Market Power

Smacking the Head Bird

Good morning, Power Readers.

Peter Schmuck lays down the wood on Peter Angelos's claim that the Orioles lost $15 million dollars last year:

Earth to Peter: There are two ways to go with this. Either open the club's financial records to an independent audit and rub my nose in the truth of those numbers ... or stop using phony, manipulated figures to rationalize the sorry state of your baseball franchise.

...Let me get this straight. The payroll was $82 million in 1999 and the average ticket price at Camden Yards was about $19. Now the payroll is, what, $70 million, the price of many field-level seats have doubled since then, the Orioles are getting $75 million from Major League Baseball to help set up the Mid-Atlantic Sports Network and additional millions in MLB Internet revenue ... and they lost $15 million last year?

...It's time for Angelos to put up or shut up. I agreed with him when he insisted that the arrival of the Montreal Expos in Washington would have a negative effect on the finances of the Orioles, and I have no doubt that the Nationals have drawn away significant revenue, but the number that he threw out on Friday just doesn't sound right.

...Instead, we hear rationalizations about the cost of setting up MASN, as if it's totally reasonable to expect the fans to keep paying for a subpar product while Angelos builds a cash cow network that could dramatically increase the value of the franchise for himself and his fellow investors.

I'm not totally denying the possibility that the losses are legit. The Orioles have experienced a steady loss of attendance over the past eight losing seasons and now draw about a million fewer fans per year than they did during a seven-year honeymoon period at the new Camden Yards.

The club also has experienced a sharp drop in season tickets the past two seasons, which it relates to the arrival of the Nationals, but relocation was not an issue when overall attendance began to decline in 1999.

Everyone knows why the fans started staying home in increasing numbers, and everyone knows who steered the Orioles over the rocky course that took the joy out of one of the most beautiful ballparks in professional sports.

Exchange is Income Redistribution?

Good morning, Power Readers.

George Borjas writes (WSJ column for which I don't have the link and didn't find the date):

Immigration policy is just another redistribution program. In the short run, it transfers wealth from one group (workers) to another (employers). Whether or not such transfers are desirable is one of the central questions in the immigration debate.

I agree with Arnold Kling: this is like saying that voluntary exchange is an income redistribution program.

Redistribution implies that trade is a zero-sum game. Borjas implies that immigration works like a tax on low-income workers and a subsidy to high-income employers. Of course, in any sort of competitive market, employers do not profit from lower costs but must instead pass them onto consumers. But why let a little economics get in the way of a folk-Marxist story?

A Little KISS

Good morning, Power Readers. 

Yesterday was boxing day.  Today is moving day.  The next several days will be "no-internet-at-the-new-place-how-will-I-survive" day.  In any case, how about a little KISS?

Joey Fatale, the 4-foot, 4-inch New Yorker who heads the all-dwarf KISS tribute band MiniKiss, is denying published reports that he tried to sneak past security last month at the Hard Rock Hotel and Casino in Las Vegas to confront a rival band leader, 4-foot "Little" Tim Loomis of Tiny Kiss, for allegedly ripping off his idea for such a group.

I'd like to be an Iron Maiden tribute band.  Does anyone want a 6'1 215 pound guitar player who can play Iron Maiden?  I'd be willing to be the fat Dave Murray in the Iron Fat Maiden band.

Dude, Where's My Beer?

A recent Wall Street Journal has an excellent article about the challenges facing Anheuser Busch in its quest for a beer made for "everyman.($$$).  Like Dr. Evil, AB officials have cryogenically frozen beers to compare their tastes.

The five Budweiser cans in front of Mr. Busch, dating from 1982, 1988, 1993, 1998 and 2003, were pulled off the production line shortly after they were brewed. They were cooled to minus-321 degrees Fahrenheit over 16 hours and stored at that temperature in a secret laboratory in the company's headquarters.

I try to do that at home, but all I get is a messy freezer.

