Emerald City Mayhem

You might remember this from a few years ago. At the time, I brushed it off a bit. Consumer fraud happens from time to time, and quite frankly if you're not getting soused in the parking lot pre-game and then smuggling in a flask, you're not appreciating the sport the way God intended.

This morning, I revisited my brush-off. The NFL and its subsidiaries have something of a reputation for being fiercely protective of the goodwill in their intellectual property. Cheerleaders' handbooks are notorious for their meticulous attention to minutiae, down to extremely basic intimate personal hygiene issues. Deflategate was HUGE news, penetrating even my stubborn indifference to pro sports. Hell, the Greatest Deliberative Body in the World™ has been known to directly intervene into the professional sports industries. It seems as if fraud or negligence of this sort should be all but impossible. Risking the alienation of customers over concessions is simply bad business. Recall that the absurdly high prices of refreshments at places like cinemas and sporting events are a way for firms to allow customers to voluntarily reveal whether they are marginal or inframarginal customers: everyone pays the basic tariff (adjusted for the quality of the seating) and then retains the option of paying extra for the convenience of gorging on stearic acid and simple carbohydrates for the duration. I suppose that the above video is merely an extension of the underlying economic logic. Inframarginal customers are less likely to bother checking whether or not their already wildly overpriced vaguely beerlike piss-swill sizes are sufficiently different to justify the surcharge. After all, if you were prudent with your finances, you wouldn't buy yak squeezins at... hang on, let me check... CenturyLink Field (when last I lived there, Seahawks Stadium was called Qwest Field (ugh)).

So, no individual patron of interest has much incentive to bother doing a beer size QA check. They're primarily there to watch the Hawks get embarrassed yet again. But repeat small probability events enough times, and the above video becomes a near certainty. You can't fool all the people all the time. By backwards induction, you shouldn't even try.

I'm a bit puzzled then. Is my model of the NFL misaligned? Can the Hawks' concession service really be that obtuse? Why is the NFL so incredibly uptight about propriety elsewhere but they let crap like this slide? What am I missing?

Prices are Information, Mass Grave Edition

There was recently a nasty, fatal heat wave in Karachi. Around 1600 low-income residents died thanks to an unfortunate confluence. Here's how one resident wrote of the tragedy at Cracked (ATSRTWT):

Morgues were faced with shortages of space, and with so many people dying so rapidly, the graveyards found themselves in a seller's market. But would they stoop so low as to gouge poor? Grieving people whose loved ones had died so tragically?

You know the answer to that already. You've seen reality TV. You know the world is a horrible place.

Taha says that a grave plot is often a bargain, sold for the equivalent of 15 USD. But like a morbid version of Uber, graveyards responded to the demand by jacking up their prices several times, all the way up to 150-500 USD. For many of the bereaved, 150 USD is an entire month's salary. With the demand for grave plots and their prices soaring, there was only one logical solution: communal graves. Over 500 mass graves were dug to handle the corpses, with some holding as many as 100 bodies.

 Burial space is scarce. And it has a very inelastic short-term supply. Much as you might like, conjuring new plots quickly is not easy. Luckily for the bereaved, cheaper alternative exist. That is, indeed, one of the functions of the price mechanism. Raising prices to more than a family can afford robs both buyer and seller of a potential transaction, so when it's done, it's done to coordinate competing claims. If I have only five open spots in my cemetery, but ten people come to bury their dead, what other choice do I have? I must turn five away. And yes, this means they'll need to find a potters' field, but I'm just as surprised as you are about this act of God.

Price gouging may seem venal and parasitic, but those high prices encourage people on both sides of the transaction to bring to bear their cleverness and their industry to solve human problems. Sometimes, it's how to bury the dead. Let's hope that for the next time, it includes bringing economic growth to the poor and desperate of Karachi. No one should have to die because they can't keep cool in the summer.

Big Bad Heteroskedasticity: Bezos vs Krugman vs Andreessen Edition.

