Market Power

The Popcorn Pricing Puzzle and a Popcorn Price Ceiling

An Israeli lawmaker has proposed to place a price ceiling on popcorn at the movies.  Via Chris Tozzo 

The relevant question that should be asked is "why does popcorn cost so much at the movies (and at sports stadiums for that matter) in the first place?"   Paul Walker offers a nice discussion of some of the theories that have been proposed for this seemingly simple but actually complicated pricing scheme.

Another relevant question is "how will movie houses respond?"  Will they increase ticket prices, offer fewer concessions, or something else?  There is theory and evidence in the sports economics literature that high concession prices are part of the reason why sports ticket prices are priced below what economists expect a profit-maximizing team to charge.  See here and here for examples.  This suggests that there is some funky bundling going on.

I've offered another possibility for why ticket prices are low in this Applied Economics article.

A Leading Indicator

Easter is a funky holiday because it jumps around the calendar.  But it always occurs on the same day.  Really.  It occurs on the first Sunday after the first full moon on or after the vernal equinox. 

But I don't have to even look at a calendar or watch the skies to know Easter is coming up because there's another indicator:  the telemarketers are calling each and every day starting at between 9 and 10 o'clock. 

A Broken Windows Fallacy Video

Why aren't natural disasters and terror attacks a good thing for the economy?  No.  Resources that are used to fix what gets destroyed would have been used in alternative ways.  That's the basic premise behind the broken windows fallacy which is nicely described in this video (via Cafe Hayek).

The same criticism can be given regarding sports subsidies.  The money used to subsidize sports, whether they be stadium construction subsidies, infrastructure subsidies, or operational subsidies, has to either come from taxes or borrowed.  While the subsidies encourage economic activity, taxes discourage economic activity, offsetting any effect a subsidy would have.  Borrowing to finance subsidies crowds out other investment activities, another offset.

"An Open Letter to Authors on Peer Reviewing"

Authors... please heed Dr. Haab's advice. 

A Whopper of a (Proposed) Alcohol Tax Increase

From the Sonoma Valley Sun:

A measure that would raise the excise tax on a 750 ml bottle of wine from 4 cents to $5.11 has been cleared for circulation by the Secretary of State. Proponents can begin collecting the 433,971 signatures needed to put the initiative on the November ballot.

The measure would push the tax on a six-pack of beer from 11¢ to $6.08, and raise the total tax on a 750 ml bottle of distilled spirits from 65 cents to $17.57.

The wine country in California is already hurting as I described in this recent post.  This, if it passes, isn't going to help that industry recover.

Via Craig Depken who correctly thinks this will drive more people to make their own at home since the ingredients are probably subject to a typical sales tax.  Moreover, for those, like me, who have made the requisite investment in homebrewing equipment and who have climbed the learning curve, it's already cheaper* to make their own beer.  A tax like this only makes homebrewing even cheaper in relative terms.  So what's next, a big excise tax on beer and wine ingredients too?  If so, that would mean a hefty tax on things like honey, oatmeal, and coffee which are common ingredients in some craft brews and also on wine ingredients like grapes.

*The ingredients for a typical batch of yielding two cases of craft brewed beer costs me about $25 - $30 for ingredients after tax and about 5-6 hours of my time spread over two or so weeks.  But like I said, I've already made the equipment investment and climbed the learning curve.

That 1930's Show?

Cal State Hayward Economics professor Tony Lima at his gonzoecon blog (which I've bookmarked):

By 1935, the U.S. economy was on the road to recovery from the Great Depression (1930 – 1940).  But two forces kicked the upturn off the track.  First, the Supreme Court declared many of President Roosevelt’s programs unconstitutional.  While a number were reconstituted, the National Recovery Administration (NRA, no relation) remained dead.  Second, after 1936 the only new law enacted left standing was the Fair Labor Standards Act, setting maximum working hours and minimum wages.

Not surprisingly, that intervention in labor markets led to a second dip for the economy.  In order to defeat the Conservative Coalition, President Roosevelt moved to the left and accommodated the unions.  The result was four more years of the Great Depression.

Fast forward to 1966.  President Lyndon Johnson decides to fight two wars at the same time: Vietnam and the War on Poverty.  Since Vietnam was politically unpopular he decided not to raise taxes to pay for these ventures.  According to legend, his economic advisers told him those policies would wreck the economy.  Johnson’s reply: “To hell with the economy.”  Result: the beginnings of the inflation and unemployment that plagued the 1970s.

So here we are 45 years later.  The economy is in a deep recession.  If we’ve learned one thing since John Maynard Keynes published The General Theory of Employment, Interest, and Money (1936) it’s this: don’t raise taxes during a recession.

Yet that’s exactly what the recently-passed health care bill does.  To support the accounting fiction that the government budget deficit will be reduced, many of the taxes and fees begin during the next two years. The majority of benefits don’t kick in until 2014.  Is this yet another instance of presidential ego trumping sound economic policy?

