Market Power

Martin Rucker: First Team All American

Missouri tight end Martin Rucker was selected first team All American by the American Football Coaches Association.  Maybe this takes the sting out of the joke that was his selections as second-team all Big XII by the conference's coaches.

Chase Daniel for Heisman

Joe Posnanski argues for Chase Daniel for Heisman here.  This is a great quote that sums up the popularity contest that is the Heisman:

The larger point is this: If the situations were reversed — if it was Tebow with the excellent stats and leadership for No. 1 Florida and Daniel with the eye-catching touchdown numbers on a three-loss Missouri team — you know the Heisman criteria would suddenly be different. You know all the talk would be about Tebow’s intangibles, his ability to run the offense, his value. Nobody would even be talking about Daniel.

Joe has nothing bad to say about Tebow.  He's a great player and seems to be a great kid.  But his issue is with the voters.

Damn You, Sports Illustrated Cover Jinx

Mizzou quarterback is on the current cover of Sports Illustrated.  I don't know if this is a good thing or not:

One thing's for sure, I can tell you that, jinx or no jinx, at least one Minnesotan will be in the market for one of these things. Damn the jinx!  Full speed ahead!

Beer Me, Brother

Oh, if only these Trappist monks would be motivated by profits.  Then they could alleviate the suffering of beer connoisseurs around the world.  But, no, they have to spend their lives in contemplation, while beer lovers around the world go without what some call the best beer in the world.

Monks have been brewing Westvleteren beer at this remote spot near the French border since 1839. Their brew, offered in strengths up to 10.2% alcohol by volume, is among the most highly prized in the world. In bars from Brussels to Boston, and online, it sells for more than $15 for an 11-ounce bottle -- 10 times what the monks ask -- if you can get it.

For the 26 monks at St. Sixtus, however, success has brought a spiritual hangover as they fight to keep an insatiable market in tune with their life of contemplation.

The monks are doing their best to resist getting bigger. They don't advertise and don't put labels on their bottles. They haven't increased production since 1946. They sell only from their front gate. You have to make an appointment and there's a limit: two, 24-bottle cases a month. Because scarcity has created a high-priced gray market online, the monks search the net for resellers and try to get them to stop.

"We sell beer to live, and not vice versa," says Brother Joris, the white-robed brewery director. Beer lovers, however, seem to live for Westvleteren.

When Jill Nachtman, an American living in Zurich, wanted a taste recently, she called the hot line everybody calls the beer phone. After an hour of busy signals, she finally got through and booked a time. She drove 16 hours to pick up her beer. "If you factor in gas, hotel -- and the beer -- I spent $20 a bottle," she says.

Was her opportunity cost of time 0?  What would she otherwise have been doing?  Talk about the brother keeping the man down!

Life Imitates Econ, and Vice Versa: Zimbabwe Price Controls

In Econ 202 (Principles of Micro), we've discussed what is wrong with price ceilings at various times this semester.  Some folks, on ethical grounds, support government's cutting of prices so that those who can't afford the good at market-clearing prices can have a shot at buying the good.  But by forcing the price down, government does little more than ensuring "the poor" will have less access to price-controlled goods, and Zimbabwe is a sad, sad example (HT to John Chilton at the Emirates Economist):

"There are too many data gaps," the Central Statistical Office's Moffat Nyoni told state media.

Many staple goods are often absent from shop shelves after the government ordered prices to be halved or frozen in a bid to stem galloping inflation.

Why is there less on the market?  Simple: firms can't cover the marginal cost of production by selling in Zimbabwe:

Maize meal, bread, meat, cooking oil, sugar and other basic goods used to measure inflation largely disappeared from shops after Robert Mugabe's government ordered prices to be slashed.

Manufacturers have said they cannot afford to sell goods at below the cost of producing them.

JC has more here.

Ticket Scalping in Missouri - Now It's Legal

(Cross-posted at the Sports Economist)

In Missouri, ticket scalping at prices above face value is now legal..

And there was some rejoicing (and economic development???).

To wit: Hal Wagner, owner of Ace Sports & Nationwide Tickets at Oak Park Mall, already has opened a location at Independence Center.

“We’ve been waiting for that ridiculous law to be repealed,” said Wagner, whose company buys and resells tickets at prices that exceed face value. “This is a great, great thing for Missourians.”

But ticket scalping was still illegal last weekend when the University of Missouri and the University of Kansas met in Kansas City to determine the Big XII North champion in football.  But you wouldn't have known it had you looked at the vigorous secondary market in tickets around Arrowhead Stadium.

Before the Border War on Saturday night at Arrowhead, there was the Price War in the parking lot.

“Tickets! I got tickets!” a man named Bill yelled as cars crept by him on the way to the MU-KU game. “Two tickets, $600!”

One week before a new Missouri law will kick in legalizing ticket scalping at sporting events, scalpers like Bill, who declined to give his last name, combed their way through the crowd. Tickets with a face value of $30 to $55 sold from $100 to as much as $400.

“This is a day to make money,” he said.

Underpriced tickets create opportunities for scalpers.  As I've written before, event tickets are priced with an eye towards expected demand and are oftentimes set months in advance.  No one can throw anyone under the bus for underpricing this particular event.  Who'd have thought, coming into this game, that MU and KU would have been ranked 4th and 2nd respectively in the BCS ratings with one loss between them and with both schools sporting national championship hopes?  Not I, said the fly.  The Missouri Tigers, with all their returning talent, had not had many Novembers to remember recently.  The Kansas Jayhawks were coming off a 0.500 season in which they were not invited to a bowl. 

