I’m fairly sure I’m the only 24-year-old grad-student with a Roth IRA topped-up for 2012-2014, and this is because when I got extra money, it went into the retirement account rather than towards consumption, or even towards extra charity.
This is true for me as well (I’m slightly older), but I also have some sources of income that I expect most graduate students don’t.
If we want to talk about how money is awesome, we should also be talking about how to make sure that people who aren’t like us actually get some of it. I mean it: no amount of Tumblry “checking our privilege” is actually going to make the people who work in, say, our favorite food trucks or hole-in-the-wall falafel joints, anywhere near as wealthy as us. We’ll need to actually exercise our intelligence for that.
But one of the main reasons why money is awesome is because spending money is rivalrous. My primary expensive hobby is art collecting. I have the number of original paintings I have because I put up more money than the other people bidding on them, and if everyone had more money, then the primary effect would be that the prices increase.
When you say we need to exercise our intelligence, let me talk about Franklin Barbecue in Austin. It’s quite possibly the best barbecue in the US, and they’ve sold out of brisket every day that they’ve been open. Officially, it opens at 11 AM, but generally people recommend that you show up at ~8 AM to wait in line.
To the economist in me, this is a terrible setup. They could spend their customers’ extra money; they can’t spend their customers’ wasted time. They should auction off the barbecue, which will raise prices and lower wait times. But it’ll also get rid of the communal experience of waiting in line, and less of their customers will be students and more of them will be engineers. The way to get more money to ‘food trucks’ is to embrace the inequality that makes engineers that will bid on barbecue.
When you say we need to exercise our intelligence, let me talk about Franklin Barbecue in Austin. It’s quite possibly the best barbecue in the US, and they’ve sold out of brisket every day that they’ve been open. Officially, it opens at 11 AM, but generally people recommend that you show up at ~8 AM to wait in line. To the economist in me, this is a terrible setup. They could spend their customers’ extra money; they can’t spend their customers’ wasted time. They should auction off the barbecue, which will raise prices and lower wait times.
The marketer in me suggests you’re off the mark. How do you know that Franklin’s bbq is the best in Austin? Because there is always a line and it sells out. The wait in line IS what differentiates their product, and its how people judge the quality in such a subjective market.
I imagine if you start an auction for the bbq, what you’ll find is that in a few years you are making less money, as instead of being a good bbq experience that people drive in from all over Texas to try and tourists flock to, you’ll be just another good bbq place in Austin.
I’m aware, hence the hedging. I am not a food critic, and am relying on the judgments of food critics.
It’s more complicated than it looks
Yes, people rage at high prices, especially when demand jumps and supply falls. And I’m sure that the status threat of the price rising or being priced out makes it worse than just the scarcity.
But the right answer probably isn’t lotteries. People are unhappier when others receive rewards for merit than they are when others receive rewards because of luck. The right answer almost certainly is efficiency.
But the right answer probably isn’t lotteries. People are unhappier when others receive rewards for merit than they are when others receive rewards because of luck.
This confuses me. Surely if people are made less unhappy by a luck-based distribution, that’s an argument in favor of a luck-based distribution?
I’m not sure if you typed that backwards or not. I can think of plausible reasons for people to hate both luck and merit distributions.
So you did mean it as written. I’d kind of like to see the studies, if you have a link. I don’t find it surprising, exactly, but it’s not a question I’d considered before, and it seems like it would be amusing misanthropy fuel.
Maybe people don’t actually believe in merit, in near mode. Maybe they think they do, but they are really thinking about status.
Distributions based on merit (that we don’t recognize instinctively) simply seem unfair. Distributions based on tranparent luck seem like everyone at least had a fair chance.
Maybe the real problem with money is that it usually belongs to people we personally don’t know, so we don’t know what exactly they did and why exactly should we respect them, so it feels like they really don’t deserve the money. And the rest is rationalization.
Maybe people don’t actually believe in merit, in near mode. Maybe they think they do, but they are really thinking about status.
This is made worse by money anti-correlating with status when all other variables are controlled for, i.e., given two otherwise comparable jobs, the lower status one will pay more.
The right answer to which problem exactly? Temporary shortages of high-status goods aren’t exactly a burning issue that really needs to be solved externally.
Locally, the Barbecue Distribution Problem. Globally, the Efficiency Problem. Imagine Franklin Barbecue as one of the broken windows of inefficiency; yes, it only wastes tens of years per year, and they’re probably only losing tens or hundreds of thousands of dollars in revenue per year. But efficient markets in barbecue help make efficient markets in other things more reasonable.
I would assume that people who run the barbecue are (1) Aware of the problem; (2) Have incentives to deal with it; and (3) Are not entirely stupid. Given this I am not sure why do you think that what they are doing now is not “the right answer”. For example, raising prices might be good in the short term but turn out to be a very bad idea in the medium term.
