Market Power

Musings by an academic economist on the power of markets and the power over markets.

Saturday, March 12, 2005

That's Opera, Doc!

First there was Heavy Classix. Now there's a Heavy Metal Opera.

By the way, I think the gal on the front of the Heavy Classix was my first girlfriend. She looks like she's slimmed down a lot. ;-)


Friday, March 11, 2005

Late Flu Season

It's kinda late for flu season, being that it's "Spring" Break now, but that's what we have around these h'yar parts. My four year-old has been home with a fever for the last two days and several kids in his class at daycare have it. My 3 year-old's lead teacher was down with the flu earlier in the week, and I ran a 102.8 fever Wednesday night. My version is real weird, because I have had no digestive or respiratory problems, but I have been very achy and very weak. Today, while I have energy and while my fever is gone, I still have trouble picking up a TV remote. Very odd, especially considering that I lifted weights at the gym on Tuesday with no problems at all.


Wednesday, March 09, 2005

World Wind

Craig Newmark links to the NASA World Wind program, a program that allows you to zero in on places throughout the world via pictures taken from satellites. It's a huge program (half a gig), and some of the photos are outdated (I can zero in on my neighborhood but I can't see my house because, in the picture, my neighborhood is still a farm field). But it looks like a great procrastination tool. I even think my durables will get a kick out of it.


Tuesday, March 08, 2005

Am I Evil?

Market Power is only 24% evil, according to the Gematriculator. That means this site is 76% good. The Sports Economist, my other blogging sight, is 50% evil.

I've gotta try harder next time!


Monday, March 07, 2005

Wither the Shut-Down Condition?

When economists teach the theory of production decisions, we run into the case where a firm may shut down in the short run. In this theory, the firm does not leave the market altogether. Instead, the firm finds that its price is "too low" to allow it to generate enough revenue to cover its variable costs. Since it minimizes losses by shutting down, it decides to not produce. Normally, when I teach the shut down condition, I teach it from the standpoint of a falling price with costs held constant, but it certainly could result from increasing costs at each level of production.

How often does this happen in the business world? Usually when people think of a firm shutting down, they think of the firm completely quitting business. But how often do firms stop production for a short period of time because of short-term price and cost considerations?

Several years ago, aluminum manufacturers shut down their operations because they found that their opportunity cost of using electricity that they had bought under favorable long-term contracts was too high relative to the price of their output. California was in the midst of its electricity crisis, and needed electricity. So, instead of using the electricity to manufacture aluminum, some aluminum companies sold the electricty to California. See here. A quote from the article:

Similarly, aluminum companies are collecting about $1.7 billion this year by not making aluminum. Companies like Alcoa have earned profits that delight Wall Street, while keeping about 10,000 workers on their payroll, by reselling hydropower that they bought in the mid-1990's under a cheap long-term contract.
The shut down condition at work.


Sunday, March 06, 2005

Marriages and Approaches to Games

John Nash developed equilibrium solutions to cooperative games and non-cooperative games. In a cooperative game, negotiators can enforce a binding agreement. In this case, the negotiators can come to a binding agreement that maximizes the joint welfare of the negotiators. In a non-cooperative game, a binding agreement is either not possible to negotiate or enforce. In this case, each person acts in their own self-interests.

Is a couple more likely to divorce if one of them tends to play games cooperatively and the other tends to play them non-cooperatively? I can think of a couple reasons why they might.

1. Strong relationships are built on mutual trust. If we model a marriage as a repeated prisoners' dilemma, then the two people will be best-off jointly if they cooperate with one another each time the game is played. But there is an incentive to deviate from the cooperative solution at each stage. The person who plays games cooperatively, once he/she has observed the others person's playing of a "marriage game", loses trust in the partner and the marriage can dissolve.

2. The person who plays games non-cooperatively would have little trust of the other person, thinking that the other person plays games non-cooperatively when, in fact, the other person plays games cooperatively. The non-cooperative person could be a person who is very jealous or suspicious of the other person when that person goes out or when a person of the opposite sex speaks with him/her. This also can put strains on the marriage.


Sports - Zero Sum Games?

Are sporting contests zero-sum games? That's a description I find a lot when it comes to talking about the sort of competition that occurs on the playing field. Russell Roberts at Cafe Hayek refers to this sort of competition as such.

I don't think that sporting contests are zero-sum games in many instances. For instance, consider today's Kansas at Missouri men's basketball contest in Columbia.

Missouri needs this one more than Kansas. There should be a difference between playing for your competitive life and playing for a No. 1 NCAA seed, which Kansas might not get even with a victory at MU.
Sports are zero-sum games if we narrowly define the outcome as a win and a loss and assume that the value of a win equals the value of a loss for each team. But that's a big assumption to make in many cases.