Posts Tagged ‘economics’

What's in a pint?

Posted in Beer on March 19th, 2015 by Nathan – Be the first to comment
Clearly marked pint lines on one of my favorite glasses: Great British Beer Festival 2013

Clearly marked pint, half-pint, and third-pint lines on one of my favorite glasses: Great British Beer Festival 2013

In the United Kingdom, it is illegal to sell a pint of beer with less than 568mL of liquid. This corresponds to 20 imperial ounces, which is about 19.2 US ounces. Similarly, "half pints" must contain no less than 284mL, and "third pints" no less than 189.3mL. To enforce this law, pubs in the UK serve beers in marked glasses, with clear lines that show at what point a pint has been reached. There are inspections. There are regulators. There are customers who politely ask for a "top up" when this line isn't met. And as a result, this line is met. Customers who expect a pint receive an imperial pint at a minimum.

The United States Treasury, through powers granted by Article 1, Section 8 of the U.S. Constitution, defined, in 1832, a gallon as 231 cubic inches. As part of the US Code obligations, every state has, on behalf of the Secretary of Commerce, a complete set of "weights and measures," that include a gallon and divisions thereof: half gallons, quarts, pints, half pints, and gills. Thus, a pint, according to US law, is 28.875 cubic inches, or precisely 16 US ounces (473mL).

And yet, when you buy a pint of beer in this country, there is no guarantee that you will get those 16 ounces. In fact the opposite is true: thanks to under-pouring and misleading glassware, you are likely to get much less.

The "standard American shaker pint" glass, the kind you probably think of as a pint glass, holds exactly 16 ounces. Exactly. No room for spillage, and in fact, pour a tall boy of beer into one and you'll note a "reverse miniscus" of liquid, as surface tension keeps the liquid from pouring over the side. But when was the last time you were served, at a bar, a nearly-overflowing glass of beer? When standard shaker pints are used, you're much more likely to receive around fourteen ounces of beer, accounting for head and empty space to prevent (or caused by) spillage.

And yet the problem compounds further: bantam-weight shaker pints, which have thicker walls, a much thicker floor, and are commonly used with a stainless steel Boston shaker to shake cocktails, hold a maximum of 14 ounces of liquid. Again, this is exact. Any more than 14 ounces, and that surface tension will break, sending liquid spilling over the side. And today, many bars have switched from the already questionable American shaker pint to that bantam-weight shaker pint, meaning that once you account for head and spillage, you're likely receiving only around 12 ounces when you ask for a pint. A 25% discount in liquid that surely is not represented in the price.

As it happens, the State of Texas actually does have a law that deals with this, but the Department of Agriculture, responsible for its enforcement, apparently focuses entirely on its application to fuel pumps. The relevant section that should be applied to bars and restaurants that under-serve is Section 13.035(b)(2): "A person violates this chapter if the person represents the price or the quantity of a commodity, item, or service sold or offered or exposed for sale in a manner intended or tending to mislead or deceive an actual or prospective customer."

I think it's time for this state, and any other state that has similar laws, to begin enforcement of this. The law provides for a fine for every infraction, and I think it's time that those fines be levied. States that don't have similar laws ought to legislate thusly. The customer is being cheated, lied to, and this is a disgrace. I'd like to see marked pint glasses that clearly and correctly show where liquid reaches 16 ounces. I'd like to see the demise of both the American shaker pint and its even more devious bantam-weight cousin as serving vessels. And I'd like to see establishments stop cheating customers, be it through good conscience or through proper application of consumer protection laws.

But it also requires action from the customers. Demand a full pint. Demand top-ups to get to 16 ounces when American shaker pints are used, and stop patronizing establishments that cheat you out of volume. Order cans or 12-ounce bottles and ask for a pint glass, to demonstrate the embarrassing pour that occurs when bantam-weight shaker pints are used. This cheating needs to end, but it'll take a lot of work for us to get our full pour.

