Wednesday, March 28, 2007

How Much Would You Pay to Drive in the HOV Lane?

Here is an example of the unintended consequences that arise when the government imposes quotas and price controls.

Californians appear willing to pay $4,000 more for used gasoline-electric hybrid vehicles that have state-issued carpool stickers than for hybrids that don't, according to a sampling of prices by Kelley Blue Book for USA TODAY.

The stickers allow low-polluting hybrids to use less-crowded, faster-moving carpool lanes, even if the driver is alone in the car. The state quit issuing stickers to hybrids last month after hitting a self-imposed cap of 85,000. Those already issued are valid through 2011 and stay with the car when it's sold, benefiting subsequent owners.

(Source: Marginal Revolution)

Tuesday, March 27, 2007

Resale Price Maintenance

The Supreme Court is examining a longstanding law in the United States banning resale price maintenance. Resale price maintenance is when a manufacturer requires a retailer to sell their products above a minimum price. An example would be if Apple required stores to sell iPods for at least $400. The practice was banned to increase competition, but there are doubts as to whether it serves its purpose.

Greg Mankiw discusses the court case and his take on the practice on his blog. Here is a NY Times article on the concept.

Do you think resale price maintenance should be allowed? Make sure you read the articles before responding to keep the discussion informed.

(Source: Greg Mankiw's Blog)

Monday, March 26, 2007

Why Recording Artists Don't Make All The Money

Stories about musicians always seem to end with them being broke at some point. Then there are also statistics about how little money the artist makes from each $15 CD. Many people point to the recording industry as the reason why recording artists don't makemuch money: that musicians are being taken advantage of. There is a post on Free Exchange that discusses the reasons that this is probably not true:

But more generally, the problem that artists have is not the recording industry. The main problem musicians face is other musicians. There are too many of them.

Pardon me while I make a simplistic, Economics 101 argument here, but it seems to me that the reason almost no musician ever makes much money is that there is a huge excess supply of people who want other people to listen to them sing or play an instrument. When all the primates are vying to get up on stage to impress the other primates, there's little reason to pay the primates much. Get rid of the recording industry and there will still be a huge oversupply of people trying to occupy a limited space on stage, the radio, or your iPod. The market power currently enjoyed by the recording industry will instead pass to the owners of those scarce resources.

This is also why I don't tend to feel bad for the winners of American Idol that sign their career away to Simon Cowell. There are 100,000 people lined up to take their place, but there are only a few people who have the influence/experience/skill to successfully market a recording artist; therefore, why shouldn't the person marketing them get more of the profit.

As we learned from David Ricardo: bargaining strength comes from scarcity.

(Source: Free Exchange)

Economic Effect of the Final Four in Atlanta

Here is a question from Carrie:
Normally, hosting a national event benefits a city's economy: out-of-towners patronize local hotels, restaurants, and stores. But when Atlanta hosted the NBA All-Star game four years ago, the overcrowding was terrible and traffic was awful for days; Las Vegas had some similar problems with the game this year. How will Atlanta's hosting of the Final Four next week be different? Should the city take any precautions to prepare for such a big crowd?
There is a lot of debate on how much hosting big sporting events benefits cities. These supposed benefits are used to justify public funding of stadiums and arenas. What do you think about the effect of having the Final Four in Atlanta this weekend? Give specific ideas on the economic effects.

(Source: Carrie S.)