The sample cans demonstrate how "creep" works. The difference in taste between two beers brewed five years apart is indistinguishable. Yet, the difference between the 1982 beer and the 2003 beer is distinct. "The bones are the same. It is the same structure," says Mr. Muhleman. Overall, however, "the beers have gotten a little less bitter."

...Bud's ever-increasing lightness worked for years. But lately, consumers have started cooling on mass brands in favor of smaller, often unknown rivals. The proliferation of new media gave consumers more information about niche products. Their tastes grew more sophisticated and aspirational, spurred by an increase in overseas travel.

...Or drink the strongest beer. From 1950 to 2004, the amount of malt used to brew a barrel of beer in the U.S. declined by nearly 27%, and the amount of hops in a barrel of beer declined by more than half, according to Brewers Almanac. Part of that decrease is due to improvements in how brewers extract flavor from hops. Nonetheless, beer's taste became steadily lighter. (Flowers of the common hop plant, Humulus lupulus, are used as a flavoring and stability agent in beer, helping create its characteristic bitter taste and aroma.)

The beer industry measures bitterness using a scale called International Bitterness Units. The higher number of IBU's, the greater the bitterness. Over the past twenty years the IBU's of most American-style lagers has dramatically declined, from roughly 15-20 IBU's to fewer than 10 today, according to the Siebel Institute, a Chicago laboratory and brewing school that tests beer.

My Powersister, the Eldest, first turned me on to Guiness after she had spent some time in Europe.  As I recall, she said that after spending time there, she couldn't stand to drink light American lagers.  My first thought after initially sipping the Guiness was "Dude, what did you do with my oil?"  But, over time, I acquired a taste for the heavier beers.  Now, I prefer India Pale Ales and Extra Special Bitters.  I also like a good, true Pilsner.

I still buy light American lagers.  For fun, I'll buy Hamms and other such beers when available and when I'm feeling saucy.  I rarely buy Miller or AB products but will not turn one down when offered.  I may be a beer snob, but I'm not that snobby.  Mostly, I'll buy such beers in which to boil meatballs or Italian sausage which then go in my spaghetti sauce, but I don't do this often because of the cost.

Twins Stadium Passes the House

The current proposal for a new Minnesota Twins stadium has passed the Minnesota House. The final quote:

But in remarks to reporters Wednesday, Pawlenty appeared to leave little doubt about where he stood. "We're not going to lose the Minnesota Twins on my watch," he said.

For students of Microeconomics and Sports Economics, this is market power at work in the Minnesota political sphere.  Major League Baseball (a collection of team franchise owners and a commissioner, for the most part) have great leeway over where teams play.  Expansion and team relocations must get a 75% approval of the franchise owners.  Plus, expansion team owners must pay a hefty expansion fee that, in part, compensates current franchise owners for shared revenues that would be lost to the current owners since they would be split among a greater number of teams.  Further, there is an opportunity for current owners to grab

Lastly,  franchise owners obtain rights to be the exclusive provider of MLB games in their areas.  This means other teams, expansion or otherwise, cannot set up shop within another team's exclusive territory without the approval of that team's owner.  In cases where a team relocates in an area that may or may not infringe on another's territory, the incumbent owner can seek redress (see Peter Angelos, owner of the Baltimore Orioles, and the move of the former Montreal Expos to D.C.).

All these things point to barriers to entry/relocation that league officials use to keep viable threat points cities open in part so that when time comes for one of the owners to ask for public assistance, that owner has an out:  "If you don't give me public funding, I'll take my ball and play somewhere else."

Powerkid, the Eldest and Mankiw Agree

Good morning, Power Readers.

Powerkid, the Eldest (5 years old) had been carrying a penny in his coat for a few days.  On a recent trip to HyVee with dad and Powerkid, the youngeset, Eldest exclaims (and, if you've met Eldest, you know that I mean EXCLAIM) that he is ready to spend his penny.  I said "OK" but remarked "you probably won't find anything that costs a penny." 

To which the wise Eldest responds "Then why do we have pennies anyways?"

Good question.  Greg Mankiw agrees:

Today's New York Times reports:

it costs the mint well more than a cent to make a penny.