Globally, the Efficiency Problem.
What is that problem and, again, what does it have to do with temporary shortages of high-status goods? And I’m less than convinced that the broken-windows theory applies to global efficiency. In any case, if so, wouldn’t you want to start with government, instead? X-/
To give a trivial example, creating such a temporary shortage is popular marketing trick (if the company can pull it off, of course).
I would assume that people who run the barbecue are (1) Aware of the problem; (2) Have incentives to deal with it; and (3) Are not entirely stupid. Given this I am not sure why do you think that what they are doing now is not “the right answer”.
I think that (3) is not a good assumption to make, and I wouldn’t word it that way. I know lots of artists who have never heard of sealed second-bid auctions (also known as Vickrey auctions), despite those auctions being the optimal way to sell artwork or commission slots online. Are they entirely stupid? No; they just have limited knowledge. Similarly, the barbecue auction problem has a potentially nontrivial complication: there are 5 different varieties of meat sold by the pound (and each variety of meat can either go into by-the-pound orders or sandwich or plate orders), and many people would like either their entire order, or none of their order. How do you find the optimal set of orders to fulfill, and what price do you charge people for those orders, in a way that doesn’t skew their bidding incentives?
It’s a solvable problem, of course, but it’s the sort of problem you’d want to hand off to an optimization guy to solve for you, especially if your core competency is barbecuing meat.
For example, raising prices might be good in the short term but turn out to be a very bad idea in the medium term.
It might- it’s possible that once people could get it by paying more money, instead of more time, it would lose some of the specialness and people would go there less. But it’s not clear to me that they would ever reach the point where they don’t sell out of meat, and maybe they have to be open for dinner too instead of just lunch.
But it could also be that the steady-state long-term price of their brisket is $40 a pound, and they’ve been selling it at $17, and that it is a fantastic thing over the medium term.
(Also, I feel I should mention, since it may not have been obvious: they do allow pre-orders, if you’re willing to pre-order by about a month. The amount of pre-orders they allow is obviously capped, so that there’s still BBQ available day-of. Auctioning off meat should start as a small percentage of their total quantity moved as a test, and then expanded or contracted as desired. So long as some of it is available by waiting, it is unlikely to lose the popularity.)
What is that problem and, again, what does it have to do with temporary shortages of high-status goods?
Basically, not enough people thinking like economists.
Well, then, I see an excellent opportunity for you. You mentioned that they might be “losing tens or hundreds of thousands of dollars in revenue per year”—surely if you go talk to them and point it out, they’ll be glad to pay you some of that surplus that they are leaving on the table.
In the best case you’ll earn a fair chunk of money and make friends in the BBQ business. In the worst case you’ll learn a valuable lesson why theoretical economics doesn’t apply to real life too well :-)
Basically, not enough people thinking like economists.
That’s complicated. I understand what you are trying to say, but “thinking like an economist” is not an unalloyed good. For example, consider that economics (especially macro) is really bad at forecasting.
If the availability of their product to low-income people is a priority for the current owner, it might be possible to maintain that while raising cash prices by offering menial temp work (such as dishwashing) in exchange for store credit. This is a well-known strategy among restaurants looking to settle accounts with someone who has already eaten but proves unable to pay; the innovative part would be offering a more favorable rate of exchange, and work first for food later.
If jobs are scarce, the restaurant should already have enough dishwashers. Since the restaurant can’t temporarily fire one of its existing dishwashers for a week in order to have the nonpaying customer wash dishes, it’s hard for the restaurant to recover the money in free labor from the customer. It only works if the restaurant happens to have a job of the right length available I’d expect that to be pretty unlikely. Better just call the police. As a bonus, if you call the police you don’t create perverse incentives for more people to stiff you on the bill in the future.
I realize your version of the story doesn’t include this, but I’ve often heard it as the restaurant giving the guy a permanent dishwashing job, and sometimes even having the guy rise up in rank and eventually come to own the restaurant. This version is even unlikelier. (For instance, if the restaurant thinks a guy hired this way is better than a guy hired through the normal application process, why do they even have an application process? And if you’re in a situation where jobs are scarce, then jobs are valuable things and the restaurant should be able to be very selective in who it hires.)
Of course it’s less efficient than hiring an equivalent number of professional dishwashers; the point is to extract more value from the customers by having them choose between paying extra or doing marginally useful work, rather than standing in line.
I realize your version of the story doesn’t include this, but I’ve often heard it as the restaurant giving the guy a permanent dishwashing job, and sometimes even having the guy rise up in rank and eventually come to own the restaurant. This version is even unlikelier. (For instance, if the restaurant thinks a guy hired this way is better than a guy hired through the normal application process, why do they even have an application process? And if you’re in a situation where jobs are scarce, then jobs are valuable things and the restaurant should be able to be very selective in who it hires.)