The beauty of legalized scalping is that it allows tickets to go to the people who value them the most and it allows more information to be used in the setting of ticket prices.  But the first article notes that scalping today has some new problems.

Missouri Attorney General Jay Nixon recently cracked down on ticket brokers, suing three of them for scalping tickets to an upcoming Hannah Montana concert at the Sprint Center. Nixon later asked for a temporary restraining order against an Illinois broker who was selling tickets to the recent Missouri-Kansas football game at prices well above face value.

“Unfortunately, the elimination of this consumer-protection tool has come at a time when the ability to take unfair advantage of consumers has grown significantly through the Internet,” said Nixon spokesman Scott Holste.

If he's talking about the ability of scalpers to snap up loads of tickets when they first go online, what amounts to butting into a virtual line, that's not the fault of scalping per-se.  You can argue that legalizing scalping increases the benefits from butting-in, but it's not scalping that is the root cause of this problem.  It's the butting-in. 

If you are cooking a turkey and you realize you might burn your hand, you don't throw away the food to keep from getting burned.  You take other precautions to keep from getting burned.  Why ban an activity where people engage in voluntary trade when the problem lies elsewhere? 

Why not ban computers?  Technology has lowered the cost of butting in, so if you make an argument that scalping should be banned because of the butting in, you can make a similar argument about banning computers. 

Of course banning computers is not the optimal solution, but neither is banning the secondary resale of tickets above face value.

Police Have Opportunity Costs

Police resources have alternative uses and choices must be made.  When a crime is being committed, sometimes police have to look the other way because the benefits of stopping the crime do not outweigh the opportunity costs.  To wit:

A scalper’s dream played out all night: Fans walking through the crowd, whispering — and sometimes shouting — “I need tickets” until one of them moseyed up. Sometimes, the deal was made. Oftentimes, it wasn’t.

People seemed to be waiting for top dollar. And police officers seemed not to notice, or care.

“I don’t care about that,” said one police officer, who declined to give his name. “Not at all. We’re here to keep the peace, make sure there are no fights. Not worry about tickets.”

Ash Wegener gets it. A parking-lot brawl beats out ticket scalping on a cop’s priority list, especially when you mix in so many people who don’t like one another, have been drinking all day and are getting ready for the most important game in their team’s history.

That's a story from the parking lot outside Arrowhead Stadium from this past weekend's Missouri-Kansas football game (an article referenced in this earlier post from today on price discrimination).

Third-Degree Price Discrimination, the Scalping Edition

Good morning, class.  Today we will talk about price discrimination.  Time for a PowerNap.  Third-degree price discrimination is charging different prices to different groups of consumers with different elasticities of demand.  Student and senior citizen discounts fall under this category.  There are three determinants of the elasticity of demand:

1. The availability of close substitutes
2. The proportion of income spent on the good
3. The time consumers have to adjust.

The more close substitutes available for a product, the more sensitive consumers are to price and the less able sellers are to price discriminate.  The more time consumers have to adjust, the more sensitive they are to price changes and the less able sellers are to price discriminate.  The greater the proportion of income spent on a good, the more sensitive consumers are to price changes which makes sellers less able to price discriminate.  Since seniors and students, generally speaking, have lower incomes, they tend to be more price sensitive.  Thus the discounts.

In a recent article from the Kansas City Star, there is a wonderful example from the world of scalping (from this weekend's MU-KU scrape in Kansas City) where a scalper uses signals to determine whether a consumer has a high elasticity of demand or not.  It would seem that #2 in our list is in play.

Three hours before game time, he’d already sold 10 tickets for $150 to $250 each. Now he had two prime seats in his hand. For these, he wanted top dollar.

“How much?” a man asked from inside his black SUV.

“Six hundred.”

“Half that.”

“Can’t do it.”

The SUV moved on, but a moment later another car rolled to a stop.

“They’re $650 for two,” Bill said, upping the price as a young woman and her husband shook their head and then drove away.

“It’s all about the pitch,” Bill said. “Look at the car. Look at the ring on the girl’s finger. Then adjust from there. Don’t worry. I’ll sell them. No problem.”

How cool is that?  The scalper took a quick look at his potential customers and made a reasoned guess about their willingness to pay.  And notice that the potential consumer moved on. 

A student recently asked me about how prices get set in real markets. In our economic models, the prices move seamlessly to equilibrium. Demand goes up, prices adjust up.  Supply goes up, prices adjust down.   Automatically.  Flawlessly.

But we know that's not how things go in the real world.  There's a lot of trial.  There is a lot of error.  But we the people are pretty smart, despite our psychological imperfections.  Economic models do a pretty good job at explaining much of what goes on in markets even if the people in markets aren't the perfectly-informed always-rational specimens we often assume they are.

Markets in Everything: Tumbleweeds

Via Fark, The Prairie Tumbleweed Farm with video.

Mizzou - KU Highlights

ZouDave at Tigerboard has produced a very nice video of highlights from the recent MU-KU football game.

Here is the YouTube version.

Here is the high resolution version from Stage6.com.