Paul Krugman accuses Amazon of asserting monopsony power by pressuring publishers to reduce prices, likening Jeff Bezos to J.D. Rockefeller.

Does Amazon really have robber-baron-type market power? When it comes to books, definitely. Amazon overwhelmingly dominates online book sales, with a market share comparable to Standard Oil’s share of the refined oil market when it was broken up in 1911. Even if you look at total book sales, Amazon is by far the largest player.

The econ 101 explanation is in the following graf:

So far Amazon has not tried to exploit consumers. In fact, it has systematically kept prices low, to reinforce its dominance [that's one hypothesis, anyway -SLW]. What it has done, instead, is use its market power to put a squeeze on publishers, in effect driving down the prices it pays for books — hence the fight with Hachette. In economics jargon, Amazon is not, at least so far, acting like a monopolist, a dominant seller with the power to raise prices. Instead, it is acting as a monopsonist, a dominant buyer with the power to push prices down.

Amazon is a mancgere, a merchant that neither improves nor alters its wares, but rather offers the conveniences of transporting goods from seller to buyer with as little fuss as possible for buyers. By being the largest middleman, Amazon is (ostensibly) able to extract monopoly/monopsony rents on multiple margins. If you're a publisher, your BATNA is to try to get books out in tottering brick-n-mortar joints. If you're a reader, maybe you can look around for a pirated .pdf or something (hands up if there's a Barnes & Noble in a 20 minute drive of where you are right now, let alone the good ol' mom and pop book store).

What's more, their very size allows them the luxury of discriminating on multiple margins. Krugman identifies an editorial margin related to partisan politics and delivery times:

Last month the Times’s Bits blog documented the case of two Hachette books receiving very different treatment. One is Daniel Schulman’s “Sons of Wichita,” a profile of the Koch brothers; the other is “The Way Forward,” by Paul Ryan, who was Mitt Romney’s running mate and is chairman of the House Budget Committee. Both are listed as eligible for Amazon Prime, and for Mr. Ryan’s book Amazon offers the usual free two-day delivery. What about “Sons of Wichita”? As of Sunday, it “usually ships in 2 to 3 weeks.”

I'd add that you don't even have to reach that far. One of the unintended upshots of the fragmented local book markets is that micro-markets could thrive. As other-Sam notes, the content curation issue is extremely important. Book store owners anticipate customers' purchases, and stock the shelves accordingly. This sends production signals back to publishers to tell them the sort of talent they should be scouting. These days, the signals are chiefly coming from a single retailer. If this retailer is non-neutral, future content could be skewed. If this retailer rejects tail risks, future content could be leptokurtotic. Either one of these is unjust, especially for our descendants.

Krugman recommends swift government intervention. I do not. A wise and benevolent sovereign might remedy the content curation problem, but wise and benevolent sovereigns are sadly in short supply. An agency chartered with the sort of authority required to monitor the business operations of a bookseller of all things is, in other regimes, called a "censor." The question the careful analyst (and entrepreneur!) should ask is: "is there an alternate institutional arrangement that would solve the problems of content curation, monopsony coercion, & al without creating greater systematic risks?"

I think the answer is "yes." At the risk of being glib, consider an Uber of books; a bitcoin of books. Or of any non-durable consumer goods. Amazon provides a centralized service. They're so large because they're able to cheaply solve the very difficult problem of how to match buyers and sellers. This problem can be solved in an algorithm, perhaps on the blockchain. Warehousing and delivery are entirely separable from the core competency of Amazon.

Is Amazon euvoluntary? I guess the answer depends on what you want to compare it to.

See Marc Andreessen's commentary here.

h/t the ST Gang

Prices are Information, Bust-a-Wheel Edition

The GTM was in my neck of the woods over the weekend. Dame Fortuna decided to wreck a wheel on his horseless chariot. The WHEEL, not just the tire. Metal, not only rubber. So here he languishes in NoVA, eager to get back to NC, the opportunity cost of his time tick tick ticking away.

