• The econlife.com Weekly Roundup

    Weekly Roundup: From Baseball Contracts to Super Bowl Ads

    Jan 31 • Businesses, Demand, Supply, and Markets, Developing Economies, Economic Debates, Economic Growth, Economic History, Economic Thinkers, Education, Entertainment, Financial Markets, Gender Issues, Government, Households, International Trade and Finance, Labor, Lifestyle, Macroeconomic Measurement, Media, Money and Monetary Policy, Sports, Thinking Economically • 62 Views

    Our Posts Roundup

    Everyday economics and baseball inflation Sunday 1.25.15

    Why $210 million is not as much as it appears to be…more

    Everyday economic of lower gas prices Monday 1.26.15

    Using two words to know all about plunging oil prices…more

    Everyday economics of income mobility Tuesday 1.27.15

    The places that make income mobility possible…more

    everyday economics and snow storm property rights Wednesday 1.28.15

    How to keep your parking space after a snowstorm…more

    Everyday economics of Greek financial markets Thursday 1.29.15

    When financial markets are better than a crystal ball…more

     

    Super bowl ads reflect monopoly pricing. Friday 1.30.15

    Thirty seconds that cost $4.5 million…more

     

    Ideas Roundup

    • inflation
    • supply and demand
    • disposable income
    • income mobility
    • property rights
    • incentives
    • invisible hand
    • self-interest
    • default
    • collective intelligence
    • CDS
    • monopoly pricing

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  • Super bowl ads reflect monopoly pricing.

    The Reason NBC Can Charge $4.5 Million for a Super Bowl Ad

    Jan 30 • Businesses, Demand, Supply, and Markets, Economic History, Financial Markets, Gender Issues, Households, Lifestyle, Media, Sports • 122 Views

    Because it takes time to convey a message, Super Bowl ads are getting longer.

    And here is “Lost Dog”:

    You can see below how, year by year, length has extended.

    Monopoly pricing and ad length

    From: Bloomberg

     

    Why $4.5 million?

    But that means spending is up too. Selling in 30 second units, ads, at a minimum, cost approximately $4.2 million in 2014. This year, the 30 second rate is close to $4.5 million.

    Monopoly pricing Super Bowl ads

    To judge just how exorbitant $4.5 million is for 30 seconds, we can compare Super Bowl rates to prime time TV. And they actually are similar. If we look at eyeballs, the numbers are comparable . At $35 per viewer, Super Bowls ads are reasonably priced because of their 111 million audience.

    So, the Super Bowl attracts more viewers, some of whom (like me) are more interested in the ads than the game and businesses perceive the Super Bowl as a unique opportunity to build brand awareness, increase sales and buoy their stock price. In addition, a University of Wisconsin study actually concluded that from the Monday before the Super Bowl to the Friday after, the stock price of firms with Super Bowl ads outperformed the S&P by 1%.

    But still, why $4.5 million?

    Our Bottom Line: Monopoly Pricing

    Saying its Super Bowl TV ad inventory for the game is sold out at approximately 70 units, NBC can behave like a monopoly, become a “price maker,” and implement monopoly pricing. But still, as with all monopolies’ demand curves, there is some price elasticity. GoDaddy and Coca-Cola are each running one ad instead of two.

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  • Everyday economics of Greek financial markets

    What Greek Markets are Saying to Us

    Jan 29 • Businesses, Demand, Supply, and Markets, Economic Debates, Economic Growth, Economic History, Economic Thinkers, Financial Markets, Government, International Trade and Finance, Macroeconomic Measurement, Money and Monetary Policy • 144 Views

    In 1906, at the West of England Fat Stock and Poultry Exhibition, a rather large ox was on display. Like guessing how many jelly beans are in a jar, people could win prizes for accurately estimating its weight. At the time, one individual who was curious about crowd accuracy noted the guesses on the 787 legible entries and computed their average. Remarkably, the crowd average was 1197 (others say 1208) and the ox weighed 1198 pounds.

    Writers like to use the ox story as an example of collective intelligence. In The Wisdom of Crowds, financial writer James Surowiecki says we can use collective intelligence to solve cognition problems. The crowd can tell us who it thinks will win the Super Bowl, the location of a lost submarine or whether a country will pay back its debt..

    And that takes us to Greece.

    Collective Intelligence: Greek Markets

    After last Sunday’s election, people are wondering whether Greece is heading toward a bond default and eurozone exit. Using the “wisdom of the crowd,” one Bloomberg writer suggested that Greek bond prices, credit default swaps and Greek bank deposits could be our crystal ball.

    So let’s take a look…

    Five Year Bonds

    When yield soars, it means the collective intelligence is saying Greek bonds are risky:

    Greek Default and 5 rising 5 year bond yield

    From: WSJ

     

    Credit Default Swaps

    Confirming the message from bond markets, the price of insuring five year bonds is going up. Bloomberg says credit default swaps prices indicate there is a 70 percent chance that Greece will default within five years.

    You can see below where the CDS price for those five year bonds was going in December. The current cost is $4.2 million plus $100,000 annually to insure $10 million of Greek debt that is due in five years.

    Greek Default CDS 5 year

     

    Bank Deposits

    And finally, deposits have been fleeing Greek banks at record levels.

