Monday, September 23, 2013

If Walter White Hired a Market Consultant ...

his analysis might look something like the one reported on in the NY Times. Prof. Hart solicits crack and meth addicts into his experiments. After random sized sampling a dose in the morning, they are offered another same sized dose later on or cash or vouchers of varying amounts. When the dose is high and the alternative is low, they take another dose. But at when the dose is low and the payment is high, they opt not to get high again.
When methamphetamine replaced crack as the great drug scourge in the United States, Dr. Hart brought meth addicts into his laboratory for similar experiments — and the results showed similarly rational decisions. He also found that when he raised the alternative reward to $20, every single addict, of meth and crack alike, chose the cash. They knew they wouldn’t receive it until the experiment ended weeks later, but they were still willing to pass up an immediate high.

So there is some non-infinite price elasticity. The characters from Breaking Bad could use the implied elasticity to set profit-maximizing prices.

1 comment:

  1. One of the unknowns here is what the cost of a similar dose of meth/cocaine would be on the street. If the $20 offered by the Dr. Hart exceeds the price of a dose, it makes economic sense for the addicts to take the $20, even if they have to wait for it, since the exchange is a positive one. Given the question about the price at which max. profit is reached for the Breaking Bad characters, we could assume it would be below $20 since at this level, the demand disappears.