If you were him (and there's roughly a 1 in 200 chance that you are him), you'd probably be willing to pay a premium to get a new wheel shipped up and slapped on the axle post haste.

Alas, to an outside observer, that would be price gouging. GASP!

Like Locke's ship's captain, he's a-flounder, willing to pay more than the standard market price for a remedy. The seller would likewise likely respond to a cash incentive. And thanks to... something, he has to spend one more night away from Skippy Squirrelbane and the LMM.

But what exactly is the barrier? It can't be just price gouging legislation. Wink-wink nudge-nudge under-the-table payments have a way of unsticking unpopular statutes. It might well be that the vendor simply didn't want to go above and beyond the call of commerce, and the Commonwealth's regulations provide cover for a small bit of laziness.

Just a possibility.

This is your scarcity on price-gouging....

I did like the old "this is your brain on drugs" commercials.  Made me stop drinking coffee, and taking aspirin, out of fear.  OK, no it didn't.

Now, a lot of folks are showing how important it is to have thought about economics for more than 30 seconds before commenting on public policy.

Examples:

1.  This guy is mad that prices at hotels and resorts are higher when school is not in session.  Wow.  It seems he would prefer a price of infinity (all the rooms sold out, years in advance) to being able to rent a room at the beach.  The reason that hotels raise their rates is to ration the scarce resource.  There are not enough rooms when school is out, and there are too many rooms when school is in session.  You can't change that by regulating the price.  And if you try to force the price to be "fair," you will make the problem much worse.

2.  Had lunch with my friend and Duke colleague Timur Kuran yesterday.  He pointed out this little gem of a story.  There is a housing shortage in the area.  There are rent controls, or the prices would be much higher.  The solution to shortage is therefore...even tighter rent controls!  Wait....no.

3.  Most remarkably of all, it appears that some people want to apply anti-gouging laws to ice.  No, not the cold stuff I wrote about, which is at least necessary after a hurricane.  I mean "ice" in the colloquial sense, like when J-Lo said, "You think you gotta keep me iced; you don't!"  Jewelry price-gouging!  Thanks to Tofe for pointing out this "gem."  (See what I did there?  I may charge extra now...)

Oh Lord, Stuck in Conyers Again

Reports here and there of folks stuck in and around the Atlanta area thanks to inclement weather. In the first case, people end up spending the night in grocery stores. In the second, kids enjoy a sleepover at school.

I might be peering through rose-colored glasses, but neighbors helping neighbors is the finest expression of human cooperation we've got. A night spent snoozing on a Piggly Wiggly tile floor or in the gymnasium is better than freezing to death in the cold, but it's probably not as good as a warm bed in someone's house.

Even if you'd have to spend a couple of c-notes for the privilege.

One of the things that struck me about traveling in Europe was the proliferation of pensions: homeowners who (usually after retirement) would let out a room for travelers for the night. For those of you who've not done much backpacking abroad, they're a step lateral from a bed and breakfast—cozier than dedicated lodging, but typically cheaper and with higher quality variance. Also, they tend to be marginally (marginally!) unregulated, ceteris paribus.

The Atlanta snow.. what to call it... event probably qualifies as non-ergodic. Whether you pin it strictly on the weather or a concatenation of snowfall and a poor municipal response, Atlanta residents were caught with the pants further down than they usually are.

Here, our troublesome counterfactual problem once again rears its slovenly visage. What's actually blocking folks from selling rooms to stranded travelers? Price gouging statutes are popular when put to a vote, suggesting to me that an entrepreneurial effort that would enjoin folks to renting out a spare bedroom to a waylaid wayfarer would be far from peachy under the harsh light of day. Another way, it's not the scribbled-down statute law that keeps people from opening their doors to strangers in return for a modest profit, but rather the underlying moral intuition that supports both price-gouging legislation and the urge to cheer when the cops dump the yahoos' ice on the ground in Raleigh.