    Below, the arrows indicate how much deposit totals decreased from a peak just before 2010 to the end of December 2014. As of yesterday, outflows have accelerated to record levels.

    Perhaps the Greeks always knew the crisis was not over.

    Greek Default bank deposit flght

    From: Bloomberg

    Our Bottom Line: Markets

    Former Secretary of the Treasury Lawrence Summers said that the most important idea to learn about economics is “the power of the market.” As a process that creates prices and quantities for countless items ranging from securities to services, markets are a source of information and incentives.

    Thinking of Greece’s financial future, financial markets are clearly demonstrating the collective intelligence.

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  • everyday economics and snow storm property rights

    How To Keep Your Parking Spot After a Snow Storm

    Jan 28 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic Debates, Economic Humor, Economic Thinkers, Government, Labor, Regulation, Thinking Economically • 238 Views

    In Boston, the South End just prohibited winter dibs. As one resident proclaimed “…South Enders believe that the streets are a public resource and nobody has a right to claim them.”

    Elsewhere in Boston, in Chicago, Philadelphia, parts of NYC, you just have to shovel your car out of a snowy parking space and…”Winter Dibs.” You leave a marker to signal temporary ownership and the spot should remain unoccupied until you return.

    Winter Dibs Markers:

    Winter Dibs Property Rights

    Property rights from winter dibs

    From: Huffington Post

     

    The Winter Dibs Dilemma

    Normally, a parking space belongs to the occupant. When “you leave it, you lose it.”

    After a snow storm, in Chicago for example, the rules change. If you shovel out your car, that space is yours. By leaving a marker, you signal temporary ownership of your newly claimed property. If someone violates your temporary property rights, retribution is the norm. A nasty note, a missing mirror, a deflated tire is a possibility.

    For government, winter dibs can be a dilemma. In Chicago, it appears that local officials have said it is a neighborhood issue. In Boston, the Boston Globe says the Mayor’s office approves the South End ban. Also though, conveying its tacit approval, the city has expressed a 48 hour rule as the winter dibs max.

    Our Bottom Line: Property Rights

    It is all about property rights. Since we began to live in communities, we have allocated scarce resources through property rights. In the U.S., Alexander Hamilton knew that a market economy required a contractual system that preserved property rights.

    But we do have tradeoff. Property rights are exclusionary. What could have (and should have?) belonged to everyone now belongs to an individual or a firm. On the other hand, property rights create productive incentives. Because of winter dibs, more spots are shoveled more thoroughly.

    I guess even winter dibs returns us to the timeless economic debate between equality and efficiency.

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  • Everyday economics of income mobility

    The Reason It Can Be Tough to Cross the Street

    Jan 27 • Demand, Supply, and Markets, Economic Debates, Economic Growth, Economic Thinkers, Education, Households, Labor, Lifestyle, Macroeconomic Measurement, Thinking Economically • 310 Views

    To access Guilford in the East Baltimore area of Maryland, just walk north on the west side of Greenmount and make a left. Driving, though, you would find it tough to turn into the community because most of the streets are one-way, in the wrong direction. And once you did discover an entry point, you would soon be on narrow, winding roads that snaked unpredictably. To park, a permit is required.

    On the other hand, Waverly borders Greenmount to the east. As a neighborhood, Waverly is based on a grid. Driving north on Greenmount, to access Waverly on the right, you can identify 37th Street, 38th Street and so on. It is easy to enter the community.

    Asked whether a home on Waverly’s 37th Street is more pricey than one on Guilford’s Cold Spring Lane, with no research, executives from Zillow would point out that numbers imply less affluence than names. In a recent NY Times column, Zillow executives added that if the residence is on a “lane” rather than a “street” or a “road,” the odds are higher that you are in a wealthier community.

    And yes, with a median income of $75,000 Guilford is more affluent than Waverly’s $40,000.

    Where are we going? How easy is it to cross the street from Waverly to Guilford?

    Crossing the Street

    One paper from Harvard and UC Berkeley suggests that in the U.S., your income mobility depends on where you live. After dividing the entire U.S. into “commuting zones,” (CZs) each composed of approximately four counties and 380,000 people, researchers compared intergenerational mobility. They asked, for example, where it was most likely for a child in the lowest income quintile to become an adult in the highest income quintile.

    This map summarizes their conclusions. The lighter areas indicate more mobility.

    Income Mobility depends on geography.

    From: “Where is the Land of Opportunity? The Geography of intergenerational Mobility in the U.S.”

    More specifically, researchers identified the most intergenerational income mobility in these ten Commuting Zones (CZs):

    Income mobility top ten CZs

    By contrast, the least mobility in the top 50 CZs was here:

    Income Mobility bottom 10 US CZs

    From: “Where is the Land of Opportunity? The Geography of Intergenerational Mobility in the U.S.”

    Trying to identify why CZ mobility differed, researchers focused primarily on five variables:

    1) residential segregation (race and income), (2) income inequality, (3) school quality, (4) social capital, and (5) family structure (single or two parent).

    Our Bottom Line: Income Mobility

    Because mobility depends on where you live, it can be a local policy concern. And, as for making the leap from Waverly to Guilford, in the top 50 list, the Baltimore region is #37. So crossing Greenmount could be tough.

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