Market Power

The Economics of Storm Chasing: the Negative Externality Edition

Phil Miller — 2012-04-19T19:32:31-05:00

From the WSJ:

Officials in storm-ravaged parts of Oklahoma and Kansas are complaining about last weekend's influx of storm chasers—a ragtag band of amateur weather spotters, researchers, extreme-weather tour guides, news crews and adventure seekers. Their ranks have expanded in recent years with the advent of TV shows such as "Storm Chasers," cheaper technology for tracking weather and social-media sites where people can post news and videos of the latest storm.

Now, when a well-publicized storm pattern like last weekend's rolls around, chances are high for what storm chasers call "a convergence," in which they begin to get in each other's way—not to mention the way of emergency workers.

"In the past, there might have been 25 or 50" storm chasers during a weather event, said Todd Thorn of Storm Chasing Adventure Tours of Bozeman, Mont., which charges clients $2,400 for a week of chasing. "Now, there might be several hundred on a big day on the weekend."

The National Weather Service rightly applauds the services of chasers/spotters that provide the eyes to see what Doppler radar cannot. But, to coin a phrase, too many eyes spoil the view... not to mention cause traffic congestion.

Tornado Recovery and Private Property Rights: Joplin vs. Tuscaloosa

Phil Miller — 2012-04-17T09:43:05-05:00

On April 27th, 2011, the city of Tuscaloosa, Al. was ravaged by a tornado which killed over 50 people. On May 22nd, Joplin, Mo. was blasted by an EF-5 tornado that killed over 160 people. Both cities were heavily damaged, but which city is recovering faster? According to David Beito and economist Daniel Smith, Joplin.

In Joplin, eight of 10 affected businesses have reopened, according to the city's Chamber of Commerce, while less than half in Tuscaloosa have even applied for building permits, according to city data we reviewed. Walgreens revived its Joplin store in what it calls a "record-setting" three months. In Tuscaloosa, a destroyed CVS still festers, undemolished. Large swaths of Tuscaloosa's main commercial thoroughfares remain vacant lots, and several destroyed businesses have decided to reopen elsewhere, in neighboring Northport.

The reason for Joplin's successes and Tuscaloosa's shortcomings? In Tuscaloosa, officials sought to remake the urban landscape top-down, imposing a redevelopment plan on businesses. Joplin took a bottom-up approach, allowing businesses to take the lead in recovery.

Tuscaloosa mayor Walt Maddox responds here.

This brings to mind the question of what's the best way to develop a society: top-down or bottom-up. A top-down society is an Astroturf society, essentially imagined and designed by rulers who then impose their will on people.

A bottom-up society, on the other hand, is a grassroots society that develops organically, and it emerges from the decentralized actions of people. If Beito and Smith are correct, chalk another one up for spontaneous order.

Price Discrimination at The Economist

Phil Miller — 2012-04-11T22:21:59-05:00

Dumb Agent alerts us to an interesting pricing scheme at the Economist:

- Subscribe to a full year of online access to The Economist for $59.

- Subscribe to a full year of the print edition of The Economist in print for $125.

- Subscribe to a full year of both the online print editions of The Economist for $125.

Essentially giving two options: spend $59 or spend $125.

Now, if you were to come across this you might think they hadn’t put much thought into it at all, right. More importantly, however, if a magazine you enjoyed had this pricing structure, which option would you choose? Well, since online access costs $59 and the print edition costs $125, the smart money would decide to purchase both, where the entire cost of online access is done away with, right?

Since the majority of the cost of providing content, online or in print, is the cost of writing the articles, it costs virtually nothing to add one new print or online subscriber once the issue is written. So the marginal cost of adding one more subscriber, print or online, is close to zero. But the Economist has discovered that folks who want a hard copy to read are willing to pay over twice as much as online subscribers. So this is a good old-fashioned price-discrimination scheme, with the Economist making it seem to print subscribers that they are getting a good deal by getting online access at no extra charge.

A Minimum Wage Primer

Phil Miller — 2012-04-11T15:00:58-05:00

Here's a non-technical primer on the minimum wage.

Research in Motion... too big to fail?

Phil Miller — 2012-04-10T11:07:11-05:00

Some folks in the Canadian government think that Research in Motion (of the BlackBerry fame) is too big to fail. From the Globe and Mail (via @Royal_Arse on Twitter):

The firm has been a wealth-creation machine for Canada in the past decade. Clustered around RIM’s Waterloo, Ont., headquarters is one of the largest concentrations of math, science and engineering brain power in North America. In fiscal 2012, the company spent $1.6-billion onresearch and development – more than twice the budget of the National Research Council.

Prime Minister Stephen Harper mused in February that he would not look kindly on a hostile foreign takeover of a company such as RIM, in whose technology Ottawa is so heavily invested.

“RIM … is a strong Canadian company. It’s been an important part of the Canadian business landscape, and obviously we want to see that company succeed and continue to grow as a Canadian company,” Mr. Harper told Reuters.

The author of the piece, Barrie McKenna, notes that it's not clear from these comments if Harper's comments are a warning shot to potential foreign buyers or if the company actually is too big to fail.

Tom Jenkins, a high-ranking official in the private software company named Open Text Corp comments:

“Companies go through life cycles,” Mr. Jenkins explained in a recent interview. “And what we have to be careful of – whether it’s RIM or CAE or Nortel – we have to remember that economic competition is a flow. We can’t just look at it as a static thing.”

Mr. Jenkins knows RIM well. RIM and Open Text are located barely two kilometres away from each other in Waterloo. Mr. Jenkins and Mr. Balsillie run in the same social circles.

The key policy objective for the country should be nurturing the next generation of RIMs, not saving particular companies, Mr. Jenkins argued. Governments should focus their attention on making sure small and medium-sized companies have what they need to grow into the next RIM, he explained.

“We need to look at what can we do to build those small companies into the RIMs of the future,” Mr. Jenkins said. “If we think of it as a static marketplace, and keep it in place, then we’re back in the seventies model [of economic development].”

The concept of creative destruction, coined by economist Joseph Shcumpeter, describes the churning that occurs in a well-functioning market. Existing products get improved or new products get developed to replace existing products. Inevitably, someone in a market says "I think I can do better" and old products eventually become obsolete. Some companies will make their own products obsolete, realizing that if they don't, somebody else will. It's not a good idea in markets to rest on your laurels. It's better to be on your toes.

I have owned a BlackBerry, a Droid Incredible, and an iPhone. I liked the BlackBerry, but never liked its clunky browser. When my BlackBerry died, I replaced it with the Droid because it's web browser was much, much better than the BlackBerry's. After getting used to the touchscreen keyboard on the Droid, I found myself indifferent between the two phones' email capabilities.

During the life of my Droid, however, I found myself using an iPod Touch to do everything my Droid could do except browse the web/check email when there was no WiFi network present, take pictures/videos, and make/receive phone calls. I found the Apple apps were so much better than the Droid versions of the same apps, and there were more of them (hello, network effects!). So when my Droid finally kicked the bucket, I bought an iPhone 4s. Other than the Siri application that came bundled with the phone - which is truly an awful app - I really like my iPhone. Hopefully Apple will make it obsolete with it's next generation iPhone.

So, in my experience, iPhone > iPod Toch > Droid > BlackBerry, and therein lies the problem for RIM. RIM needs to make its BlackBerries obsolete because other companies already have. It's time for RIM to sink or swim, and I'm afraid any kind of government-issued life preserver will end up being a lead weight.