Door Dash drivers are trying to beat the algorithm. When a specific meal needs to be delivered, Door Dash’s algorithm will post the gig to available drivers with payment information. If no one accepts, the algorithm raises the compensation level. This is how markets are supposed to clear. What if drivers organize to withhold their services until the rate rises enough? In labor markets, this is the main goal of employee unionization. In business markets, we call it collusion. (It is an open question if these gig workers are employees or independent contractors.) But there are a lot of drivers. It is not clear if you can get enough of them them to commit to this strategy. It is useful to employ moral suasion. The Facebook group #DeclineNow, was formed to share information and encourageRead More »
Articles by [email protected] (Michael Ward)
Zachary Crockett at the Hustle has a nice description of the economics of owning and operating vending machines. It is a fascinating look at an industry I would never have known about otherwise. There are about 2 million in operation in the US generating $7.4 billion in annual revenue for nearly 18,000 businesses that own them. Most owners run small operations as sole proprietors but Coke and Pepsi have vertically integrated into owning their own machines. The business scales well which allows for a gig workers type of entrepreneurship. Owners rent space for their machines mostly in manufacturing plants, offices, hotels, and hospitals and typically pay a percentage of gross revenue. The biggest decisions are what to stock and where to locate them.Read More »
Jen Glantz is an entrepreneur and founder of the company Bridesmaid for Hire. (There is a market for everything). Lots of people wanted her service and even more wanted fill the role, about 70,000 would-be bridesmaids. How to screen all of the applicants? You might think that having been an actual bridesmaid would be important. As she describes in this article, not so much. Instead, I like to find people who have experience in sales (so they have top communication skills and the ability to read and react to situations), working in high-stress environments (because what wedding isn’t high-stress?), and work well with groups of people (whether they’ve managed teams or worked one-on-one with lots of people before).There are multiple rounds of employee screening to sift out those just in itRead More »
A Chinese restaurant in West Philly called Danny’s Wok has the weirdest pricing structure for chicken wings. The price per additional wing may fall ever so slightly, but will rise every so often so that the average price per wing never falls much. It was so weird, it generated some buzz as many on twitter tried to make sense of it. And at least a dozen people on twitter have tried to describe it. Some of my favorites are from math twitter:Or from folks simply graphing the menu prices.Perhaps, this was not form of price discrimination after all but merely a clever ploy to get a bunch of free word-of-mouth marketing. Toward this end, it worked wonderfully.Read More »
Lufthansa is eyeing the prospect of flying customers in and out of Moscow for the sole purpose of receiving the Sputnik V vaccine against COVID-19. The offer would include two round trip tickets for the two dosses from various European cities and be priced at about 1000 euros.I was wondering when market forces would enter into Covid-19 vaccine distribution. Most countries are distributing it free to recipients and so have developed a rationing mechanisms. Market mechanisms, like this one, ration by price. Since the wealthy and health compromised would have higher willingness-to-pay, more of them would expected to "jump the line." I suspect the Lufthansa proposal is merely the most overt example of vaccine line jumping and that the wealthy have been able to get vaccinated early by pullingRead More »
The LA Times reports that, when the city of Long Beach imposed $4 an hour additional hero pay, some super markets decided to close instead.Kroger, the owner of Ralphs, Food 4 Less and other retailers, said Monday that it would close two stores in Long Beach in response to city rules mandating an extra $4 an hour in “hero pay” for grocery workers during the COVID-19 pandemic. In addition to the Ralphs, the company will close a Food 4 Less on East South Street. The moves will affect 200 workers. During the pandemic, grocery workers,and other essential workers, are
"heros." They are taking on a greater risk of infection and a larger
share of them are becoming infected. We usually expect wages to include a risk premium. Usually these are the result of the market equilibrating to a higher
At the beginning of the pandemic, the demand for N95 masks outstripped the available supply. Prices doubled overnight to near $7 per mask (and availability was exasperated by price-gouging concerns, see Dying from Protection from Gouging). Two guys from Fort Worth, Texas wanted to save lives. They understood that the solution would require an increase in supply, so they started United States Mask to fill the gap. However, as the Dallas Morning News reported, they may not have appreciated the obstacles they were up against.First, the had to obtain certification. “There’s no guidebook, and it’s not easy. The application process alone is 100 pages long.” But that accomplished, they produced their first mask last October. But that was for federal certification. Even so, there was reluctanceRead More »
Gooder products earn gooder prices.Read More »