Tender sentiment against taking advantage of folks' situation can easily strand those unfortunates to hardscrapple attempts at sleeping on hard tile floors (or worse).

Cleanup on aisle 3.

Application Charges Depend on Wealth?

So, Mars One is accepting applications.  This one was amusing.  Anything that starts with a blonde woman saying "Hello, Earth!" has my vote.



But here's interesting part for Euvoluntarists.  They (Mars One, not blonde women) are charging different application fees, based on the average wealth of the country from which you are applying. 

Question:  If it is unjust to RAISE your price for someone who is desperate, is it just to DISCOUNT your price for someone who is poor?  If, as Locke claimed, "Justice has but one measure for all men," then these discounts are unjust, discriminating against the rich.  Right?

Nod to Benjamin R., who saw the problem.

UPDATE:  I call on The Peej to apply, as soon as possible. I will kick in for the extortionate rich country app fee.
UPDATE 2:  Too late to apply, at least for the first mission.  Darn!

Chipotle Round Up!

Pennies are dumb.  Giving change in pennies is pretty useless.

So, Chipotle (that froo-froo burrito place Sam Wilson eats at every day) decided to stop giving change in pennies.  If it's 3 or 4 cents, they round UP, and if it's 1 or 2 cents they round down, on the bill. 

For example, if Wilson's skinny chai latte decaf burrito and lavender tea comes to $9.34, they charge $9.35.  If instead he goes nuts and gets his favorite, the double tofu gluten-free "Barbie Doll" burrito, and it's $11.91, they charge $11.90.  Same for the top half:  bill ends in 6 or 7, round down, bill ends in 8 or 9 round up.  Number ending in 0 or 5 don't have to be rounded, because you can give change in nickels.

In terms of expected value, this policy should be revenue neutral (unless all the prices end in 9, which is possible, of course).

Question:  If the company did this, and you are as likely to receive two cents as to lose two cents, but EVERYONE saves time.  Is there a problem?

Uber, Round the Third

Good Neil Irwin piece in the Post.

He brings up a great point: customers don't get pissy over still-profitable deep discount sales at retailers. Would Uber be better off if they called their surge prices the "normal" price and the rest of the time a "discount"?

Or are framing effects like this too cheap and gimmicky to fool even the economically illiterate?

Uber: Mensch or Schlemiel?

This is an interesting take on Uber "surge pricing."

It is entirely possible that the policy is good economics, but bad business practice.  That is, being without a ride is something people will accept more readily than having a ride, and deciding whether or not you want to pay that price.

Note the difference:  if there aren't nearly enough rides, the price for most people is infinity:  NO. CARS. NO. RIDES.  NONE. 

So, what people want is much lower prices for the rides that they can't get.

What everyone ignores, willfully ignores, is the supply response.  I'm sitting home, watching TV.  Lots of choices on cable, none of them good, but all better than going out in a snow storm and driving in Manhattan.  Do I go out?

Only if I expect to make enough money to encourage me to incur the risk, and the discomfort.  The high price increases the number of rides available.  How high "should" the price be?  I have no clue.  High enough to reduce the price from infinity, which is what people people who fetishize price gouging seem to prefer.

In their imaginary world, they go out to the curb, it's snowing hard, and they wave.  A cab appears, and they get the same fare as if it were Sunday morning at 6 am and sunny.

It just doesn't make any sense.  But as the article notes, consumers HATE having the option to take an expensive ride.  They hate it much more than having no ride.  Is Uber obliged to validate this lunacy, to stay in business?

The fact that "price surge" is against the law is not really relevant.  New York has been conducting "legal" but immoral stop and searches for the crime of "walking while brown" for years.  So don't give me "illegal."  Bah, humbug!

Do Comics Need More Price Gouging?

