• Variable pricing decreases the negative externalities created by cheap parking.

    The Seven Ways We Pay For Free Parking

    Dec 22 • Behavioral Economics, Demand, Supply, and Markets, Economic History, Economic Thinkers, Environment, Government, Innovation, Lifestyle, Regulation, Tech, Thinking Economically • 58 Views

    Several weeks ago, when I was in Manhattan at 6 pm, I squared around one block on the upper east side maybe a dozen times. I had the time and was not going to pull into a parking lot. My objective was a free or a muni-meter spot. I finally found the meter.

    So, I used up gas, increased emissions and congestion, wasted time, and perhaps endangered pedestrians. We could also add that I imposed a cost on tax paying non-drivers who have to maintain city streets and even necessitated car-based development that drained money from the poor.

    Thinking economically, I guess I have to admit that my inexpensive parking space cost a lot more.

    According to UCLA economist Donald Shoup’s estimates, in just one 15 block area of Los Angeles during one year, motorists used an extra 47,000 gallons of gasoline and emitted 730 tons of CO2 when they drove 950,000 extra miles looking for parking spaces. He suggests though we should not blame the drivers. Instead, municipalities need to create new incentives.

    Washington D.C.’s Parking Plans

    Following Dr. Shoup’s advice, Washington D.C. will soon implement a new parking initiative. In an area with 1,300 metered spots, dotted by theaters, restaurants, offices, government buildings and perpetually circling vehicles looking for parking, heretofore free and cheap parking spots will all get a price based on demand. A variable pricing approach, the system’s goal is to always have one open space on each block. While the Washington Post says the program will include numbered spots so you can pay on your smart phone or on the street and real time information about availability, the pricing has not been nailed yet.

    San Francisco’s Variable Pricing Results

    Meanwhile, San Francisco recently published the results of its variable pricing pilot program. Chock full of data and graphs in more than 140 pages, the SFpark pilot project report basically indicated that emissions, congestion and commercial activity all improved because of variable parking space pricing.

    The rate changes were implemented once every eight weeks or so from August 2011 to June 2013. These were the specifics that I’ve copied from the report:

    • When occupancy was 80–100%, the hourly rate increased by $0.25.
    • When occupancy was 60–80%, the hourly rate was not changed.
    • When occupancy was 30–60%, the hourly rate decreased by $0.25.
    • When occupancy was less than 30%, the hourly rate decreased by $0.50.

    This is just one result:

    Negative externalities decline from variable parking pricing in San Francisco

    From: SF Park via Vox

     

    Our Bottom Line: Negative Externalities

    An externality is the impact of a behavior or contract that is experienced by a third uninvolved party. When the impact on third parties is undesirable, as with cheap parking, the result is a negative externality. Associated with economist Arthur Pigou, Pigovian taxes can increase the cost and thereby decrease the incentive of creating negative externalities. I guess we could say that variable metered pricing is rather Pigovian.

    And finally…the seven ways (the externalities) we pay for cheap parking?

    • more gas
    • increased emissions
    • more congestion
    • wasted time
    • endangered pedestrians
    • maintaining city streets for cars
    • development that targets autos rather than mass transit

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  • How music affects our shopping.

    How Music Affects Our Shopping Behavior

    Dec 21 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic Thinkers, Entertainment, Households, Lifestyle, Tech • 128 Views

    At 88 decibels, the music in the 5th Avenue Abercrombie & Fitch is just below the level requiring employees to wear protection if they hear it for eight hours. Knowing that people like me can barely endure that kind of club sound, I suspect Abercrombie wants me to leave.

    Where are we going? To how firms use music to compete.

    Music and Our Buying Behavior

    The supermarket experiment:

    In a nine week experiment at a supermarket, researchers rotated among music with a fast tempo, a slow tempo and no music. Pace was a tricky variable since what is slow to certain people–based maybe on age and geography–is fast to others. After a slew of interviews, they decided that slow could be quantified as 72 or fewer beats per minute while 94 was the dividing line for fast. (For the Beatles, The Long and Winding Road has 67 BPM and Lady Madonna has 110 BPM.)

    Testing for how quickly shoppers moved through the store, how much they purchased and how many noticed the music, researchers concluded that when the music was faster, participants’ pace accelerated and they spent less. As for awareness, the tempo seemed not to matter. Most shoppers were not sure if they heard music.