Woohoo, we have made Feedspot’s "Top 100 Economics Blogs & Websites To Follow in 2021." We come in at number 57. This is a pretty comprehensive list of blogs on just about every field of economics.Read More »
Dozens of State’s AGs and my former employer, the FTC, claim that breaking up Facebook, Instagram and WhatsApp is in the social interest. Common ownership of these multiple social media platforms is said to stifle competition. But are these platforms substitutes or complements?How do they compete? Users pay nothing; advertisers pay to reach these consumers. The job of these two-sided platforms is to package groups of users to potential advertisers. Who uses the platforms and how they use them differ across users. Advertisers, seeking ever narrower customer niches, benefit from their ability to target the distinctiveness of each platform. A commonly owned FB/Insta/WhatsApp has an incentive to maintain these distinctions. Competing platforms would tend to position themselves to "steal"Read More »
Or installment #753 on unintended consequences. In a new paper in the Journal of Political Economy, Diane Alexander studies how physicians responded to a new bonus program for reducing total hospital costs. From her abstract:Doctors respond to the bonuses by becoming more likely to admit patients whose treatment can generate high bonuses and sorting healthier patients into participating hospitals. Conditional on patient health, however, doctors do not reduce costs or change procedure use. These results highlight the ability of doctors to game incentive schemes and the risks of basing nationwide health care reforms on pilot programs.Designing an appropriate incentive scheme is difficult.Read More »
Demand for air travel fell during the pandemic, like a lot. It fell to about 5% of the previous year in early March and is still at 30%. And it won’t get back to 100% for at least a year, maybe two or three. Assets are going to have to leave this industry.The physical assets are very industry specific. There is little else you can do with an airplane but fly it. This is a risk one takes when one invests in airlines. Subsidizing these does not help since these assets are sunk costs. Human capital is also very industry specific. There is little use for most pilot, flight attendant, and airplane mechanic skills for a years. For many, this human capital is now worthless. Fortunately, humans are more fungible than airplanes. They can acquire new human capital. Perhaps we want to help them outRead More »
Currently, those infected with COVID-19 can infect others a week before they know they are infectious. Suppose they knew a few days earlier. They could isolate themselves before they infect too many others. Current tests are too expensive, take too long to process, and are too few for this to work. But now recent emergency authorization will allowed Abbot Labs to supply a $5, 15 minute test. Abbott plans to produce 50 million per month, more than double the capacity of current tests.This test is has a higher false positive rate, requires a larger virus load, and is only approved for symptomatic cases. This last requirement is likely to be relaxed (or flaunted). This test is likely to be used as a screen.Kristian Andersen, an infectious-disease researcher at Scripps Research, noted thatRead More »
Marketplace has a recent story on excess retail inventory. Due to the pandemic, people are not shopping for the latest apparel in nearly the expected numbers. This inventory represents a fixed and sunk cost with low opportunity cost. Options include: Holding onto it until next season since this season. Usually, the value of fashion items depreciates quickly but who knows this year as no one has been able to "be seen."Sell it off to a deep discounter. You may get less than you paid for it, but that is more than nothing. Do not commit the sunk cost fallacyBurn it. That is what Burberry did, though it faced a backlash because of it. It may be profitable to destroy it even if its value is positive because doing so maintains the exclusivity of the brand.Because manufacturers have moreRead More »
Jack Stubbs has an interesting Twitter thread on negotiations after a ransomware attack. It was also picked up by Reuters. Its seemed very professional. They initially demanded $10 million but settled for $4.5 million, pretty close to the midpoint between disagreement values.HT: Marginal RevolutionRead More »
Amni Rusli has a longish piece, "Supply Chain Resilience," dissecting much of what we know about how current global value chains are being affected by the US trade wars and by the Covid-19 pandemic. It deals with relative labor costs, automation, sufficient human capital, risk, and politics. One tidbit:Resilience is not only about reliability but also about redundancy and the ability to rebalance load away from stressed supply chains. This is too big a task on a local level but it is easier to carry out with large global networks of supply system. Consequently, this will create strong incentives for incumbents to consolidate.These ideas are only touched on at various places in the text, but are not explicit. Diseconomies of scale and scope often lead to outsourcing some aspects ofRead More »
Jim Halpert from "The Office" discovers that he has met his annual commission cap. Any additional sales yield zero commissions. Gabe from corporate tries to rationalize the new policy.[embedded content]Read More »
In the just published article, "The Perils of High-Powered Incentives: Evidence from Colombia’s False Positives,"Acemoglu, Fergusson, Robinson, Romero, and Vargas investigate incentivizing the military.