Neil Gaiman:

Seeing a lot of people saying that their local comic shop is sold out of Sandman Overture #1. US folk, get to your comic shops early.
— Neil Gaiman (@neilhimself) October 30, 2013

 The secondary market for comics has extremely flexible spot prices, but first-run sales typically don't. I don't know for sure why DC, Marvel et al don't put more effort into predicting demand (it's possible that the reasons are similar to why Ticketmaster doesn't charge more for popular concerts), but it's curious to me why we wouldn't see a lot more arbitrage.

Think about the scene: shady characters outside the local comic shop hawking copies of the Sandman prequel (which looks mesmerizing from the few pages that got put up on the Web as a teaser) that they picked up inside at a steal. It sounds silly, but it should be a real arbitrage opportunity.

Of course, I suspect that this would violate the informal institutions that govern the comics market (just a suspicion, of course. I haven't bought comics in a dog's age) and if so, shop owners would probably impose a strict quantity limit on issue copies, the way game shops limit new release sales-per-customer for popular titles.

Why? Trust, I think. Despite stereotypes to the contrary, comics shops are remarkably convivial. If customers thought owners (or the publishing houses) were taking them for a ride, they might think twice about frequenting the product. It's in sellers best interest to cater to the wants of their customers, and that includes stubborn resistances to using price as a market-clearing mechanism. A new title from a beloved franchise feels more like a Christmas present from a favorite uncle (could you even imagine having Neil Gaiman as an uncle?) than as an exchange-traded commodity.

And all else equal, that strikes me as more or less euvoluntary. So there you have it.

Why So Little Turkey Day Gouging?

If you've ever forgotten to pick up that extra tin of spicy desiccated bread Stouffer's so generously describes as "stuffing" on the morning of the fourth Thursday of November, you might know what it means to be coerced by circumstance, particularly if Aunt Gilda is into her fifth glass of Bordeaux and creepy uncle Lester has already started to tell the kids stories about the time he spent in Cambodia.

But hold the phone. The fact that most folks have already done their shopping implies that the demand curve enjoys countervailing pressure, perhaps even enough to offset the corresponding jolt to the supply curve (employees taking the day off to suffer... er, I mean enjoy the fine day with their beloved families). But after all that, we've still got an interesting issue where only the least-picky, most desperate shoppers are out scrounging for supplies. Does that not sound an awful lot like grounds for the "exploitation" we see in the aftermath of natural disasters?

No, and here's why. The thing about natural disasters that isn't like the holidays is a matter of scheduling. Prices are information.

Let me type that again, this time in all caps: PRICES ARE INFORMATION.

In the case of fire, flood, earthquake, or Godzilla, the necessary information is that there's a surprise shortage of wood or generators or whatever it happens to be. Customers get the hint that they need to more carefully ration the existing stock, to apply resources to their actual high valued use, and suppliers get the hint that they need to get more of that good to the affected area, pronto. It's not about exploitation, it's about coordination.

Contrast this with the harried husband in fuzzy bunny slippers out picking up a can of jellied cranberry sauce. It's a crisis for him, sure, but there's no supply chain stress, no coordination mismatch. The food is on the shelf. All is well. He can saunter in and make his last-minute purchase and rest easy knowing that even though it ain't euvoluntary for him, no one need bother taking advantage of that.

And that's what I mean by directional meta-euvoluntarity: general practices and institutions that support a greater variety of euvoluntary exchange all around. Thank you sir, I want some more.

h/t M. Giberson & JR

Remittance Payments and Directional Euvoluntarity: Buttercoin and Brito

Jerry Brito (along with our pal Andrea Castillo) is busy doing the heavy lifting when it comes to the economics (and political economy) of Bitcoin, and since his work already addresses EE points, I have ruled it prudent and polite to keep from sailing upwind of his research. If you'll forgive a note of conceit, I'd like to cross tack just this once.

