Monday, February 18, 2013

The power of the market and price discrimination*

About a week ago the makers of Maker's Mark whiskey (of which I am a fan) announced that they were going to dilute their product from 90 proof to 84 proof. The reason this was needed is because it takes 5 - 7 years to age Maker's Mark and demand has increased since 2008. Rather than raise the price, a common remedy for a shortage, Maker's Mark instead intended to increase supply. That did not go over very well with many customers and Maker's Mark has since reversed course. This is an example of consumer sovereignty, a term I teach in my ECON 211 class, or more simply as the market has spoken.

There was a another option for Maker's Mark though, pointed out by Tim Worstall of Forbes. Not sure how it would have worked out but he is certainly thinking like a profit maximizer when perhaps the executives at Maker's Mark were not.

*Though Mr. Worstall  refers to his idea as price discrimination it is really nothing more than introducing a new product to the market to meet a subset of the demand. Selling 90 proof Maker's Mark to different people for different prices would be price discrimination.

Friday, February 8, 2013

Monday, February 4, 2013

Sherrod Brown, you are not that smart.

In a recent email update that I received from Ohio Senator Sherrod Brown (yes I subscribe so that I can keep an eye on him) he advocates for government mandated paid sick leave. But rather than calling it that, he tries to make it sound as if he is simply helping businesses help themselves.

"Paid sick leave is good for public health and also good for our economy. Illness costs our national economy $226 billion annually in lost productivity. When one is sick, they don’t perform their best. Unsurprisingly, the CDC has found workers without access to paid sick leave are more likely to suffer serious work-related injuries. Ensuring American workers have the option to take a day off when they need it is important for the worker and their employer."

 Good for the worker and the employer says Sen. Brown. And perhaps it is. If it is in fact good for both the employer and the worker, wouldn't the employers offer it? I doubt that Sherrod Brown, a man who as far as I can tell has never run a business nor has been particularly successful in the private sector, has any idea about what is good for employers. Despite the high opinion he has of his own knowledge and virtue, he is neither omnibenevolent nor omniscient. 

He appears to recognize the burden that his legislation would place on businesses by restricting his proposed legislation to businesses with 15 employees or more. He does not say why businesses with 14 employees do not have to offer sick days while businesses with 15 do but I doubt the reason would be very compelling. 

Businesses of all sizes need people to do the work required to keep the business running and it is costly to pay people who are not doing any work. If Sen. Browns legislation truly leads to employees who are "...happier, healthier, and more productive" businesses would adopt this policy on their own. In fact, many businesses already do. Those that do not have their reasons, of which I know nothing about.

While I personally think that having paid sick leave is likely a net benefit for a business I will not take the stance of Sen. Brown and assume that I know what is best for all businesses. Politicians like Sen. Brown rarely know anything about creating a product that people want or serving consumers. Unfortunately this lack of knowledge does little to keep them from meddling in the affairs of others.