Craig Newmark, meanwhile, has a list of lots of coming or proposed taxes and "phantom taxes."

It shouldn't take formal training in economics to realize that raising taxes discourages economic activity, something we should be very wary of doing when an economy is on shaky ground to begin with.

When Demand Decreases, Prices Fall

There's nothing earth-shattering to see, but here's another textbook example of what happens when the demand for a product falls.

After another year of depressing compact disc sales, the world's largest recording conglomerate is dropping suggested retail prices for most new releases to under $10, but some skeptics say it's too little, too late.

Beginning April 1, Universal Music Group will launch a program called "Velocity," which recommends reducing profit margins on albums from artists like U2, Lady GaGa and Kanye West to 25 percent, down from 35 percent, in an attempt to revive struggling CD sales.

"How Google's Algorithm Rules the Web" - How to Solve the Boiling Puppy Problem

I have a BlackBerry Curve with Google installed.  One of the cool aspects of this search program is that it allows me to search by voice.  I speak into the phone while holding the send button, and Google chews on what I said and, hopefully, gives me the right results.  The first time I tried it, I searched for "Blaine Gabbert", the current quarterback for the Missouri Tigers.  Sure enough, I got the right results back.

Recently, feeling a bit saucy, I thought I'd try and trip up the program by searching for my wife.  My wife is a pharmacist and has a doctor of pharmacy degree, aka a "pharm d."  So I said her name and "pharm d" into the speaker and thought "I've got you now, smart guy."

Phil = FAIL.  Google = WIN.  It got the words correct.  How cool is that?

Want to know how Google has solved problems like this?  By employing lots of really, really smart people, by making mistakes and learning from them, and by not giving into the fact that it operates in a very competitive environment, despite having a 65% market share.  Here's the story of Google's algorithm (via Craig Newmark).  Here's an excerpt.

Take, for instance, the way Google’s engine learns which words are synonyms. “We discovered a nifty thing very early on,” Singhal says. “People change words in their queries. So someone would say, ‘pictures of dogs,’ and then they’d say, ‘pictures of puppies.’ So that told us that maybe ‘dogs’ and ‘puppies’ were interchangeable. We also learned that when you boil water, it’s hot water. We were relearning semantics from humans, and that was a great advance.”

But there were obstacles. Google’s synonym system understood that a dog was similar to a puppy and that boiling water was hot. But it also concluded that a hot dog was the same as a boiling puppy. The problem was fixed in late 2002 by a breakthrough based on philosopher Ludwig Wittgenstein’s theories about how words are defined by context. As Google crawled and archived billions of documents and Web pages, it analyzed what words were close to each other. “Hot dog” would be found in searches that also contained “bread” and “mustard” and “baseball games” — not poached pooches. That helped the algorithm understand what “hot dog” — and millions of other terms — meant. “Today, if you type ‘Gandhi bio,’ we know that bio means biography,” Singhal says. “And if you type ‘bio warfare,’ it means biological.”

Because Men Don't Have Breeding Plumage

This is completely unsurprising:

The presence of an attractive woman elevates testosterone levels and physical risk taking in young men, according to a recent study in the inaugural issue of Social Psychological and Personality Science (published by SAGE).

Economic Impact Statement Suppressed by Government that Commissioned It

Economic impact statements accompanying requests for sports subsidies are little more than public relations documents.   Commissioned and paid for by subsidy proponents, the authors of these studies make a-priori assumptions about spending patterns and multiplier effects to generate the numbers for their reports.  But independent economists, using historical data, have repeatedly shown these reports overstate the economic net benefits.  If there's a consensus among sports economists, it's that the construction of sports stadiums is not a catalyst for macroeconomic development.

Rob MacDonald at The Sports Economist has come across an unusual economic impact statement produced by a hired gun of the Australian government.  Unlike most reports commissioned by subsidy proponents, this one surprisingly acknowledges the findings of legions of sports economists. Less surprising are the facts that a. not only was the document commissioned one year after $45.6 billion in government subsidies were given for the World Cup but also b. the statement apparently has been suppressed by those who commissioned it.  From the Sydney Morning Herald.

But despite spending $180,000 on the consultancy contract with Access Economics, the Department of Resources, Energy and Tourism is yet to release its report following intervention by the Department of the Prime Minister and Cabinet.

The report is believed to recommend a series of rigorous principles which governments should use to evaluate the costs and benefits of hosting major events and to include an analysis of the World Cup.

It is believed to argue that claims by proponents that countries which hosted such events would secure massive economic benefits often did not stand up to scrutiny.

The report says these claims often overstated or double-counted the benefits while also failing to take into account the full costs of staging the event.

In the case of the World Cup, it identifies building stadiums, improving public transport and providing security as significant costs mounting into several billions of dollars.

Rob notes that Access Economics has a very good reputation for the work that they produce and if this report is any indication, I can see why.  The authors of the report should be commended for acknowledging the research of independent economists.  The government for not releasing the report?  Not so much.