I can’t speak to whether there are any real instances of such a thing happening (the story is only vaguely familiar, I may not even have heard it before,) and I suspect it’s more likely than not apocryphal. But the answer to “if the restaurant thinks a guy hired this way is better than a guy hired through the normal application process, why do they even have an application process?” would be “because a single specimen does not invalidate a selection process that deals in generalities.” The application process is an attempt at sorting prospective workers to select those who are most likely to be valuable to your business, but that’s not to say either that some duds won’t get through (people routinely make it through application processes only to be fired for poor performance, after all,) or that a less stringent selection process cannot induct good workers.
The way to get more money to ‘food trucks’ is to embrace the inequality that makes engineers that will bid on barbecue.
It’s not exactly bidding, but I happened to read an article this morning about the $4 artisan toast available in a certain San Francisco coffeeshop, which seems to largely fit the bill. Yet about half the article was taken up by tedious kvetching about how the Bay Area tech industry is driving up the standard of living.
One could argue (and indeed I largely agree) that this ignores the artisan toastmaster side of that economic equation, or raise any number of other objections, but that’s not the point. The point is that this is a tough political sell.
(Statement of conflicting interest: I am in fact an exploitative Bay Area techie.)
(Statement of conflicting interest: I am in fact an exploitative Bay Area techie.)
The Marxist in me wishes to point out that if you’re part of the tech salariat rather than the VC class or real-estate rentier class, you are not in fact exploitative. The fact that the Bay Area confuses “high productivity worker” with “exploitative capitalist” is one of its larger collective errors of thinking.
In the wage / rent / interest model, the skilled person’s salary should probably be modelled as a mix of wage and rent.
The wage in its pure form is what a completely replaceable employee gets. The fact that the employee is completely replaceable will drive the wage down to the level where it barely covers the expenses to survive. Of course the expenses are different at different places, so the wages will reflect that, but that additional money just goes through you, and at the end you don’t benefit from it.
The rent in its pure form is what you get for auctioning a use of a scarce resource (such as land). An intelligent person with mathematical skills good enough to work in IT is in some sense a scarce resource. They can be replaced (but you can also move from a piece of land to another piece of land), but it’s difficult, and there are not enough skilled people for every employer’s every whim. The employers are competing among themselves, and this creates the rent. -- If you could somehow separate your talent from your person, and send the talent to the work while you stay at home and have fun, that would be a rent in its pure form. But because it doesn’t work this way, your wage and your rent are connected together.
And the interest in its pure form is money making another money. Which you can achieve by investing your rent in an index fund. So a techie can become an evil capitalist, too; it just doesn’t happen automatically and requires some strategic thinking.
Ah, that was a pleasant bit of reminder. Thank you.
(Though I did mention I have a maxed-out Roth IRA. I very much am trying to become an evil capitalist, on grounds that within this system it is my only rational move, should I desire to do anything other than work for a minimum subsistence. I still want the system changed and overthrown.)
The toast is Josey Baker Bread (yes, that’s actually his name; short documentary here) and it really is that good. By which I mean, as another exploitative Bay Area techie, I’ve paid that price at The Mill more than once and I felt it was worth it.
The toast only manages to be worth four dollars to you because four dollars is worth less to you than to poorer people. (At least in the sense of how much you would care if you lost four dollars and what you would be willing to do to get another four dollars).
Some customers don’t have extra money, but do have extra time. (And they can’t easily just convert the extra time into money.)
Yes, but when you have more people who want to be customers than who are customers (as is implied by selling out of stock before you run out of line), the question is “who do you exclude?”
One way is exclude people randomly. This gives everyone involved a sense of fairness, but no sense of control- either they get lucky, or they don’t. Another way is to exclude people by time preference. If they aren’t willing to wait, then they aren’t going to get any. A third way is to exclude people by cash preference. If they aren’t willing to pay the price, then they aren’t going to get any.
Generally, the only option that benefits the supplier is the last one, and thus it’s probably the one that they want to take. There are a few counterexamples; one example that frequently comes up here is concert tickets for young female singers. There are generally two kinds of fans that go to those concerts: young girls who enjoy the music and older men who enjoy the show. The older men are generally willing and able to pay more, but not as willing and able to wait in line. It’s unlikely that the optimal experience for all involved is for all of the tickets to go to the older men, and so they might parcel out tickets to different venues in the hopes that they will go to different people while still increasing revenue.
If they raise the price of the barbecue until the number of buyers is small enough to eliminate the line, their pricing will be seen as unfair and this will have a long term affect on their ability to retain customers. While barbecue could produce more profit being sold to rich customers, other more plentiful items need to be sold to both poor and rich customers to maximize profit. And if you lock poor customers out of the barbecue, they won’t come in for the other items.