Craft beer is underpriced

Posted in Beer on April 9th, 2014 by Nathan – 17 Comments

If quantity cannot increase fast enough, price must.I've written a lot about this topic in various other locations, but I figured it's time to talk about it here: much of craft beer is absurdly underpriced. I've touched on supply/demand before in this blog, but a quick refresher can't hurt. Basically, to the left is a supply and demand curve. It's basic. Where that dot labeled "equilibrium" is is the magical world where supply matches demand. In that world there's an equilibrium price and an equilibrium quantity. It's magical, of course, because it rarely exists with specific goods.

Craft beer is one of those goods where the equilibrium seems to be a fantasy, impossible to reach. Instead, we're at a point on the supply curve down and to the left of the equilibrium: quantity is low, price is low.

The symptoms of this are obvious in many craft beer scenes around the country: super quick sellouts, the recent Hunahpu's Day disaster, beer scalpers, etc. When demand outpaces supply, these types of things happen. These are simple market inefficiencies. And there's only two ways to fix these inefficiencies: increase supply or decrease demand.

Increasing supply is a somewhat nice idea, and in the market overall, this is already underway. More and more craft breweries are opening, expanding, increasing production. However, because beers are not perfect substitute goods, an increase in supply in the overall market does not translate to an increase in supply for particular beers. As a result, rare or limited releases continue to see the problems described above. In fact, this is precisely where the problem is most evident and these beers are the exact ones I would argue are underpriced.

Thus, demand must be decreased. And as the supply/demand curve image shows, if the quantity can't increase, the price must. And as it does, the consumer appetite will decrease, demand will drop as prices approach equilibrium. Note that there's nothing "fair" about this – it's a purely capitalist system, but it's also a system that, with the scarcity that exists, works.

Jester King's Aurelian Lure and Nocturn Chrysalis were priced at sixteen dollars per 500ml bottle. There were about 500 bottles of each. Every bottle sold out within three minutes. That's absurd. Jester King could have easily charged twice that and the sellout would still have occurred, albeit at a slightly slower rate. In fact, I would argue that Jester King could have charged ten times as much – an unheard of (some might say obscene) $160 per bottle, and still sold out in a reasonable amount of time. (Of course, they would have had to remove the "limit one per person" stipulation. And I wouldn't have gotten any.)

A six-pack of Saint Arnold Divine Reserve may run you as much as twenty dollars. Look on Craigslist a day or two after it's been sold out in Houston, and you'll see postings asking for fifty or one hundred dollars. No matter how often people flag the posts (myself included) as prohibited, those sellers will sell the beer they bought. If they wouldn't, then we wouldn't see the same thing after every somewhat limited release. The prices they request are closer to the market equilibrium, and the gray market rewards them for taking advantage of a massive market inefficiency.

Part of the problem, I believe, is that there seems to be some kind of "noble pricing" that breweries implement. Reputational risk is probably a concern, but honestly, a lot of breweries are owned by or started by people who find it abhorrent to charge more than what they think is fair. Freetail is a great example of this, and they have stated before that they purposely keep prices low, intentionally do not capitalize on the extreme demand for Ananke and other special releases, and do not plan to change this in the future. Honestly, I think that's noble, wonderful for my wallet and those wallets of my friends, and unsustainable.

The prices probably won't rise in the near future, unfortunately, because of this reason and other reasons. But I repeat that I believe this is unsustainable. The growth in craft beer demand looks to continue at ridiculous rates, while supply simply cannot keep up. The result will be increased gray market activity, more catastrophes at beer releases, more rapid sellouts and angry consumers, and ultimately chaos. It's not impossible to envision a future in which a brewer throws his hands up and sells out or quits, in retaliation to this chaos. And that benefits nobody.

The responsible but unpopular thing to do is to raise prices. Craft beer is massively underpriced and unless this changes, there may be a crisis ahead.

America cannot move from crisis to crisis

Posted in America on March 3rd, 2013 by Nathan – Be the first to comment

During this ongoing sequestration debate, President Obama said something that I particularly liked: “the greatest nation on Earth [cannot continue] careening from crisis to crisis.” Whether you agree with Republicans or Democrats on the sequestration issue, or even if you’re in the smaller third group of people who think the trigger of immediate across the board cuts is the real solution, you have to admit, Obama has a point.