Buttercoin is a nascent startup aimed at slashing the tendon of Western Union's business model using Bitcoins as the medium of exchange* in lieu of the staple currency: US dollars. Their praedicatum is that the extant firms are circumstantially coercive. Expats have little recourse but to submit to being "gouged" to the tune of 10% per transaction. These guys call shenanigans and say that they can operate for less.

I for one hope they're right. Now, I don't claim to know what the "correct" price is here by any stretch, but I do know the following:
1) Overseas postal workers are far far more likely to steal from parcels and letters than US workers.
2) Setting up an international account with a bank is a hassle the likes of which most Americans have no idea.
3) Even if you do manage to safely and securely get your cash from point A to country B, you're still not out of the woods, since as cash shifts hands, you're not entirely unlikely to end up with a wad of counterfeit Russian bills lining your palms.

Given all that, 10% is often a lot better than the alternatives. Voluntary, as it were, though not euvoluntary. Buttercoin promises to sidestep all that. Bitcoin can't be counterfeited, can't be seized by unscrupulous agents of the state, and can be quickly and painlessly converted into the local currency. If it turns out that the prices charged are thanks chiefly to these technical hurdles, then the Buttercoin folks might well be able to successfully undercut them. If, as I fear might be the case, it's a matter of regime uncertainty (grease the right palms or your business license won't get through), it could well be that the 10% is there as a normal cost of doing business.

Fingers crossed, guys. Godspeed.



*this is sort of an interesting point of semantics here. In this application, is Bitcoin more a medium of exchange or a unit of account? It's a wonky question, and I'm not sure it really matters apart from some technical legal questions across regimes. After all, what really counts as "money" is a matter to be hashed out in arbitration, yes?

Cicero on Price-Gouging

Interesting.  An ancient problem, with some ancient insights.

BOOK III. - Marcus Tullius Cicero, On Moral Duties (De Officiis), paragaph 12

12. Let it be settled, then, that what is wrong is never expedient, not even when you obtain by it what you think to be of advantage to you. Nay, the mere thinking that what is wrong is expedient is in itself a misfortune. But, as I have already said, there often occur cases of such a nature that expediency seems in conflict with the right, so that it must be ascertained by close examination whether it is really thus in conflict, or whether it can be brought into harmony with the right. Of this class are questions like the following: If, for example, a good man has brought from Alexandria to Rhodes a large cargo of corn, when there is a great scarcity and dearth at Rhodes and corn is at the highest price, — in case this man knows that a considerable number of merchants have set sail from Alexandria, and on his passage he has seen ships laden with corn bound for Rhodes, shall he give this information to the Rhodians, or shall he keep silence and sell his cargo for the most that it will bring? We are imagining the case of a wise and good man. We want to know about the thought and feeling of such a man as would not leave the Rhodians uninformed if he thinks it wrong, but who doubts whether it is wrong or not. In cases of this kind Diogenes of Babylon,1 an eminent Stoic of high authority, is wont to express one opinion, Antipater1 his pupil, a man of superior acuteness, another. According to Antipater, all things ought to be laid open, so that the buyer may be left in ignorance of nothing at all that the seller knows. According to Diogenes, the seller is bound to disclose defects in his goods so far as the law of the land requires, to transact the rest of the business without fraud, and then, since he is the seller, to sell for as much as he can get. “I have brought my cargo; I have offered it for sale; I am selling my corn for no more than others ask, perhaps even for less than they would ask, since my arrival has increased the supply. Whom do I wrong?” On the other side comes the reasoning of Antipater: “What say you? While you ought to consult the welfare of mankind and to render service to human society, and by the very condition of your being have such innate natural principles which you are bound to obey and follow, that the common good should be your good, and reciprocally yours the common good, will you conceal from men what comfort and plenty are nigh at hand for them?” Diogenes, perhaps, will reply as follows: “It is one thing to conceal, another not to tell. Nor am I now concealing anything from you, by not telling you what is the nature of the gods, or what is the supreme good, — things which it would profit you much more to know than to know the cheapness of wheat. But am I under the necessity of telling you all that it would do you good to hear?” “Yes, indeed, you are under that necessity, if you bear it in mind that nature establishes a community of interest among men.” “I do bear this in mind. But is this community of interest such that one can have nothing of his own? If it be so, everything ought, indeed, to be given, not sold.” 