Furthermore, it would be rational for poor customers not to buy the other items because of the transaction costs in having to discover which items are priced for rich customers and which aren’t. The store could do slightly better by pricing all items for rich customers rather than just the barbecue, but even that may produce less profit than keeping the price of the barbecue low and having more customers for the other items in the store.
Another possibility is that people get tired of eating barbecue too often and you need to have customer turnover. If you price the barbecue high enough that exactly the number of rich customers arrive that will buy all the barbecue, in a week from now those customers will be tired of barbecue and there won’t be other customers to replace them.
Sure. But consider airlines, and the revenue management they do, as a contrast.
The basic problem is that there is no single price-per-seat at which it is profitable to fly a plane. Imagine the demand curve as something like $1000/x, where x is the number of tickets sold on the plane. Regardless of the price you pick, your total revenue is going to be $1000, and if the plane costs $2000 to fly, you can’t pick a single price for every ticket such that the plane is profitable to fly.
But suppose you could offer different customers different prices. The person willing to pay $1000 is charged $1000; the person willing to pay $500 is charged $500, the person willing to pay $333 is charged $333, and the person willing to pay $250 is charged $250. Now you’ve got a plane in the air, and $83 in profit (and another person paying $200 would get you up to $283 in profit). But this required you knowing which customer was willing to pay what, which is generally done by time-segregation (the amount of time you book the flight in advance, combined with the number of seats left on the plane) which is itself determined by sophisticated modeling.
There doesn’t seem to be a public outcry about revenue management for airline tickets. Perhaps this is just because people don’t understand what’s going on underneath, or adjusting prices with time feels appropriate in a way that adjusting prices with supply doesn’t, or because it’s been this way for ~30 years and people are used to it now.
If you price the barbecue high enough that exactly the number of rich customers arrive that will buy all the barbecue, in a week from now those customers will be tired of barbecue and there won’t be other customers to replace them.
This is not a problem for auctions, because the price drops when the demand drops, so long as the minimum price is set so that the market always clears.
Analogically with the airlines, the current model should be the “economy class” barbecue, and there should be a new “business class” barbecue—extremely expensive, but without having to wait.
Preferably with some additional differences—sitting in a separate room, with pleasant music and paintings on the wall—to make it easy to rationalize (by both kinds of customers) it as “paying extra money for extra luxury” instead of “paying extra money for cutting in line”.
the current model should be the “economy class” barbecue, and there should be a new “business class” barbecue—extremely expensive, but without having to wait.
That model is used by Disneyworld and other theme parks. You can buy a regular ticket, or you can buy a premium pass which costs more but gives you the right to skip the lines at the attractions.
You can buy a regular ticket, or you can buy a premium pass which costs more but gives you the right to skip the lines at the attractions.
This isn’t actually the case at the Disney park in California (not familiar with anywhere else). There are different season passes, but the premium ones just let you get in on weekends and holiday days and what not.
They do have “fast passes” but those are available to anyone- you go to a kiosk and get an appointment to come back to the fast-pass line at some later time.
Legoland, for example, sells a Premium Play Pass which gives you “front-line benefits”. Universal sells the Express Pass which allows you to “skip the regular lines”.
Disney, I think, is more wary of PR problems, but still you can buy the (very expensive) “VIP tour” which, as I understand, will allow you to ignore all lines.
Customers prefer constant prices. Aside from the perceived unfairness, there are, again, transaction costs. Any time spent by customers trying to figure out how to get the lowest price is still a loss.
Airlines get away with it because airline seats are in limited supply, making it a seller’s market. The buyers have to take whatever the airlines give them. There’s certainly a fair degree of public outcry about it; the fact that there isn’t more is because of a combination of people not understanding it, the fact that most people only buy airline tickets occasionally, and the fact that there’s nothing the public can do about it.
Customers prefer predictable prices. They don’t have to be constant.
E.g., if tickets for an event are $15 in advance and $25 at the door, and this is stated clearly up front, most customers are OK with that… we can plan early and save $10, or we can keep our options open and pay a premium for that privilege.
Airlines get away with it because airline seats are in limited supply, making it a seller’s market. The buyers have to take whatever the airlines give them
On net, airlines lose money. In recent years, it seems to be mostly because of decreased demand (due to terrorism fears and TSA harrassment of passengers), and for decades it’s been because of price wars between airlines. I don’t think this is a market best described as a “seller’s market.”
That’s a very… incomplete prior. Customers also prefer cheap prices. Customers prefer (a lot!) the feeling that they got a deal and bought something on sale.