We cannot continue to move from crisis to crisis, but it seems like for the last five years, and possibly much longer, we’ve been doing exactly that. Each crisis is real, though not necessarily in the sense the government or media would have us believe, and each crisis is present, though not necessarily with the immediacy and urgency that those same stakeholders would insist.

For the most part, it seems that many of these crises are manufactured. It’s easy to see what the media gains by such scaremongering, but not as simple to see what others gain. Washington’s approval ratings have steadily decreased after each election, with more and more citizens pointing at the government as unable to accomplish even the most basic compromise to solve the problems that the same government would have us believe are apocalyptic.

Frankly, I don’t think the sequestration will end up being that big of a deal. At least not as big a deal as the rhetoric, from both sides of the aisle, made it out to be. And I don’t believe that the debt ceiling is as big a deal either, though it certainly would have ramifications. Nor did the fiscal cliff seem that important to me. Sure, each of these things will have consequences, but not at the level that some news organizations would have you believe.

But I do think we have one major crisis that America is still in the middle of: extreme partisanship. The gridlock results in these mini-crises that I refer to above, and the inability to compromise pushes them into the spotlight. Government is not supposed to work this way. Our government especially.

America cannot continue to move from crisis to crisis. Especially when those crises are easily resolvable with only a modicum of modesty and deference to others.

Who is the worst sports commissioner?

Posted in Sports and Games on September 26th, 2012 by Nathan – Be the first to comment

Roger Goodell. Like the other commissioners, it's hard for me to believe they are actually acting in bad faith. Outdated? Serving the wrong interests? Yes. And that's a good reason for term limits.After Monday night's refereeing debacle, some people are calling not just for the return of the regular officials (who, again, I don't think are that much better than these replacements) but also for the head of Roger Goodell, the NFL's commissioner. Most who approach this replacement ref from an economic vantage point out that the NFL has no real incentive to back down in the face of the referees demand: the replacements are an adequate (economic) substitute. This means that as long as people watch, there's no real reason to pay more to get the same result. NFL viewership is relatively inelastic in relation to refereeing. Thus far.

Of course, if things change, you have to expect that the NFL will give in. If viewership drops off precipitously, the regular refs will be back shortly. But in the meantime, those who look at it in a less pure-economics sense have a different point, one equally valid: aren't there more things than money that dictate these decisions? Certainly player safety has to be an issue. And long-term economic viability of football relies on player safety. With replacement refs on the field, an argument could be made that player safety is at risk.

And of course, there's an even better argument that Roger Goodell has done nothing, or very little, to improve player safety over his tenure. He has consistently pushed for an eighteen game season, knowing full well it will increase concussions, while making small strides to punish the players for such hits rather than the greed of the owners for more revenue. He is universally hated by players (who treat his fines as a joke and sometimes even ask to be fined), fans, and now even officials (though probably not the replacements). On the other hand, under his watch, the NFL has grown to greater international recognition and has become the most profitable American sport. He has done good for the league, he has also done bad.

But is he the worst sports commissioner right now? Some would suggest as much but I'm not sure. Let's take a look at the other Big Four commissioners: Gary Bettman, David Stern, and Bud Selig.

Gary Bettman has, during his tenure, massively increased the size and scope of the NHL. He added six new teams and in almost twenty years has nearly octupled league revenue. However, also during that time he has seen three lockouts, including a shortened season, a canceled season, and the ongoing lockout now. Players don't like him and fans routinely boo him, including when he awards the Stanley Cup. Two of his expansion teams have undergone troubles including bankruptcy and relocation. Some suggest he over-expanded, and international exposure suffered because of it.

David Stern has done a lot of good for the NBA. He helped found the WNBA and has done countless wonders for international exposure, arguably more so than any other commissioner of any other sport ever. During his reign, league revenues have improved, and though much of this is directly attributable to international exposure (Yao Ming, for example), a lot of credit goes to Michael Jordan. Since Jordan left, basketball's value has been more stagnant, with several teams failing to be profitable. He's also overseen four player lockouts, including two shortened seasons. He's been accused of tampering with the draft, he has interfered with trades and contracts (including trades with league-owned teams), and he's hated by players and fans, especially fans in Seattle who frequently blame him for being instrumental in the relocation of their team.