We investigate the use of high-powered incentives for the Colombian military and show that this practice produced perverse side effects. Innocent civilians were killed and misrepresented as guerillas (a phenomenon known in Colombia as “false positives”). Policymakers (and managers) should anticipate that incentivizing an outcome enough will alter behaviors to attain the outcome both by the desired methods and by methods antithetical to the organization. Perhaps, though, for managers the perverse consequences result the deaths of innocents less often.Without incentives, we shouldRead More »
Adam Keesling at Napkin Math has an informative write up on "How Costco Convinces Brands to Cannibalize Themselves." Costco’s private label, Kirkland, will contract with a branded company to supply a product for Costco under the Kirkland brand at perhaps a 20% discount on the wholesale price. That way, consumers can choose from the branded product and, usually on the shelf beside it, the same product at a 20% lower retail price. Hypothetical P&L statements provide an explanation as to why this a supplier would agree to this. Essentially, the supplier is outsourcing the marketing of the product to Costco. These products are marketed under the Kirkland brand so the supplier’s marketing expense is drastically reduced.
There are two reasons why it works out. First, most customers don’t knowRead More »
The Daily Mail reports that Elon Musk has seemingly joined the chorus demanding the end to COVID-19 related lockdowns. But it also reports that he was about to get a large payout from Tesla linked to its stock price. Shares, which had been depressed, rose 10% just ahead of its quarterly report.
Maybe he really believes this, but he sure has an incentive to feign belief.Read More »
Mulligan, Murphy, and Topel* have a thoughtful policy piece on "Some basic economics of COVID-19 policy." It combines a number of economic concepts (e.g., fixed costs versus marginal costs, option value, externalities, capital depreciation (physical and human)). Essentially, it compares the relative strengths of the policy alternatives of Large-Scale Social Distancing (LSSD) versus Screen, Test, Trace and Quarantine (STTQ). From their summary:
Our analysis indicates that the features of a cost-effective strategy will depend on both current circumstances and how we expect the pandemic to play out. Some elements are common, such as the desire to use STTQ rather than LSSD when infection rates are low, and shifting the incidence of disease away from the most vulnerable. These apply whether
David DiSalvo has a write up at Forbes on his experience trying to obtain N95 masks during this pandemic. Federal and state officials say they are "scouring the globe" for PPE while some medical professionals are going without. Here is his summary.
Millions of N95 masks have been available throughout the U.S., Canada and the UK during the pandemic, according to brokers trying to sell them.
The high price point per mask, driven by extreme demand, has
contributed to an overwhelmed reaction among potential buyers,
especially in the U.S.
Scrutiny surrounding these deals is high because of ongoing scams
and claims of price-gouging, both of which are triggering emotionally
charged reactions and fear of making deals.
Millions of masks are being purchased by foreign buyers and are
Usually, retailers want to sell as many units to a customer as possible. And we should want them to. But currently there is a social imperative against hoarding key supplies. Some retailers are willing to forgo additional profits to pursue this social goal. The Meny supermarket in Denmark set the price of a bottle of hand sanitizer at kr40 ($5.73) but two bottles at kr1000 ($143) each.