I also don’t see what’s special about airlines. Pretty much every business would love to price discriminate. Many do through a variety of methods. For example, supermarket coupons are a classic form of price discrimination.
But one of the main reasons why money is awesome is because spending money is rivalrous. My primary expensive hobby is art collecting. I have the number of original paintings I have because I put up more money than the other people bidding on them, and if everyone had more money, then the primary effect would be that the prices increase.
This assumes that a) there is a fixed supply of original paintings, and b) the demand for original painings is income inelastic. Admittedly, I’m not an expert on the art market, but my intuition is that the opposite is the case on both counts: as incomes rise, I would expect people to spend a larger percentage of their income on luxary goods such as art. If this is the case, then, yes, everyone having more money would indeed cause the price of original paintings to go up, but they would rise at a faster rate than less elastic goods, which would cause production of said paintings to go up, which would drive prices back down; the net effect is that more people have more paintings.
I decided to not elaborate on that because the second-order effects depend on why everyone has more money. If it’s because everyone is more productive, then there’s also lots more art floating around, because the artists are also more productive. I do agree that people who are richer spend more money on luxuries like art, but it’s not clear to me that all ways of giving people more money actually make more rich people.
But even if there’s a bunch more art floating around, there is a fixed supply of the best original paintings, and those will still go to whoever wants to spend the most money at art auctions. (Of course, best is subjective, and so on, but that’s part of the point of using auctions.)
This is true for me as well (I’m slightly older), but I also have some sources of income that I expect most graduate students don’t.
But one of the main reasons why money is awesome is because spending money is rivalrous. My primary expensive hobby is art collecting. I have the number of original paintings I have because I put up more money than the other people bidding on them, and if everyone had more money, then the primary effect would be that the prices increase.
When you say we need to exercise our intelligence, let me talk about Franklin Barbecue in Austin. It’s quite possibly the best barbecue in the US, and they’ve sold out of brisket every day that they’ve been open. Officially, it opens at 11 AM, but generally people recommend that you show up at ~8 AM to wait in line.
To the economist in me, this is a terrible setup. They could spend their customers’ extra money; they can’t spend their customers’ wasted time. They should auction off the barbecue, which will raise prices and lower wait times. But it’ll also get rid of the communal experience of waiting in line, and less of their customers will be students and more of them will be engineers. The way to get more money to ‘food trucks’ is to embrace the inequality that makes engineers that will bid on barbecue.
The marketer in me suggests you’re off the mark. How do you know that Franklin’s bbq is the best in Austin? Because there is always a line and it sells out. The wait in line IS what differentiates their product, and its how people judge the quality in such a subjective market.
I imagine if you start an auction for the bbq, what you’ll find is that in a few years you are making less money, as instead of being a good bbq experience that people drive in from all over Texas to try and tourists flock to, you’ll be just another good bbq place in Austin.
Them are fightin’ words, y’know… :-D
It’s more complicated than it looks
I’m aware, hence the hedging. I am not a food critic, and am relying on the judgments of food critics.
Yes, people rage at high prices, especially when demand jumps and supply falls. And I’m sure that the status threat of the price rising or being priced out makes it worse than just the scarcity.
But the right answer probably isn’t lotteries. People are unhappier when others receive rewards for merit than they are when others receive rewards because of luck. The right answer almost certainly is efficiency.
This confuses me. Surely if people are made less unhappy by a luck-based distribution, that’s an argument in favor of a luck-based distribution?
I’m not sure if you typed that backwards or not. I can think of plausible reasons for people to hate both luck and merit distributions.
I view it as an argument against the preferences of people.
So you did mean it as written. I’d kind of like to see the studies, if you have a link. I don’t find it surprising, exactly, but it’s not a question I’d considered before, and it seems like it would be amusing misanthropy fuel.
Maybe people don’t actually believe in merit, in near mode. Maybe they think they do, but they are really thinking about status.
Distributions based on merit (that we don’t recognize instinctively) simply seem unfair. Distributions based on tranparent luck seem like everyone at least had a fair chance.
Maybe the real problem with money is that it usually belongs to people we personally don’t know, so we don’t know what exactly they did and why exactly should we respect them, so it feels like they really don’t deserve the money. And the rest is rationalization.
This is made worse by money anti-correlating with status when all other variables are controlled for, i.e., given two otherwise comparable jobs, the lower status one will pay more.
The right answer to which problem exactly? Temporary shortages of high-status goods aren’t exactly a burning issue that really needs to be solved externally.
Locally, the Barbecue Distribution Problem. Globally, the Efficiency Problem. Imagine Franklin Barbecue as one of the broken windows of inefficiency; yes, it only wastes tens of years per year, and they’re probably only losing tens or hundreds of thousands of dollars in revenue per year. But efficient markets in barbecue help make efficient markets in other things more reasonable.