Bud Selig reversed the MLB's revenue decline and in two decades has quadrupled revenue. He introduced revenue sharing, made interleague play part of the schedule, and served a crucial part in creating the World Baseball Classic, possibly the only thing that has even attempted to make baseball an internationally-recognized sport. Though he's avoided most possibilities for work stoppages, he canceled the 1994 World Series in response to the player strike, the first canceled World Series in ninety years. He's consistently acted in different, inconsistent manners toward teams, leading many fans and even some owners to question his loyalties. He canceled the Dodgers' media contract during the sale of their team though did not do the same to the Mets. He mishandled Hurricane Ike, sending the streaking Astros to Milwaukee for a "home" series against Chicago (one hour away) when Dallas was available. The resulting losses pushed Milwaukee (Selig previously owned the Brewers) into the playoffs. He forced the hand of Jim Crane to move the same Astros to the American League upon his purchase. And most importantly, he willfully looked the other way (according to the Mitchell report and common sense) as players beefed up during the steroid era. He ignored a serious problem in the integrity of the sport and has only halfway-decently attempted to combat the problem since the MLB took a reputational hit due to steroids.

Is Roger Goodell the worst commissioner of a sport right now? It seems like they're all pretty bad. Having the same job for twenty or so years with no real checks and balances on power will likely make anyone become a bad commissioner. They will act according to their interests or the interests they perceived to be important twenty years prior. They will fail to adapt. They will not do a good job of dealing with stains on their sports. And they will be unfair and hated.

Goodell is bad, and ultimately player safety may end up being the tarnish that paints him as the worst. Right now, I have to believe Selig is worse, but I can't say what we'll know about player safety and Goodell's role in these issues in the future. I can say one thing though: with commissioners this bad, it shocks me that they don't have term limits. Were I to own a team, I would demand such a thing. As a fan, I have to wonder why the owners don't push for such a limit.

I doubt Biggie had a yacht

Posted in Music on August 5th, 2012 by Nathan – Be the first to comment

https://i2.wp.com/www.frank151.com/files/u1833/biggie_0.jpg?resize=270%2C196In Come On, and for that matter, also in a couple “freestyles” that encourage me to think they are not so free after all, the Notorious B.I.G., claims that he’s exorbitantly wealthy:

“Biggie Smalls, the millionaire, the mansion, the yacht.”

The first two claims are easy to verify. His first album went quadruple platinum and before he died, he saw six singles chart. He had a hand in producing Lil’ Kim and others. He won several music awards from Billboard and Source. It’s difficult to find exact figures on his wealth before his death, but every number pegs it in the tens of millions. Clearly, “the millionaire” is not unrealistic.

And though I can’t find anything proving he did in fact have a mansion, it would be mindboggling to think that he didn’t, given his wealth and the usual behavior of people who come into wealth having grown up with none. The examples of such people are endless, and they nearly always spend money on massive houses immediately. Wayne Gretzky comes to mind first, but the resulting conclusion is that “the mansion” is almost certainly accurate.

But “the yacht”? Here I think Biggie is exaggerating. Yachts are exorbitant in price. There are many mansions but few yachts. There are many millionaires, but being a millionaire is not enough qualification to own a yacht. There’s not just the cost of a yacht (many millions of dollars, essentially leaving no room for Biggie’s mansion) but also the high expense of upkeep.

There’s no proof that he said it, but the famous quotation from J.P.Morgan to banker Henry Pierce, “if you have to ask, you can’t afford it” refers to the cost of yacht ownership. Even Diddy, who is alive and well, and who has made significantly more money than Biggie ended his life with, rents his yachts. It just seems unrealistic to believe Biggie in this claim. “The yacht?” Only in the music videos.

Why are there so many drugstores?

Posted in Ridiculum on July 13th, 2012 by Nathan – 1 Comment

I tried to find whatever "chemist" I went to in Ireland, but I couldn't figure out what it was called. Enjoy Super-Pharm instead.Off the top of my head, I can name four national drugstore chains: Walgreens, CVS, Duane Reade, and RiteAid. On top of that, there's Soap.com and Alice, two online drugstores. And some very quick research (wikipedia) shows me that Walmart, Kroger, and Target, among others, are also major players in this area of business. Also, apparently, there's Drugstore.com, though this (and apparently DR as well now) is owned by Walgreens.