    The restaurant experiment:

    Trying to target similar variables, another study focused on diners. Data was collected on two seater tables for 32 diners with fast tempo music and for 30 diners with slow music. This time, the metrics were:

    • How much actual time for the meal.
    • How much perceived time.
    • How much money was spent.

    Like supermarket shopping, the slow music correlated with more time spent eating (below):

    Amount of time spent in restaurant

    From: “Play That One Again: the Effect of Music Tempo on Consumer Behaviour in a Restaurant”

    .

    And people’s time estimates were inaccurate (below):

    Monopolistic competition and restaurants

    From: “Play That One Again: the Effect of Music Tempo on Consumer Behaviour in a Restaurant”

     

    Again, the spending was higher when the music was slower (below):

    Monopolistic Compatition amount spent

    From: “Play That One Again: the Effect of Music Tempo on Consumer Behaviour in a Restaurant”

     

    More About Abercrombie

    Walking into an Abercrombie & Fitch store, according to a Shopify blog, you could be greeted by a strong whiff of Fierce. On its website, Abercrombie describes the fragrance as a “lifestyle…Packed with confidence and a bold, masculine attitude.”

    Music and smell are called atmospherics by academics. Also including temperature, color and design, atmospherics in stores influence our spending, our time and whether we return.

     

    Our Bottom Line: Monopolistic Competition

    In markets with monopolistic competition, firms have some pricing power but not much. It all depends on how much they are unique–hence the “monopolistic” part of monopolistic competition. You can see where atmospherics can come in handy. For Abercrombie & Fitch, that means spraying Fierce and playing the loud music that younger shoppers enjoy and my baby boomer friends avoid.

    In the following continuum, as a clothing retailer, Abercrombie & Fitch would be in the range of monopolistic competition. Then, further along near the oligopoly slot, are businesses with more pricing power like Apple and Kellogg’s.

    Exerting less power, firms engaging in monopolistic competition are to the left of oligopoly on the continuum.

     

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  • The econlife.com Weekly Roundup

    Weekly Roundup: From Old Age to Old Signatures

    Dec 20 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Developing Economies, Economic History, Economic Humor, Economic Thinkers, Entertainment, Financial Markets, Government, Health Care, Innovation, International Trade and Finance, Money and Monetary Policy, Regulation • 174 Views

    Our Posts Roundup

     

    Everyday economics and The tragedy of the commons explains magazine disappear in doctors' waiting rooms.Sunday 12.14.14  The mystery of the missing magazines…more

     

    Everyday economics and the internet in ItalyMonday 12.15.14  Where Italian needs a connection…more

     

    everyday economics and movie star statusTuesday 12.16.14  Which movie stars live longer…more

     

    everyday economics and Christmas musicWednesday 12.17.14  The Christmas music list that keeps repeating…more

     

    Supply and demand explain why a Button Gwinnett signature sells for close to three quarters of a million dollars while John Hancock's is much less.Thursday 12.18.14  How a signature became very expensive…more

     

    everyday economics and Russian inflationFriday 12.19.14  When a Porsche becomes a necessity…more

     

     

    Ideas Roundup

    • economic humor
    • tragedy of the commons
    • information infrastructure
    • innovation
    • developing economies
    • healthcare
    • regulation
    • financial markets
    • Dow Industrial Average
    • supply and demand
    • inflation
    • foreign exchange
    • behavioral economics

     

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  • everyday economics and Russian inflation

    Why Russians Are Rushin’ to Buy Porsches

    Dec 19 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Developing Economies, Economic Growth, Economic History, Economic Humor, Financial Markets, Government, International Trade and Finance, Money and Monetary Policy, Thinking Economically • 233 Views

    Some Russian humor:

    Q. “If you could change anything about your past, what would it be?”

    A. “Rubles”

    In Russia, Porsches are selling like hotcakes. During the past month Porsche sales climbed 55 percent. Topping that, Lexus buying is up 66 percent and Mercedes, just seven percent. Interestingly, consumers were avoiding Audis and BMWs, probably because they thought they would retain less value.

    Meanwhile, less affluent Russians have been heading to Ikea where kitchen appliance and furniture sales were temporarily suspended because of the spike in demand.