I would assume that people who run the barbecue are (1) Aware of the problem; (2) Have incentives to deal with it; and (3) Are not entirely stupid. Given this I am not sure why do you think that what they are doing now is not “the right answer”. For example, raising prices might be good in the short term but turn out to be a very bad idea in the medium term.
What is that problem and, again, what does it have to do with temporary shortages of high-status goods? And I’m less than convinced that the broken-windows theory applies to global efficiency. In any case, if so, wouldn’t you want to start with government, instead? X-/
To give a trivial example, creating such a temporary shortage is popular marketing trick (if the company can pull it off, of course).
I think that (3) is not a good assumption to make, and I wouldn’t word it that way. I know lots of artists who have never heard of sealed second-bid auctions (also known as Vickrey auctions), despite those auctions being the optimal way to sell artwork or commission slots online. Are they entirely stupid? No; they just have limited knowledge. Similarly, the barbecue auction problem has a potentially nontrivial complication: there are 5 different varieties of meat sold by the pound (and each variety of meat can either go into by-the-pound orders or sandwich or plate orders), and many people would like either their entire order, or none of their order. How do you find the optimal set of orders to fulfill, and what price do you charge people for those orders, in a way that doesn’t skew their bidding incentives?
It’s a solvable problem, of course, but it’s the sort of problem you’d want to hand off to an optimization guy to solve for you, especially if your core competency is barbecuing meat.
It might- it’s possible that once people could get it by paying more money, instead of more time, it would lose some of the specialness and people would go there less. But it’s not clear to me that they would ever reach the point where they don’t sell out of meat, and maybe they have to be open for dinner too instead of just lunch.
But it could also be that the steady-state long-term price of their brisket is $40 a pound, and they’ve been selling it at $17, and that it is a fantastic thing over the medium term.
(Also, I feel I should mention, since it may not have been obvious: they do allow pre-orders, if you’re willing to pre-order by about a month. The amount of pre-orders they allow is obviously capped, so that there’s still BBQ available day-of. Auctioning off meat should start as a small percentage of their total quantity moved as a test, and then expanded or contracted as desired. So long as some of it is available by waiting, it is unlikely to lose the popularity.)
Basically, not enough people thinking like economists.
Well, then, I see an excellent opportunity for you. You mentioned that they might be “losing tens or hundreds of thousands of dollars in revenue per year”—surely if you go talk to them and point it out, they’ll be glad to pay you some of that surplus that they are leaving on the table.
In the best case you’ll earn a fair chunk of money and make friends in the BBQ business. In the worst case you’ll learn a valuable lesson why theoretical economics doesn’t apply to real life too well :-)
That’s complicated. I understand what you are trying to say, but “thinking like an economist” is not an unalloyed good. For example, consider that economics (especially macro) is really bad at forecasting.
This is, in fact, my plan.
Cool!
Do report on success.
If the availability of their product to low-income people is a priority for the current owner, it might be possible to maintain that while raising cash prices by offering menial temp work (such as dishwashing) in exchange for store credit. This is a well-known strategy among restaurants looking to settle accounts with someone who has already eaten but proves unable to pay; the innovative part would be offering a more favorable rate of exchange, and work first for food later.
If jobs are scarce, the restaurant should already have enough dishwashers. Since the restaurant can’t temporarily fire one of its existing dishwashers for a week in order to have the nonpaying customer wash dishes, it’s hard for the restaurant to recover the money in free labor from the customer. It only works if the restaurant happens to have a job of the right length available I’d expect that to be pretty unlikely. Better just call the police. As a bonus, if you call the police you don’t create perverse incentives for more people to stiff you on the bill in the future.
I realize your version of the story doesn’t include this, but I’ve often heard it as the restaurant giving the guy a permanent dishwashing job, and sometimes even having the guy rise up in rank and eventually come to own the restaurant. This version is even unlikelier. (For instance, if the restaurant thinks a guy hired this way is better than a guy hired through the normal application process, why do they even have an application process? And if you’re in a situation where jobs are scarce, then jobs are valuable things and the restaurant should be able to be very selective in who it hires.)
Of course it’s less efficient than hiring an equivalent number of professional dishwashers; the point is to extract more value from the customers by having them choose between paying extra or doing marginally useful work, rather than standing in line.
I can’t speak to whether there are any real instances of such a thing happening (the story is only vaguely familiar, I may not even have heard it before,) and I suspect it’s more likely than not apocryphal. But the answer to “if the restaurant thinks a guy hired this way is better than a guy hired through the normal application process, why do they even have an application process?” would be “because a single specimen does not invalidate a selection process that deals in generalities.” The application process is an attempt at sorting prospective workers to select those who are most likely to be valuable to your business, but that’s not to say either that some duds won’t get through (people routinely make it through application processes only to be fired for poor performance, after all,) or that a less stringent selection process cannot induct good workers.
thanks for the link. I wonder if it would be feasible for companies to run lotteries for highly demanded goods.
