• Amazon and Innovation

    What Happens When 1-Click Meets a Barcode?

    Apr 6 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic History, Households, Innovation, Labor, Lifestyle, Tech, Thinking Economically • 75 Views

    It’s almost like 1-click and the barcode had a child.

    1-click diminished the friction of an online purchase. Described in The Everything Store, it let Jeff Bezos increase revenue by making the purchase process easier. And, once Bezos got his US patent, competitors could not copy the innovation.

    By contrast, using scanners with barcodes was an innovation that was supposed to spread since IBM was the originator. It was a natural for supermarkets. Keeping instantaneous track of inventory, moving the checkout faster, eliminating the price sticker on every item all meant land labor and capital could be used more efficiently. Predictably, others adopted it in stores, in factories, post office sorting facilities and libraries. The workplace was the one common denominator.

    Now, Amazon is bringing the scanner to our homes.

    With a home scanner that they call the Dash, Amazon is combining the benefits of 1-click and barcodes. Just scan the barcode on an almost empty milk container or use the Dash’s microphone and the item appears in your grocery list. Then, again minimizing friction, Amazon lets you “1-click” at your computer and have it delivered to your doorstep.

    What happens when 1-click meets the barcode scanner? In product markets, the transaction cost decreases because of less friction and in factor markets, there is more productivity.

    Sources and Resources: The media, at pcmag and wsj, for example, have been talking about the Dash. Meanwhile, at econlife, we have looked at one-click, Amazon Prime and barcodes.

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  • Fast and Slow Stock Market Trading

    Fast and Slow Stock Markets

    Apr 5 • Businesses, Demand, Supply, and Markets, Economic Growth, Economic History, Financial Markets, Innovation, Macroeconomic Measurement, Regulation, Tech • 77 Views

    Goldman Sachs is asking $30 million for a firm that, 14 years ago, it purchased for $6500 million ($6.5 billion).

    The story (sort of) starts 222 years ago.

    Wall Street was where our first Congress met, where Alexander Hamilton lived (several blocks from Aaron Burr’s home), and where the new nation’s financiers congregated. Gathering at coffeehouses or under the buttonwood tree in front of 68-70 Wall Street, these gentlemen traded bonds issued by the new government and an assortment of other commodities.

    As their trades multiplied, a more formal auction evolved in which buyers no longer needed to identify the sellers. They just needed the people in the middle who could match them. Specializing in certain securities, the middle men (and yes, they were men) bought, sold and priced the stock for specific companies.

    Called specialists, the 19th and 20th century descendants of the men who traded under the buttonwood tree, were supposed to “make” orderly markets in which prices eased up and down. If there were insufficient buyers, then the specialists would take their place. And no, they were not doing every one a favor when they maintained orderly markets. they too expected to make a profit.

    I can recall visiting the NYSE not so long ago when we could see “trading posts” on the floor where the specialists (now called market makers) were based. Go to one post and you could buy IBM, another might trade General Motors, and a third Johnson and Johnson or GE. Today, those trading posts are still there but they are no longer the vortex of NYSE trading. Computerized trading means we really do not need people to match buyers and sellers in stock markets. Nor perhaps do we even need market makers who determine appropriate prices.

    And that returns us to Goldman Sachs. They had purchased Spear, Leeds & Kellogg for $6.5 billion because they were market makers and executed trades. Now, though, as technology has pretty much replaced what they do, the value of Spear, Leeds has plunged to $30 million and maybe less.

    Our bottom line? We need financial markets so that firms can raise money, individuals can invest savings, governments can borrow…the list could be endless. Whether human or computerized, dependability, integrity and liquidity have been essential.

    One of many that were on the floor of the New York Stock Exchange before “electronics” arrived, this is trading post #12 where Applied Digital Data, Union Camp, and the Sweets Co. Of America traded.

    NYSE stocks markets trading post

    A detail that shows the share prices more clearly:

    NYSE trading post stock quotes

    Sources and Resources: Providing some history, the NY Times just reported that Goldman wants to sell Spear, Leeds & Kellogg but for more detail and the source of an excerpted paragraph above, my book, Econ 101 1/2 tells the whole story. It was tough to find a good historic picture of the NYSE so I finally used a trading post that was given to the University of Chicago.

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  • lime demand and supply

    Why Might Salsa Prices Soar?

    Apr 4 • Businesses, Demand, Supply, and Markets, Developing Economies, International Trade and Finance, Labor, Lifestyle, Macroeconomic Measurement, Thinking Economically • 92 Views

    During the 1970s we did not eat many limes, maybe less than 1/2 a pound each year, and most were from Florida. Now our consumption has tripled and the lime has gone global.

    Faced with cheap Mexican limes, devastation from Hurricane Andrew in 1992 and a more recent attack of canker disease, Florida let Mexico take more than 90% of the US lime market with California in second place. Now, because of problems in Mexico, lime prices are up. Some unusually wet weather, some price fixing, regional unrest and a bacterial disease that seems to be spreading have shifted the lime supply curve to the left. Combine that with increased demand and you get a big price increase.