    Apple’s Response

    Apple was one place where rubles could not be spent. Although there is no Apple Store in Russia, they do have an online site where they at first raised the price of the iPhone 6 by 25 percent. Even then, its dollar equivalent still fell $262 from $847 to $585. Now, their Russian business is summarized by this note, scrolled in different languages, at their online store:

    Foreign exchange rubles cannot buy Apple iPhone

     

     

    Okay, so prices are climbing, the ruble is losing value, and Russians, as Bloomberg said, are doing “weird shopping.”

    What is going on?

    A Reason to Shop

    On Nov. 1, one million rubles were equal to $23,250. Just one month later, their equivalent in dollars had dropped to $18,500 and now they are worth less. The rational response was to shop and buy something that would retain more value than the ruble.

    Below you can see how suddenly you needed so many more rubles for each dollar-related transaction:

    Russian  money losing value as ruble slides

    One result has been a soaring inflation rate, way beyond the U.S. two percent target:

    Declined value of Russian money

    Our Bottom Line: The Characteristics of Money

    Whether thinking about a rectangular piece of paper, a cow or a demand deposit, for people to believe something is money, it needs three basic characteristics:

    • Its supply should be scarce.
    • It should be acceptable as a medium of exchange.
    • It should retain most of its value when saved.

    Less scarce now as more is needed to buy consumer goods, the ruble is less acceptable as a medium of exchange and is losing value rather than storing it. Consequently, Russians would rather have a Porsche than a savings account.

     

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  • Supply and demand explain why a Button Gwinnett signature sells for close to three quarters of a million dollars while John Hancock's is much less.

    The Story of a Very Expensive Signature

    Dec 18 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Developing Economies, Economic History, Government • 294 Views

    A letter from John Hancock, famous for his signature on the Declaration of Independence, was sold for $3750 at Christie’s. A document from another signer, Button Gwinnett, (not even a letter) went for $722,500 in a 2010 Sotheby’s auction.

    Who?

    Button Gwinnett

    The year was 1757 when 22 year old Button Gwinnett married Ann Bourne in Wolverhampton, England. While the register that he signed remained in the county records office (and now is valued at many hundred of thousands of dollars), he and his wife soon emigrated to the American colonies. First engaged in a dry goods venture that failed, he then purchased a Georgia plantation that creditors also forced him to give up several years later. A business failure, he achieved some political fame as one of the 56 signers of the Declaration of Independence.

    Signers Sets

    Considered a treasure by collectors, the Signers set is composed of documents with the signatures of the 56 signers of the Declaration of Independence. The problem though is that relatively few documents exist with a Button Gwinnett signature. So, anything he signed, whether for his wedding or his financial defaults, has a high price tag.

    Supply and demand Gwinnett signature

    From: RR Auction

    The first man to create a Signers set was William Buell Sprague. Employed as a tutor by George Washington’s family from 1815-1816, he was told he could have any of the first president’s letters as long as he replaced them with copies. If the story is true, then we can see how he developed an auspicious autograph collection that enabled him to assemble, in 1834, the first Declaration of Independence Signers collection. J.P. Morgan gave a Signers set to the Library of Congress in 1912.

    Today, anyone gathering a Signers set knows the toughest signature to get is the Gwinnett. One 55 signature set was even sold at auction. It had everyone except the Gwinnett. The most current inventory of Gwinnett signatures numbers 51. Institutions including Yale, Penn, Princeton, Cornell, The NY Public Library, the Library of Congress, and the English church diocese with the wedding signature (I could only discover that the diocese refused to sell it) have Gwinnetts while there are just 11 in private hands.

    The supply curve for documents with Gwinnett’s signature might look like this…high price, small quantity:

    Supply curve for Gwinnett signature

    Our Bottom Line: Supply and Demand

    With the position of the supply curve determined by the cost of production, in December 2012, a Signers set on the auction block had an estimated value of $1.5 to $2 million. Even though the set included 48 handwritten letters from the signers, the Gwinnett elevated the price. But, maybe even more interesting, the set did not sell because no one met the seller’s minimum price. So here we have a seller, looking for a price above equilibrium, and not getting it.

     Supply and demand seller's price

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