In our economy most shortages are temporary—the market takes care of them.
But lotteries for things in very limited supply certainly exist, see e.g. this
It’s not exactly bidding, but I happened to read an article this morning about the $4 artisan toast available in a certain San Francisco coffeeshop, which seems to largely fit the bill. Yet about half the article was taken up by tedious kvetching about how the Bay Area tech industry is driving up the standard of living.
One could argue (and indeed I largely agree) that this ignores the artisan toastmaster side of that economic equation, or raise any number of other objections, but that’s not the point. The point is that this is a tough political sell.
(Statement of conflicting interest: I am in fact an exploitative Bay Area techie.)
The Marxist in me wishes to point out that if you’re part of the tech salariat rather than the VC class or real-estate rentier class, you are not in fact exploitative. The fact that the Bay Area confuses “high productivity worker” with “exploitative capitalist” is one of its larger collective errors of thinking.
In the wage / rent / interest model, the skilled person’s salary should probably be modelled as a mix of wage and rent.
The wage in its pure form is what a completely replaceable employee gets. The fact that the employee is completely replaceable will drive the wage down to the level where it barely covers the expenses to survive. Of course the expenses are different at different places, so the wages will reflect that, but that additional money just goes through you, and at the end you don’t benefit from it.
The rent in its pure form is what you get for auctioning a use of a scarce resource (such as land). An intelligent person with mathematical skills good enough to work in IT is in some sense a scarce resource. They can be replaced (but you can also move from a piece of land to another piece of land), but it’s difficult, and there are not enough skilled people for every employer’s every whim. The employers are competing among themselves, and this creates the rent. -- If you could somehow separate your talent from your person, and send the talent to the work while you stay at home and have fun, that would be a rent in its pure form. But because it doesn’t work this way, your wage and your rent are connected together.
And the interest in its pure form is money making another money. Which you can achieve by investing your rent in an index fund. So a techie can become an evil capitalist, too; it just doesn’t happen automatically and requires some strategic thinking.
Ah, that was a pleasant bit of reminder. Thank you.
(Though I did mention I have a maxed-out Roth IRA. I very much am trying to become an evil capitalist, on grounds that within this system it is my only rational move, should I desire to do anything other than work for a minimum subsistence. I still want the system changed and overthrown.)
The toast is Josey Baker Bread (yes, that’s actually his name; short documentary here) and it really is that good. By which I mean, as another exploitative Bay Area techie, I’ve paid that price at The Mill more than once and I felt it was worth it.
The toast only manages to be worth four dollars to you because four dollars is worth less to you than to poorer people. (At least in the sense of how much you would care if you lost four dollars and what you would be willing to do to get another four dollars).
Some customers don’t have extra money, but do have extra time. (And they can’t easily just convert the extra time into money.)
Yes, but when you have more people who want to be customers than who are customers (as is implied by selling out of stock before you run out of line), the question is “who do you exclude?”
One way is exclude people randomly. This gives everyone involved a sense of fairness, but no sense of control- either they get lucky, or they don’t. Another way is to exclude people by time preference. If they aren’t willing to wait, then they aren’t going to get any. A third way is to exclude people by cash preference. If they aren’t willing to pay the price, then they aren’t going to get any.
Generally, the only option that benefits the supplier is the last one, and thus it’s probably the one that they want to take. There are a few counterexamples; one example that frequently comes up here is concert tickets for young female singers. There are generally two kinds of fans that go to those concerts: young girls who enjoy the music and older men who enjoy the show. The older men are generally willing and able to pay more, but not as willing and able to wait in line. It’s unlikely that the optimal experience for all involved is for all of the tickets to go to the older men, and so they might parcel out tickets to different venues in the hopes that they will go to different people while still increasing revenue.
If they raise the price of the barbecue until the number of buyers is small enough to eliminate the line, their pricing will be seen as unfair and this will have a long term affect on their ability to retain customers. While barbecue could produce more profit being sold to rich customers, other more plentiful items need to be sold to both poor and rich customers to maximize profit. And if you lock poor customers out of the barbecue, they won’t come in for the other items.
Furthermore, it would be rational for poor customers not to buy the other items because of the transaction costs in having to discover which items are priced for rich customers and which aren’t. The store could do slightly better by pricing all items for rich customers rather than just the barbecue, but even that may produce less profit than keeping the price of the barbecue low and having more customers for the other items in the store.
Another possibility is that people get tired of eating barbecue too often and you need to have customer turnover. If you price the barbecue high enough that exactly the number of rich customers arrive that will buy all the barbecue, in a week from now those customers will be tired of barbecue and there won’t be other customers to replace them.