    Demand and Supply For limes

    Consequently, bar owners say they are getting squeezed by a fourfold increase in lime prices– from $18 for a 35 pound box in December to $85, now.

    The lime story reminded me of a quote from one of the first television police dramas. Called “The Naked City,” the program concluded each episode with, ” “There are eight million stories in the naked city; this has been one of them.”

    So too with rising commodity prices. While lime is a Mexican story, we could look at sugar or cereals or oils and hear a different tale. For cereal prices, the story takes us to Ukrainian geopolitics while bad weather in Indonesia and Malaysia affected the palm fruit which meant less palm oil and higher costs for Nutella makers.

    demand and supply and food prices

    Whatever the reason, though, it still returns us to demand and supply. First demand might shift rightward and or supply to the left. Then though, if we wait long enough, the lure of higher prices will eventually send supply up and price down once again.

    Sources and Resources: H/T to marketplace.org, always a good site for an interesting twist on a story, to Quartz for their food graph and story and also to the NY Times and Bloomberg for more on lime prices.


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  • Bar Code Labor Productivity

    The Unexpected Impact of the First Bar Code

    Apr 3 • Businesses, Demand, Supply, and Markets, Economic Growth, Economic History, Economic Thinkers, Innovation, Labor, Macroeconomic Measurement, Tech, Thinking Economically • 76 Views

    A 10-pack of Wrigley’s Juicy Fruit gum was the first item ever to have a barcode checkout. The year was 1974 and the place, a Marsh Supermarket in Troy, Ohio.

    While for decades, people had been trying to figure out a product identification system, the real story appears to have begun on a Miami, Florida beach. Legend (and a NY Times obituary) say that in 1948, Joseph Woodland, a scientist who had worked on the Manhattan Project, was looking at the sand, pondering the problem. After drawing several concentric circles, he decided a bullseye might provide the solution.

    Fast forward to 1973 and George Laurer at IBM. Convinced that the checkout process could be faster, a group of supermarket executives asked 14 firms to come up with way to convert a symbol to a number that would enable a computer to identify a product. An IBM scientist, George Laurer wound up figuring out the Universal Product Code system (UPC).

    Think of what he had to combine. He had to formulate a barcode that took up a tiny amount of package space and could be scanned from any direction. Functioning as far as a foot or more away from the product, the scanner then had to communicate its identity to a computer that would do the rest.

    The potential was mind boggling. Not only could the system speed up the checkout lines but also it generated an ongoing record of sales. That meant they could control inventory more efficiently, monitor promotions, and even time how fast an employee moved the checkout line. In addition, because every item no longer needed a sticker, prices could easily change and individual customers with “loyalty cards” could even be tracked.

    It took several years for the technology to spread. Manufacturers labeled their packaging. Improved scanners became better at transmitting a smeared code. They figured out how to include produce and meat and cheese.

    Although by 1980 more than 90% of all grocery products had a barcode, productivity increases were small at first. The technology was expensive and the training diverted managers from other things they had to do. However, once it all started to gel, the impact was big. One researcher estimated that for every barcoded product, the store saved $28 a year.

    George Laurer said he never imagined that his Universal Product Code would lead to cell phone scanners and automated Post Office mail sorters. We should add that the UPC created a substantial increase in labor productivity.

    Sources and Resources: Always great listening during my walks, the 99 Percent Invisible podcast on barcodes said it all. Then though, I did go to the academic research, watched George Lauer (do see the above youtube for a firsthand description) and went to the idhistory site for more details.








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  • Broccoli

    Veggie Wars

    Apr 2 • Ask Alexa • 71 Views

    Dear Alexa,

    Every night is a struggle in our household come time for dinner. My eight year old son refuses to touch anything green, let alone eat it. This leaves my husband and me frustrated and concerned that he doesn’t have a well-balanced diet. Alexa, how do I get him to eat more vegetables?

    Thanks so much,

    A Worried Mother


    Dear Worried Mother,

    Although it is cause for concern that your son is not eating his vegetables, I am happy to report that it is a very fixable problem.  One solution is what behavioral economists call “hyperbolic discounting,” which is another way of saying you should offer your son some form of immediate incentive to eat his veggies.  Economists who support the theory of hyperbolic discounting believe that any form of short-term reward is more highly valued by the receiver than an incentive that takes a longer amount of time for gratification. At schools in Chicago, parents who enacted this strategy saw an improved work ethic and better grades from their children when they offered them a small sum of money. Perhaps you could apply this strategy to your own predicament because giving your son a form of short term reward may make your dinners more enjoyable. The reward does not have to be money—you could offer him an extra five minutes to stay up before bedtime or an extra square of chocolate for dessert. According to these behavioral economists, giving your son something that night is more likely to get him to eat his vegetables compared to video games the next day or next week.

    Once your son begins to eat his vegetables, through the use of short-term rewards, he may even find that he enjoys the taste!

    I hope that this helps with your daily dinner battles. Best of luck!


    Please Note: This question was modified from a question that was sent to the Wall Street Journal’s column, Ask Emily.


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