What happens when your rewards are unfair?

Auctioning Jobs

DeveoperAuction has begun recruiting engineers by using auctions. As reported in TechCrunch, those who are  interested in leaving their current companies and have good credentials can apply to be part of a batch of candidates that potential employers will then bid on to offer them interviews. Software developers can then choose which interviews they want to take. Rather than recruiting agencies' usual commission of 20-20% of base salary, if the process ends with a placement, the employer pays DeveloperAuction 15% which is shared with the applicant.

The company was founded when Matt Mickiewicz, who co-founded 99Designs and Flippa, and LiveOps founder Douglas Feirstein, ran into each other at a conference and started complaining about how difficult it was to hire decent engineers. They started thinking about how to apply auction and game theory to recruiting and from that, DeveloperAuction emerged. 

They must have received A's in Managerial Economics.

Why Charge More for Women's Haircuts?

Some of the repetitions of  the initial news reports of the ruling by the Danish Board of Equal Treatment that men's and women's haircuts would have to be priced equally had a sub-text of 'those crazy Scandinavians are at it again' about them.

'It takes, quite simply, longer time with women,' said Connie Mikkelsen, chairwoman of the Danish organisation for independent hairdressers and cosmeticians.

But Alex Hern of the NewStatesman did the 'hard work' of actually reading a translation of the ruling. It turns out the ruling is due to a complaint from "a woman with a short, boyish haircut, who was nonetheless told she would have to pay the price for a 'woman's haircut.' " The facts appear to be a little more subtle than they seemed at first blush. The woman was being charged more for being a woman, not for having long hair. This would be 'gender discrimination.' But what is in it for a hairdresser to engage in gender discrimination?

It could be gender bias, essentially mere bigotry. It seems quite likely, though, that there are significant differences between men's and women's cuts that are independent of hair length. These differences could be based on costs (on average, even women's boyish cuts take longer than boy's cuts) or based on customer value (on average, women care more about a good cut than do men).

Regulating price equality has a few pernicious effects:

1. If the difference is cost based, then price equality codifies an inefficient distortion. Markets abhor a distortion. We would expect innovations to surmount the distortion. Perhaps hair dressers refuse male customers so as to charge higher prices to high cost women. Perhaps less time is spent on women making their cuts  less stylish. Perhaps the shops absorb the hit, become less profitable and the marginal shop closes.
2. Suppose it was value based. Without going into detail, Hal Varian showed us that price discrimination usually increases social welfare because more of the good is exchanged. The alternative single price is a single monopoly price.
3. Suppose it was a mere bigotry against women. Price equality could rob women of the most important weapon they have to fight discrimination: choice. If the higher price was simply due to a bias against women, then price equality would not inform women who held this bias. They would keep patronizing bigots and bigots would suffer no consequences of their bigotry. It robs unbiased entrepreneurs of the opportunity to undercut these prices and drive biased hairdressers out of business. The greatest threat to bigots is having to compete with non-bigots.

Online Price Discrimination

The Wall Street Journal investigate price differences and discovered price discrimination. For example, Staples said "in-store and online prices do vary by geography due to a variety of factors, including rent, labor, distribution and other costs of doing business." Likewise, Capital One Financial Corp. has used personalization to decide which credit cards to display to website visitors. "Dynamic pricing" adjusts prices continuously in response to information including competitors' offerings and other factors.

Capital One says it gathers data about visitors while they are on its website and uses this information to suggest different products to them. "We do not use any of this data in credit decisioning or underwriting," a Capital One spokeswoman said. "We're making an educated guess about what we think consumers will like."

Its been a nice ride for Intel

For more than three decades, Intel has been riding the PC wave with above par earnings. Some of this wave is the result of superior Intel products but some is the result of increased demand for PCs for other reasons. But, as reported by Quentin Hardy in the NY Times, the era of PC dominance may be over and this is affecting Intel too.

At the after-hours price, Intel’s market capitalization dropped below that of Qualcomm — a smaller maker of chips, but a company that makes chips for smartphones and tablets. Even a year ago, this would have been unthinkable.

Unthinkable? This graph from ZDNet suggests otherwise.

What are the strategic implications?

“Longer term, Intel will move more aggressively into smartphones,” said Bobby Burleson, an analyst with Canaccord Genuity. “But everyone worries about their long-term gross margins.”

Why Block Auctions in Inauguration Tickets?

New York Senator Charles Schumer, who chairs the Joint Congressional Committee on Inaugural Ceremonies, is asking with eBay and Craigslist to remove listings for presidential inauguration tickets. And they are complying. Although ticket lottery winners must pledge not to scalp the ticket to turn a profit:

The lack of recipient tracking creates a gap between having people pledge not to resell awarded lottery tickets and incentivizing recipients to keep their promise. Without a way to track the allotted tickets, it is difficult to make the pledge as honorable as possible.