Essentially, the pharmacy market seems to an outsider (me) to be an extremely over-saturated market. We live a block away from a Walgreens, and only two blocks away from that is a CVS. This is ridiculous. There seems to be no reason why the drugstore market needs to be this large.

And then there's all the pharmacies that no longer exist but were once big chains. Eckerd. Phar-Mor. So even if we agree that the market is over-saturated now, imagine how much worse it used to be!

One could suggest that there's serious room for disruption in this market, that whomever enters and provides a vastly better service should be able to seriously winnow the market down, removing some of the lesser competitors (read: RiteAid). This is probably the goal behind the online drugstore competitors, but these stores fail to address the pharmacy aspect of drugstores. In other words, they provide the soap and toilet paper and toothpaste, but can't easily fill prescriptions in a way that works for customers.

I'm not actually convinced that a serious competitor could come in, however, to disrupt this market. I think that the barriers of entry are too high. Not the traditional barriers of entry, such as overhead or cost, or other issues caused by a market controlled by too few entities (such as a monopoly or oligopoly), but a different kind of barriers to entry, caused by the opposite. I think the drugstore market is so over-competitive, there's no room for another competitor, no matter what edge they have.

The market needs to first shrink itself, through more acquisitions or other ways of eliminating some of the participants, before a true disruptor can come in and change the drugstore world for the better. I don't know how accurate this is, but it seems reasonable: there are so many competitors, customers wouldn't even notice a new one.

Or it could be that we truly do need that much shampoo and bug spray. So large is our appetite for these things that the drugstore market is not in fact over-saturated, but properly large. I don't buy this argument though. There's just too many of them.

Whatever happened to Eckerd?

Posted in Ridiculum on May 11th, 2012 by Nathan – 1 Comment

I still remember not understanding the X attached to Eckerd. But it's actually brilliant.Man, even typing that word looks strange. That's how far out of our lives Eckerd Drugstores have fallen. But it wasn't that long ago that they were everywhere! What happened?

Not too long ago, there were two players in the drugstore industry as far as I knew: Walgreens & Eckerd. Then suddenly, as if overnight, Eckerd disappeared, leaving Walgreens, and soon, CVS, as it joined the scene.

Of course, in other parts of the country, a different story was told. When I lived in New York, there was RiteAid and Duane Reade, and Walgreens had a minor presence. But at one time, Eckerd was there as well. Yet today, no Eckerd.

And when I recall Eckerd, people say "oh yeah," because in their minds Eckerd has vanished as well. This isn't Montgomery Ward, a company that was once large, and eventually fell due to their inability to adapt, but still has a presence in business textbooks, and in the minds of those who once shopped there. This is no Washington Mutual, a victim of the financial crisis, whose former customers still remember it fondly. Eckerd? It seems like people have almost completely forgotten the brand, not saddened enough by the loss to bother remembering it unprompted.

And I suspect that's what happened to Eckerd. I suspect Eckerd was the AstroWorld of the drugstore world. Everyone was surprised when they closed, but who went there?

But it hasn't been long enough to justify a collective removal of Eckerd from our public conscious! The company was first split up in 2004, with many stores acquired by CVS, and their mail-order business becoming CVS Caremark. But at this point, Eckerd still existed. It wasn't until 2007 that the remaining thousands of stores were acquired by RiteAid.

2007! A company that was 109 years old disappeared only five years ago, and for most people, it's like they never existed! This is crazy, and yet as above, it makes sense. There was no great vacuum, no overwhelming void when Eckerd disappeared because who cared? It's self-fulfilling: Eckerd isn't important enough to hold a place in our minds, so when it disappears, we don't even notice it's gone.

Today, drugstores of all kinds fill the streets of America, but one fewer than there once was. Though Eckerd is gone, its name will not live in our hearts, its legacy will not hold a place in our memories. It is dead. And its eulogy, housed on the RiteAid website, is fitting for a company so unloved and so easily forgotten:

All that's left of the brand.