Sure. But consider airlines, and the revenue management they do, as a contrast.
The basic problem is that there is no single price-per-seat at which it is profitable to fly a plane. Imagine the demand curve as something like $1000/x, where x is the number of tickets sold on the plane. Regardless of the price you pick, your total revenue is going to be $1000, and if the plane costs $2000 to fly, you can’t pick a single price for every ticket such that the plane is profitable to fly.
But suppose you could offer different customers different prices. The person willing to pay $1000 is charged $1000; the person willing to pay $500 is charged $500, the person willing to pay $333 is charged $333, and the person willing to pay $250 is charged $250. Now you’ve got a plane in the air, and $83 in profit (and another person paying $200 would get you up to $283 in profit). But this required you knowing which customer was willing to pay what, which is generally done by time-segregation (the amount of time you book the flight in advance, combined with the number of seats left on the plane) which is itself determined by sophisticated modeling.
There doesn’t seem to be a public outcry about revenue management for airline tickets. Perhaps this is just because people don’t understand what’s going on underneath, or adjusting prices with time feels appropriate in a way that adjusting prices with supply doesn’t, or because it’s been this way for ~30 years and people are used to it now.
This is not a problem for auctions, because the price drops when the demand drops, so long as the minimum price is set so that the market always clears.
Analogically with the airlines, the current model should be the “economy class” barbecue, and there should be a new “business class” barbecue—extremely expensive, but without having to wait.
Preferably with some additional differences—sitting in a separate room, with pleasant music and paintings on the wall—to make it easy to rationalize (by both kinds of customers) it as “paying extra money for extra luxury” instead of “paying extra money for cutting in line”.
That model is used by Disneyworld and other theme parks. You can buy a regular ticket, or you can buy a premium pass which costs more but gives you the right to skip the lines at the attractions.
This isn’t actually the case at the Disney park in California (not familiar with anywhere else). There are different season passes, but the premium ones just let you get in on weekends and holiday days and what not.
They do have “fast passes” but those are available to anyone- you go to a kiosk and get an appointment to come back to the fast-pass line at some later time.
Legoland, for example, sells a Premium Play Pass which gives you “front-line benefits”. Universal sells the Express Pass which allows you to “skip the regular lines”.
Disney, I think, is more wary of PR problems, but still you can buy the (very expensive) “VIP tour” which, as I understand, will allow you to ignore all lines.
Customers prefer constant prices. Aside from the perceived unfairness, there are, again, transaction costs. Any time spent by customers trying to figure out how to get the lowest price is still a loss.
Airlines get away with it because airline seats are in limited supply, making it a seller’s market. The buyers have to take whatever the airlines give them. There’s certainly a fair degree of public outcry about it; the fact that there isn’t more is because of a combination of people not understanding it, the fact that most people only buy airline tickets occasionally, and the fact that there’s nothing the public can do about it.
Customers prefer predictable prices. They don’t have to be constant.
E.g., if tickets for an event are $15 in advance and $25 at the door, and this is stated clearly up front, most customers are OK with that… we can plan early and save $10, or we can keep our options open and pay a premium for that privilege.
On net, airlines lose money. In recent years, it seems to be mostly because of decreased demand (due to terrorism fears and TSA harrassment of passengers), and for decades it’s been because of price wars between airlines. I don’t think this is a market best described as a “seller’s market.”
That’s a very… incomplete prior. Customers also prefer cheap prices. Customers prefer (a lot!) the feeling that they got a deal and bought something on sale.
I also don’t see what’s special about airlines. Pretty much every business would love to price discriminate. Many do through a variety of methods. For example, supermarket coupons are a classic form of price discrimination.
This assumes that a) there is a fixed supply of original paintings, and b) the demand for original painings is income inelastic. Admittedly, I’m not an expert on the art market, but my intuition is that the opposite is the case on both counts: as incomes rise, I would expect people to spend a larger percentage of their income on luxary goods such as art. If this is the case, then, yes, everyone having more money would indeed cause the price of original paintings to go up, but they would rise at a faster rate than less elastic goods, which would cause production of said paintings to go up, which would drive prices back down; the net effect is that more people have more paintings.
I decided to not elaborate on that because the second-order effects depend on why everyone has more money. If it’s because everyone is more productive, then there’s also lots more art floating around, because the artists are also more productive. I do agree that people who are richer spend more money on luxuries like art, but it’s not clear to me that all ways of giving people more money actually make more rich people.
But even if there’s a bunch more art floating around, there is a fixed supply of the best original paintings, and those will still go to whoever wants to spend the most money at art auctions. (Of course, best is subjective, and so on, but that’s part of the point of using auctions.)