Students of Managerial Economics may well wonder why such an efficient mechanism for the allocation of goods as auctions is to be barred. Maybe efficiency is not the goal.

The tickets are obviously valuable, some have gone for $4,300, but are supposed to be distributed free of charge by congressional offices. The congressmen may want to extract a future favor from lottery winners. It is likely that a ticket requester motivated by a resale motive would have less of an affinity for the congressman and would be less prone to offer future favors. As evidence:

Bud Miller, executive director of the Coupon Information Center, wishes he had the same power to convince eBay to stop the illegal sale of coupons, like Schumer had over scalping inauguration tickets.  "Senators have the ability to move heaven and earth and occasionally a website," Miller said this afternoon. 

from al.com

Flight Attendant Agency Problems

George Hobica got a retired flight attendant to open up to him at wrote about it in the Huffington Post. Much of it is the expected  complaining about passenger behaviors (e.g., having to repeat oneself to passengers wearing headphones). But some are represent mild to severe agency problems.

1. You know that coffee you ordered? It's actually decaf even though you asked for regular. We'd rather that you sit back, relax and fall asleep so you don't bother us too much. Our airline sent around a memo wondering why the decaf supplies were going so fast, noting that decaf costs more than regular coffee.

Not good but not too bad.

4. If a flight is late, the airline might have to pay us overtime. If the flight is going to be late anyway, we've been known to delay it even further in order make sure overtime kicks in, which on our airline means up to double the hourly pay. We might find some minor defect in the aircraft or use some other ruse to make up for the money we don't get paid waiting for take off.

More severe (and this may have happened to me recently).

12. Yes, we do ask the captain to leave the seatbelt on long after the turbulence has ended so we can serve in the aisles.

Pretty mild.

13. On night flights, we sometimes hold off on meal service as long as we can so that you'll be asleep and we'll have less to do.

Actually quite petty.

Does the FTC price discriminate?

Value of Transaction	Filing Fee
$70.9 million to $141.8 million (previously $68.2 million to $136.4 million)	$45,000
$136.4 million to $709.1 million (previously $136.4 million to $682.1 million)	$125,000
$709.1 million or more (previously $682.1 million or more)	$280,000

There are two competing explanations for the higher filing fees for bigger transactions.

• The cost-based explanation is that it takes more time and effort to investigate the competitive effects of bigger transactions.
• The demand-based explanation is that bigger transactions generate more surplus, and so that parties are willing to pay more to complete the transaction.

If the latter, then the FTC is price discriminating against larger transactions.

HT:  Bass, Berry & Sims

Admonish or Applaud Employee Outsourcing?

'Bob' found a way to get his job done, and done quite well, at no additional cost to his employer. According to The Register, 'Bob' was a "star developer" for a "a US critical infrastructure company." He was able to perform so well and still have time to goof off because he had outsourced his job to China. It cost him only one-fifth of his six figure salary. His scheme was only uncovered from a security audit. The story concludes that "Bob is no longer employed by the firm."

Was this an offense for which he should be fired* or is this an example of 'working smarter, not harder?' On the one hand, he was able to deliver to his employers superlative work at no additional cost. On the other hand, he was withholding from his employer a way to further reduce costs - either by replacing him or replacing others' jobs. This episode reminds me of David Friedman's beautiful essay on free trade entitled "Iowa Car Crop" reprinted in Steven Landsburg's "Armchair Economist."


*He may have violated security protocols or some other procedures. I am focusing on getting solely on the outsourcing one's job part.

Why steal Tide?

This seemingly irrational criminal obsession with the leading liquid detergent brand can be interpreted as a rational response to theft deterrent precautions for other, more valuable goods.:

...Most frequently stolen goods—GPS devices, smartphones, and other consumer electronics—are pricey, light, and easily concealed. They’re also not routine purchases, which means they can be locked up until buyers ask for them. Bulk goods like detergent are harder to run off with, but they’re also bought by dozens of customers daily...

This makes it costly for stores to lock these items behind a case.   This makes Tide relatively easy to steal.  Plus,

 Cashiers and stockists, working for low pay, are often disinclined to confront a potential criminal. “People at the cash register don’t stop you,” says one of Thompson’s informants, an ex-con who shoplifted for years. “They just let you go past.” What’s more, stolen bottles of Tide aren’t easily traceable.

So how is P&G reacting to this?

For its part, Procter & Gamble doesn’t seem overly concerned about the black-market popularity of its product. “It’s unfortunate that people are stealing Tide, and I don’t think it’s appropriate at all, but the one thing it reminds me of is that the value of the brand has stayed consistent,” says Raman, the marketing director. 

HT:  Brad