The solution, in my view, is to get rid of the penny.

Indeed, I would advocate this even if the penny were free to manufacture, as I argued earlier this year in the Wall Street Journal. The purpose of the monetary system is to facilitate exchange. The penny no longer serves that purpose. When people start leaving a monetary unit at the cash register for the next customer, the unit is too small to be useful. It is just wasting peoples' time--the economy's most valuable resource. The fact that the penny is costly to make only adds force to the argument.

Doc agrees.

Update:  King has some more info:

Over the last six months, the cost of producing a penny and the material costs of the metal contained therein (97.6% zinc, the rest is the copper coating) has risen to a total cost of $.014, including production and record-high metal costs but not transportation. It's worth remembering that in 1943 the U.S. Mint, facing a shortage of copper and zinc from munitions demand, switched to a zinc-covered steel penny. People hated them -- they corrode when exposed to enough moisture -- but you still find collectors of them. If prices on zinc and copper continue to climb, you can expect some change in the composition of the penny.

Stuff to Read on Central Direction

Much of New Orleans still lays in ruins after the battering while politicians and urban planners (central directors) decide what the city should be like when it is rebuilt.  There are plenty of calls for President Bush to do something to relieve gas prices (central direction).  At times like these, when folks clamor for government officials to "do something" to lower prices, make life better, etc., we could do well to read a few articles that point out why actual responses to such calls could very well make things even worse.

Last summer, a blogger who goes by "Hispanic Pundit", wrote this post that lists several essays that clearly spell out the difficulties associated with central direction.  Of particular relevance is the article "I, Pencil" in which Leonard Read describes the complexity of making a pencil.

Energy Consumption

Here is a diagram that presents US energy consumption expenditures as a proportion of total consumption expenditures dating from 1947-2005 (annual numbers).

Important years: 

1. 1973 - The first oil crisis.
2. 1979 - Second oil crisis.
3. 1997 - Asian Financial crisis
4. 2001 - 9/11

The data are from this BEA site. HT to Nick Schulz for the BEA site.

The Real Glenn Hubbard

Both *THE* Craig Newmark and Alex Tabarrok have linked to this page from the Columbia Business School (CBS) Follies and have specifically pointed to Every Breath You Take and Dean Dean Baby, two hilarious video econo-spoofs of popular music videos.  Best yet, they each supposedly star Glenn Hubbard, famous economist and dean of CBS.  But that can't be the real Glenn Hubbard in those videos, can it?  The fellow in the video looks way younger than GH.  Besides, no economist can have that much rhythm (???).  That has to be a student portraying Dean Hubbard.

Am I right?  In any case, the videos are priceless.

If You Ain't Cheatin', You Ain't Tryin'

Good morning, Power Readers.

Information can be valuable.  But there are often rules in place in all sorts of instances that provide barriers to those who want to acquire information.  But these rules do not change the value of the information at the margin.... only the cost of acquisition.  And, as they say, when there's a will, there's a way:

Nothing like a little spy scandal to spice up the football rivalry between West Virginia and Marshall.

Heading into only their second matchup in 83 years - and it took the governor's involvement to help set this September's game - school officials on both sides confirm a West Virginia student was caught spying at a Marshall practice this month.

The student was confronted April 11 after he was spotted sitting in the bleachers at Edwards Stadium taking detailed notes in a stenographer's notebook.

Thundering Herd practices have been open to the public this spring, but NCAA rules prohibit opposing coaches or football program representatives from attending another school's practice without permission.

The student works in the building where West Virginia's football offices are located. His name wasn't released because he wasn't criminally charged.

"We're treating it as a student conduct incident," Marshall Public Safety Director Jim Terry told the Charleston Daily Mail.

...West Virginia athletic director Ed Pastilong said the student was acting "without the authority of anyone in the athletic department or anyone on the football staff."

At this time, we don't know if this kid was acting on orders from a coach, player, or booster of the W. Va. football program or if he was just trying to get an inside scoop on his own.  But it makes for interesting discussions.