What happens when you cut the supply of Northwestern football by 75%?

WSJ: Price goes up by 900%!

Ryan Field, where Northwestern played until this season, sat over 47,000 fans—nearly four times as many as the [temporary] cv lakeside stadium.

Tickets for last Saturday’s home game against Indiana started at $129 on the school’s official site, an increase of more than 900% on the $17 average secondary-market price for last season’s home opener.

The shift in capacity creates a natural experiment, a movement along the demand curve, that allows us to calculate the Price Elasticity of Demand for Northwestern football. 

(Price Elasticity of Demand) = (% change in quantity)/(% change in price) = (-75)/900 = -1/12, 

a very inelastic demand, i.e., one whose quantity does not respond much to price changes.  

But this natural experiment may over-estimate demand elasticity because the quality of the new stadium, particularly its intimate feel and views of Lake Michigan, is higher than the old one.  This increase (shift) in demand due to higher quality increases the price change, making demand appear less elastic than if the new stadium were the same quality as the old one.  

HT: Lamar

AI podcast on Ch1 by Notebooklm.Google (Is this better than reading text?)

Ch1 Podcast Comments solicited

Bargaining with Longshoremen

How much bargaining power did the two sides have in the recent dock workers' strike? 

For shippers, what is the cost of a one day delay in coming to terms? The port of New York handled 6.6 million Twenty-foot Equivalent Unit (TEU) containers in 2022, but the East cost and Gulf coast ports for which data are available handled ~21 million. The average value of a TEU is $54.500. Assume firms have a 20% annual discount rate for a little back-of-the-envelope calculation.

	Port of New York	All Affected Ports	Units
Volume Handled 2022	6.6	20.8	Million TEU
Value of TEU 2020	$54.5	$54.5	$Thousands
Annual Value	$359.7	$1,133.6	$Billion/Year
Daily Value	$985.5	$3,105.8	$Million/Day
Daily Carrying Cost	$540.0	$1,701.8	$Thousand/Day

The carrying cost alone is over $1.7 million per day, perhaps more in 2024 due to inflation and increases in trade volume. This is also a lower-bound since there will also be production disruptions & spoilage of goods. The cost to shippers might come to $3-5million per day.

What is labor's cost of a one day delay in coming to terms? The earnings of the 45,000 affected dock workers could be anywhere from $39/hour to $200,000/year. Suppose half of these would have worked on any day and that a typical day is eight hours of work, the 45,000*0.5*$39/hour*8hours = ~$7million per day. This is an upper-bound since opportunity cost of workers time is not $0. The cost to workers might be $3-5million per day.

You can adjust any of these assumptions as you deem appropriate, but it seems that the two parties were pretty evenly matched.

Colocating Complements

 

Providers of complementary services can increase demand by reducing the search costs of shared customers. Perhaps colocation will suffice but the next step would be vertical integration.

New interactive games to teach supply, demand, and pollution, a "negative externality"

From MarginalRevolution.com:

MRU videos are free for anyone’s use anytime, anywhere and don’t forget there are also two new econ-practice games on negative externalities and positive externalities and a fun choose your own adventure story on Unintended Consequences (most textbooks just teach when regulation works. We are more balanced.)

HIGHLY RECOMMENDED: These are GREAT exercises for teaching students about Demand, Supply, and shifts in Demand and Supply!

Frank Zappa on Project Selection