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Imagine someone tells you a t-shirt is $5.00. During class, my students figured out a seemingly endless list of messages that $5.00 conveys. Some said the price indicated poor quality. Others spoke of affordability. Status came up also.
The message that a price conveys came to mind when I read about NFL secondary-market ticket prices. In the following graph, I showed the teams with the highest percent increase in secondary-market ticket prices.
According to Barron’s, a substantial increase in secondary-market NFL ticket prices tells us which team is more likely to have a winning season. Looking at the past 2 seasons, they point out that 4 of the 5 teams with the biggest jumps in secondary-market ticket prices were Super Bowl champs and/or made the playoffs.
Our bottom line: When consumers’ prices and businesses’ costs fluctuate because of supply and demand, we have the price system. Reflecting what New Yorker financial writer James Surowiecki called The Wisdom of Crowds, the price system is a group phenomenon in which many individuals and businesses make buying and selling decisions for the same good or service. The result? Price conveys a message.
By contrast, when government establishes a price or prevents price from moving too high (a ceiling) or too low (a floor), then price gives consumers, sellers and producers little if any useful information.Read More