So, I get there first, and sell at the "market price."  But the market price is a guess about quantity, and many more ships will be here tomorrow.  But I'm the only one who knows that.  Should I tell?  The problem for euvoluntarism is plain:  the buyers have many other possible sources of supply, but they don't know it.  If I sell, I will receive a premium for (1) bringing corn to the hungry city, (2) getting there first, and (3) having inside information.  Am I morally  obliged  to divulge (3)?

Giberson on Gun Gouging

Over at Knowledge Problem, Michael Giberson reports on accusations of price gouging for rifles that may be subject to firearms restrictions in coming days. According to Giberson, "price gouging claims require three factors: a price judged unfairly high, an emergency or difficult situation, and a product or service useful in responding to the emergency." This sounds an awful lot like coerced by circumstance.

So gun sales prior to a pending ban are not euvoluntary. Do you suppose the cops will show up at gun shows, confiscate the merchandise and destroy it in front of cheering onlookers?

How would moral attitudes change if the source of the scarcity was a pending invasion? We're still looking at a sharp, unexpected rise in demand. You might even argue that the need for prices to reflect relative scarcity is even more important when existential threats loom. I somehow doubt folks would be so sanguine.

A Story of Gouging, and Being Gouged...

From an old friend of mine, on prices and reactions...

My friend G and I had taken a whole passel of kids (mine, his, plus some random stray ones) to duck pin bowling while Hurricane Sandy bore down. Heck, we'd already stocked up on marshmallows and beer and, yes, gas, so what else would we do? 

 Between rolls, I tell G about your price gouging discussion (I believe you used the example of plywood), and how strongly some students reacted to the idea that plywood be rationed based on willingness to pay. 

 Then G tells me a story of his engineer friend who worked during the summers in college as a contract utility worker. There had been a big storm somewhere out-of-state, and as usual he and his utility truck were deployed to help restore power. The guy had been working hard, like 18 hrs a day, and no A/C to be had. It was the end of his shift and he really wanted some cold beer. 

Only one store in town still had power. So, he goes in to buy a 6-pack. The guy says, ""That'll be $30." "Whaaat?!? $30 for a 6-pack?!?" says his friend. The store owner says, "Well, where else are you going to get cold beer right now, buddy? Take it or leave it." 

 So G's friend buys the beer for $30 bucks. Then, he goes outside, shimmies up the utility pole, and cuts off the guy's power.

I completely agree that price is a logical way to ration cold beer, but this customer felt he'd been served beer -- plus a pile of something else, and how do you figure THAT into the transaction?

Here's what *I* think:

1.  The store owner was wrong to charge $30.  That's dumb.  The short run advantages are limited, and people are going to remember.

2.  On the other hand, if the price were less than $30, there is no way that beer would have been there in the first place.  The beer would have sold out, long ago.  And the premise of this story is that the guy really, REALLY wanted a beer.  Is $30 "too much"?  Without a price of $30, the price would have been infinity, because there would not have been any.  Several people likely came in, heard the price, and said, "no way." If the utility guy really wanted beer, he should thank the price system for helping him get some.  At regular prices, the beer would have been gone.  This way, at least he had the choice to buy beer.

3.  If you work for a utility, you can reward your friends and punish people who make you angry?  Really?  No rule of law, no due process.  People should just have to give you stuff, give you their property, or you will punish them.  And you are entitled to do so, because you can.  Even though the beer wouldn't even be there if the price weren't so high to others, this guy thought HE (being God's special snowflake) should get the beer cheap.  But if the storeowner could sell the beer for $30 to someone else, then the cost of selling it for $6 (which would have been acceptable to our electricity judge) is $24.  Why would the storeowner be obliged to give the guy $24?  Answer:  because he works for the power company and can PUNISH you!

