is going into retirement.  But don't fret none.  There's plenty of other places to read his writings.  Here's John's posts at the Detroit News.  Here's some more at the State Policy Blog.  Then there's Grays on Trays. 

Obviously John is not going into retirement, just the Policy Guy Blog.