Monday, November 27, 2006

Repugnant markets: it's not just kidneys

Keeping with the recent Milton Friedman theme: Friedman beleived that markets can solve basically any problem. Here's an excerpt from a blog entry at The Economist:

"Thy money perish with thee, because thou hast thought that the gift of God may be purchased with money." That's what Peter the Apostle said to Simon Magus when he tried to buy the power to work miracles. Mr Magus gave us the word "simony", which means the buying and selling of ecclesiastical offices, but can also refer to any human venture or transaction too lofty for the market.

Alvin Roth of Harvard University has published a new working paper on the many potential market transactions--from the selling of cadavers in the 19th century, to serving horsemeat in Californian restaurants--that are hobbled by the kind of repugnance Peter felt for Simon. Some of his examples are poignant as well as repugnant,

"the French Ministry of the Interior, in 1991, issued a statement saying that 'dwarf tossing should be banned'... a French dwarf, who had been employed by a company called Société Fun-Productions, successfully sued in French courts to have the bans overturned. However the bans were upheld on appeal... on the grounds that 'dwarf tossing… affronted human dignity…”' The dwarf then brought his complaint to the UN... he stated 'that there is no work for dwarves in France and that his job does not constitute an affront to human dignity since dignity consists in having a job.' However the UN committee found in favor of France..."

What do you think of this ruling? should there be a market for tossing dwarfs? Why or why not? And if not, are there other things that should not be left to the market? Do you have examples? Try to make your argument on the basis of what goes wrong if you let the market try to allcoate goods and services (seeing that we usually assume that goods and services will be assigned efficiently by the market).

Sunday, November 26, 2006

Why Blockbuster Advertises Movies in Theaters

A question from Nicole:
I happened to be at Blockbuster the other day renting a movie for the weekend and I noticed that all over the walls and windows of the store were posters advertising the new movie Happy Feet, which came out last weekend. "Only in theaters!" the posters and huge dancing penguin display proclaimed, and I was left wondering why a store which specializes in renting movies to consumers would want to encourage them to visit the movie theaters instead.
So the question is:
Does the revenue that Blockbuster gains from selling advertising space so much greater that it negates the possible loss of business from people who decide to go to the movies instead (because, at least from my personal experience, people tend to do one or the other in a given period of time, and not both)? Or do Blockbuster executives figure that they don't stand to lose much business because it takes too much extra effort to leave Blockbuster and go to the theater instead, and since people are already in the store, they will just rent a movie anyway?
Another possibility that I would throw out there before you guys offer possibilities is that Blockbuster may have deals with movie studios that require them to have advertising for movies in theaters in exchange for deals on DVD releases, etc.

(Source: Nicole O.)

Playstation 3

With the recent chaos over the release of Playstation 3, a question arises: why are there long lines and sell-outs of the new game system? Instead of people selling the new game consoles on eBay for thousands, why wouldn't Sony either produce enough to meet the initial demand or raise the price? How is their current strategy of selling out profitable? They knew this was likely to happen because the exact same thing happened last year with the XBox 360.

Some of the examples of the extremes of the launch:
  1. Long lines waiting to get the PS3.
  2. People were robbed and a man was shot while standing in line to buy the game system in Connecticut.
  3. People are selling consoles for thousands on eBay (and in this case, the people who bought the system initially are getting profit that Sony could have gotten by charging a higher price).
  4. One person even sold merely the information of someone who was willing to sell a PS3, not the actual game system, for $1,100.
When you offer a possible answer, it should be from the perspective of Sony: why would they go against the basic principles of economics by not meeting the demand for the game consoles?

(Source: James C.)

Luxury Car Dealerships

An article in USA Today describes the luxury car market and the lengths that dealerships go to get people into the dealerships:

At Fletcher Jones Motorcars, customers stroll through a gallery of Mercedes-Benzes, linger at the cappuccino bar, tap balls on the putting green or go for a pedicure. A couple of blocks away, Newport Lexus boasts marble fireplaces, Oakley and Tommy Bahama beachwear boutiques — and a flat-screen television, tuned to ESPN, of course, mounted above the urinal in the men's room. . .

Built at a cost of $75 million, Newport Lexus didn't hold back when it opened in July. It has lounges with big-screen TVs, a sandwich counter, video game room and boutiques all aimed at making customers want to stick around. "When people have their car in for servicing, I don't want them to leave," says sales general manager Scott Brewer.

Why would these dealerships go to such lengths? What is interesting is how much the dealerships are spending on all of these amenities that aren't directly related to their main product, which is cars. Also, what do all of these attempts at differentiation tell you about the market structure in the car dealership market?

(Source: Sarah O.)