Hat tip: Carpe Diem blogRead More »
The “ban the box” (BTB) policies limiting an employer’s ability to learn about job applicants’ criminal records are intended to improve employment outcomes for those with criminal records, with a secondary goal of reducing racial disparities in employment. However, since employees with a criminal record tend to have more workplace problems, it is valuable to employers to develop other screens to weed out these applicants. One possible screen is to reducing hiring among the demographic groups that include more ex-offenders.In "The Unintended Consequences of “Ban the Box”: Statistical Discrimination and Employment Outcomes When Criminal Histories Are Hidden," Doleac and Hansen recently investigated this issue by examining the outcomes in about one hundred jurisdictions enacting theseRead More »
Like most people with vision problems, I get my eyes checked (services) by an optometrist. Consumers like me could get eyeglasses or contact lenses (products) from an optician, but often our optometrists’ vertically integrate into the product to provide "one-stop shopping." Such a vertically integrated optometrist may want to blunt competition in the complementary product by steering consumers to their own products. One way to do this is to not release prescription information. This effectively ties the product to the service. How much more can optometrists earn from such a tying strategy?Norris & Timmons recently examined what happened when The Fairness to Contact Lens Consumers Act (FCLCA) of 2004 required the release of prescription information to patients. They compared states thatRead More »
A merger between two large Philadelphia law firms led Sam Wood at the Philadelphia Inquirer to investigate why. It seems there have been quite a few law firm mergers recently.
It does not look like firms are trying to eke out efficiencies through scale economies.
“There are really no economies of scale,” said Tom Clay, a legal-industry consultant at Altman Weil. “Bigger firms are more expensive to run. The only way they save money is through a smaller real estate footprint. Anyone who tells you different is either ignorant or lying to you.”
But there may be scope economies.
Firms want to expand their geographical scope. They want to offer clients more specialized practices and increase profits.
Practices in other geographical places are complementary to existing practices. AndRead More »
The recently enacted General Data Protection Regulation (GDPR) allows EU citizens various privacy protections, including the ability to opt out of data collection schemes. In a new paper, Aridor, Che, Nelson, and Salz find that a sizable fraction of the population, presumably those who are more sensitive to privacy issues, does opt out. How does this affect those that do not? They become even more "persistently trackable" because those who opt out now do not generate as much noise on those remaining.
Further in keeping with this hypothesis, we observe that the average value of the remaining consumers to advertisers has increased, offsetting most of the losses from consumers that opt-out.
Hat tip: Marginal Revolution
Two trends in how Americans celebrate Valentines Day seem to be at odds with each other. The National Retail Federation reports a steady decline in adults who are participating (51% in 2019 versus 63% in 2009) but a steady increase in average spending ($162 in 2019 versus $103 in 2009).This would be consistent with high quality suitors sending a stronger signal to their romantic partners so as to further differentiate themselves from low quality suitors. It seems to be working because the drop in participation suggests that low quality suitors are dropping out of this arms race.* This is consistent with the unhinging of the market or sex from the market for marriage.*Poor Mrs. Ward will reap only a fraction of this amount. But the quality of her suitor was revealed so long ago thatRead More »
Michael Farmer cautions advertisers to be aware of the hidden costs of exploiting online and social media. Advertisers in traditional media, such as print, radio or TV, were familiar with what a campaign entailed. But the online scopes of work expanded into "banner ads, email marketing, Facebook posts, Instagram posts, mobile marketing efforts, and website development." The big advantage of online campaigns is the near instantaneous and increasingly granular feedback that can inform the refinement of campaign messaging to different niches. This advantage, though, requires exponentially more interaction between the client and the ad agency.
Agencies and their clients are overwhelmed by the need to communicate and deal with one another — to plan, obtain approvals, carry out work, calculate
A new paper by Reimers and Shiller documents the effects of Pay-How-You-Drive (PHYD) insurance. The idea is to use telematics to monitor driver behavior and to reward better drivers with discounted premiums. While Progressive initiated monitoring driver behavior for insurance purposes, other companies are getting in on it too. Reimers and Shiller cleverly exploit the staggered rollout across states to observe company profitability and driver fatalities.First, they find that the first mover earns a profit boost. But this is temporary and dissipates with entry. That is, PHYD offers no sustainable competitive advantage to the first-mover. This seems to meet our expectations as there are few barriers to other insurers implementing PHYD systems. But profit erosion with four or five firms alsoRead More »