Wednesday, November 19, 2014

Protesting Against Yourself

Every year, the town of Wunsiedel receives unwanted guests. Neo-Nazis march in commemoration of Rudolf Hess. The townsfolk have tried to get them to stop. In some German towns, there has been a history of violent clashes between extreme left-wing and extreme right-wing groups. This time, rather than confront these marchers, they merely undermined them. As the WSJ reports:
Instead, the group Rights versus Rights (Rechts gegen Rechts) had come up with a new way to protest the annual neo-Nazi march: For every meter the neo-Nazis walked, local businesses and residents would donate $12.50 to a nongovernmental organization devoted to making it easier for neo-Nazis to leave behind their hateful politics.

The group changed the payoffs of the game in order to change the behaviors of the participants. Do see the short video here in which the bewildered marchers are encouraged by banners and notices along the way of how much they funds they have generated. :)

Tuesday, November 18, 2014

If only President Obama had read Chapter 5

It looks as if the President failed to anticipate the consequences of his "net neutrality" policy.  After the White House "offered a full-throated endorsement “for the strongest possible rules” in support of “net neutrality,” AT&T CEO Randall Stephenson said that his company was going to step back from investing billions of dollars in building out its own GiGaPower fiber network:

Stephenson clearly fears that the President’s call to the FCC will result in heavy new regulations that will reduce the profit potential of the company. AT&T is holding back to see just how badly the new rules will damage its investment prospects.
Some economists found the President's analysis short-sighted:
The President defends this supposed pillar of the Internet policy by insisting that “an entrepreneur's fledgling company should have the same chance to succeed as established corporations, and that access to a high school student's blog shouldn't be unfairly slowed down to make way for advertisers with more money.” 
But why should this be the case when paid prioritization is the norm in virtually all highly competitive markets? A quick trip to the Federal Express website, for example, reveals a wide range of “fast and full of options” like “FedEx Priority Overnight and FedEx Standard Overnight.” There is also two- or three-day shipping and Saturday service for those who want it. The different tiers of services are offered, not surprisingly, at different rates. These differential services are available to all customers. It is simply wrong for the President to assume that any system of paid prioritization entrenches established companies at the expense of new entrants, or greedy advertisers at the expense of high-school bloggers.
If President Obama had read Chapter 5, he would have known to "look ahead and reason back."  Don't worry though, I sent him a copy of the third edition 

Monday, November 17, 2014

OPEC caught in prisoners' dilemma

Oil prices have fallen by 30%.  If the oil producing nations cooperate, and cut back output, then prices would go back up.  While this would be good for everyone in OPEC (and bad for consumers), it is not individually rational.

Students will recognize this as a pricing dilemma, that makes it very hard for rivals to maintain a cooperative outcome.  See earlier post here:  Never start a land war in Asia (or a price war)

Saturday, November 15, 2014

Pirate Joe's erodes Trader Joe's profit

The forces of competition are at it again:

There is a Trader Joes in Bellingham, WA near the Canadian border. Many Canadians cross the border to stock up on Trader Joes groceries because there is no Trader Joes on their side near Vancouver. One man recognized this demand for Trader Joes groceries so he set up a store on the Canadian side of the border in which he sells Trader Joes products. He calls it Pirate Joes. He buys all of the Trader Joes groceries on the US side, brings them to his store and re-sells the Trader Joes products at a slightly higher price. People are willing to buy the Trader Joes products at a slightly higher price because it saves them the hassle/expense of crossing the border (the border dissuades people from going for the even lower prices at the actual Trader Joes store in Bellingham)

Why doesn't Trader Joe's open a store in Canada?


Who wants to get married in Mexico?

Leonel Luna, a Mexican legislator has proposed 2 year renewable marriage contracts to combat the high cost of divorce in Mexico:
"Almost 50% of couples in Mexico City end up in divorce," Luna says. "What we're trying to do is acknowledging reality and creating a mechanism that will allow couples to end their marriage without going through the additional pain and suffering of a legal battle."

If you cannot immediately spot two problems with this contract, you are not ready to get married:

  • Problem 1:  Post-investment hold-up (who would make relationship-specific investment with a short term contract?)
  • Problem 2:  Adverse selection (what do you learn about a potential spouse who wants a renewable marriage contract

Thursday, November 13, 2014

How Victoria's Secret discriminates against men

The art of price discrimination is to identify consumers who are less sensitive to price, charge them a higher price, and prevent them from mimicking the behavior of more price sensitive consumers.  Victoria's Secret has discovered that their male customers are less sensitive to price than their female ones:

"The general feeling about men is that they would buy anything in order to get out of the store as quickly as possible," the worker, who wished to remain anonymous, told us. "That means they would spend more money." 
...Women are more value-oriented, and so we were encouraged to show them deals," she said. "Men would buy a couple of $50 bras without questioning us because they felt awkward."
HT:  Andrew

Will this start or end a price war?

From Reuters:  
 Wal-Mart Stores Inc has informed managers of its roughly 5,000 stores across the United States that they can match prices with Inc and other online retailers, the head of the company's U.S. business said on Thursday.
In the past, the FTC has sometimes viewed announcements like this as an "invitation to collude"  because it seems likely that the primary target of this announcement is Amazon.  If Amazon believes the announcement then it changes their profit calculus, i.e., it reduces the benefit of cutting price.

A modest proposal to close the gender pay gap

From Ashe Snowe:

“... working age women earn less than men mostly due to the choices women make in their careers. ... And so I humbly present my own proposal for closing the gender wage gap, which I hope will not only solve the problem but also satisfy voices on all sides of the argument. As a society, we must begin telling women what subjects they can major in, what colleges they can attend, and what jobs they can take.”