(UPDATE:  On reflection, this may well be an urban legend.  A little too pat.  Still, an interesting hypothetical:  did the lineman act badly, or was he justified?  After all, now the store is closed to everyone, and the food will rot, just because the lineman didn't get the special treatment that he thought he deserved...)

Disaster Pricing

Prices are shorthand communications between buyers and sellers. What's more, they're truth-generating communications. Both parties are made better off by voluntary trade, so to lie about the relative scarcity of what's being traded is pointing a gun backwards: you'd harm yourself.

When disaster strikes, BATNA disparities necessarily amplify. Plywood vendors can be expected (or imagined) to exercise lexicographic* consumption of their stock. Homeowners who don't get materials are up against sudden risk of dire property damage. What was once a mild, acceptable difference in BATNA disparity becomes situationally coercive when there's a typhoon bearing down. It can be understandable when folks see the price of gas shoot up as the barometer shoots down.

But what are the alternatives? People really want to fill their tanks up. If the price is the normal day-to-day price, maybe they'll buy more than just one tank. Maybe they'll grab some old gas cans and fill those up too. Maybe the first few thousand people will indiscriminately hoard more gas than they're actually likely to need and everyone else just has to do without. The problem of empty shelves when there's a disaster is more predictable than disasters themselves. What's closer to euvoluntary: higher prices or outright unavailability?

Prices find the truth. Prices force buyers to face opportunity costs. There are two ways we might not see prices rise: sellers voluntarily refrain from raising prices (perhaps with the intent to avoid charges of gouging or to preserve reputation) or third-party interference. Either way, we'll see non-price allocation, where the early bird gets the worm and everyone else just does without. Is it a reasonable tradeoff to have a few folks with hoards of emergency supplies gathering dust while others are exposed to the elements in order to preserve a sense of social justice? Is the clash between deonotology and consequentialism perhaps thrown into sharper contrast when Ma Nature is bearing down on the good folk of the earth? Is there a way to reconcile the two?


*this is a sort-of-fancy way of saying that they take what they need from their stock to secure their own homes and businesses before selling what they have left over. This may or may not actually occur.

Carden on Gouging.

The Dub-MOE asks us once again to consider the consequences of well-intentioned deontological objections to trade under harsh conditions in a Forbes article here.

Money quote:

I’ve come to think that there is an iron law of intervention: if you want to make a problem worse, pass a law to fix it. Price controls create shortages: when the price isn’t allowed to rise to coordinate the wants of buyers with the wants of sellers, shortages result. The cruel irony is that any “benefit” for those we are trying to help is frittered away because people who aren’t allowed to pay for something with their money will pay for it with their time. Passing a law doesn’t change what someone is willing to pay, but it changes how they pay.

I won't quibble over his use of the word "law" here, but note the crossover with paternalism again: it doesn't matter if we're protecting people against the misfortune of their situation or the regrettable consequences of their own foolishness, the default assumption is to run to the legislature for succor.

The triumph of hope over reason.

Please Fill Out Form Twenty Seven B Stroke Six

Art Carden with a cute take on price gouging. Lest we forget, interventions that forbid non-euvoluntary exchange often spite one's face by way of rhinectomy*.


*I typed "rhinectomy" out before checking to see if it's a real word. Amazingly, it is.

Zwolinski on Price Gouging

These are the standard economic arguments in favor of allowing price signals to work. Around the four minute mark, pay attention to a nod to folks' alternatives. Very good. I'd love to see the GTM do one of these videos for EE. Hell, J.R. could do one for the Taco Truck and I think it'd be a bit hit. How do we make this happen, people?