Board-game price-fixing Board-game price-fixing - Boing Boing

Board-game price-fixing - Boing Boing
: "A board-game publisher has begun engaging in price fixing, a practice newly liberalized in the US in the wake of a June Supreme Court decision. Yehuda sez,

In June, 2007, the U.S. Supreme court struck down a major 97 year old law on price fixing, which prohibits manufacturers from coercing retailers on how to set their prices.

The new ruling essentially wrote that the old law was too rigid, and each instance of price fixing would now be evaluated on a case by case basis to determine if it harmed or helped the consumer....

But last week, Mayfair Games, US publisher of the popular board game Settlers of Catan as well as other games, sent letters to all of its retailers demanding that they limit any discounts on their games to 20% off the suggested retail price.

This is purportedly to boost struggling brick-and-mortar stores against the spread of deep-discounting online stores which have been stealing their business.

Price fixing typically refers to agreements made between firms selling similar products, such as Honda and Toyota. The decision made last June was to change how retail price maintenance was evaluated by the courts. Rather than being illegal per se, it would now be evaluated on a case-by-case basis. The argument in favor of this ruling is that it encourages retailers to provide high quality sales advice. Without these agreements with manufacturers, online stores can free-ride by letting customers get advice from the brick and mortars and then proceed to purchase at a cheap online alternative. I've done this when buying television sets by getting advice from the sales assistants at a friendly nearby chain, then finding the lowest cost online seller of the product I eventually decided on.

Board games in my mind sound like the type of good where its useful to go see them in person at a store. So making sure these stores have incentive to sell these games without losing all sales to the online discount stores could definitely be at the benefit of consumers.

And from the comments on BoingBoing:

Browsing descriptions on Amazon.com is a poor substitute to interacting with a knowledgeable store owner and the 'regulars' who frequent the stores. I know that there are several games I've purchased from a FLGS that, had I only read on online site's description, and some random anonymous internet posts about I never would have bought.

No online retailer has ever sponsored an in-store demo of a board game, nor have they ever provided a place to meet other gamers to actually play these games with.

Classic Watterson Cartoons

more here

Thanks BoingBoing

Larry Lessig on The Corporation

Larry Lessig on The Corporation: "Corporations are not more efficient governments. They are instead increasingly efficient money making machines. And while there's nothing at all wrong with money making machines -- indeed, wealth and growth depends upon them -- there is something fundamentally wrong with trusting these machines to restrain the drive for profits in the name of doing the right thing. The cushion that enabled that in the past (relatively limited competition) is gone. The job of GM is even more now to make money for GM."

(Via Ezra Klein.)

Humor Section in Economic Inquiry

The Economic Inquiry has appointed Yoram Bauman as a co-editor of the humor section. If its as funny as his standup, then it can't be that bad.

link to Yoram's youtube "10 principles" reinterpreted.

Why You Should Care About the 2007 Economic Nobel | The American Prospect

People are having a hard time explaining the significance of the work of this year's economics nobel winners.

Here is another attempt:

Why You Should Care About the 2007 Economic Nobel | The American Prospect:
...'Their research on 'mechanism design theory' broadly, and incentive compatibility and preference revelation specifically, are an important part of several sub-fields including game theory, public economics, and even some social choice theory.'

...I realized that the way to understand the importance of this year's economics Nobel was to take a look at how we debate the usefulness of markets.

A key insight of mechanism design theory is that real-world economic transactions differ from an abstract 'market' where a price falls from heaven and trade happens. When engaging in trade in the real world, economic actors (buyers and sellers), must abide by certain rules and/or norms (e.g. Is it ok to negotiate? Can you make more than one counter offer?). Mechanism design shows that the economic outcomes, including market efficiency, can be dependent upon those rules.

Thus all 'free-markets' are not equal. In fact a marketplace does not exist independently from its rules and norms -- they one and the same. Saying that 'the market works' to allocate resources depends on the specific market design and conditions. Thus (and contrary to much conservative rhetoric) economic theory -- of which mechanism design is a part -- does not say that markets always achieve an efficient outcome. Mechanism design can help us better understand when markets do perform well. And when markets no not reach an efficient outcome, mechanism design theory can suggest mechanisms that might work better.

The theory also points out that economic actors have an incentive to hide their true feelings about the product. So, if you walk onto a used car lot, you would be foolish to let the salesman know exactly how much you like that '67 Chevy. And the seller would be foolish to let you know that he has not gotten a single offer on the car in the six months it’s been on the lot. But at some point, either you or the salesman will have to make an offer to the other -- and in doing so, reveal some, but perhaps not all, of your true preferences.

The fact that people have an incentive to not reveal their true preferences has obvious important consequences for public policy. If people are asked if they want a new highway built, they might rightly worry that they will be asked to pick up some of the expense, and so might not fully reveal their true preference, opting instead to try to game the system as a free-rider. Economic research building from the Nobel winners’ work analyzed ways to get around this -- to provide a mechanism by which people would volunteer their true valuation of the highway, and thus better evaluate the merits of a project that would benefit an entire community. (The key of this particular mechanism is to link an individual’s valuation response to the decision to build or not, but to de-link the exact amount they would pay).

The Nobel prize in economics was awarded not so much for the particular insights noted above, but rather for working out all the implications for economic thinking in various situations -- for example, deriving conditions under which there are efficient equilibriums (an exercise only an economist would love). More generally however, the insights from the theory help to explain how we can better design markets and public policy to reach an outcome that works for more people.

This brings us to global warming and cap-and-trade policy. If we -- and by 'we' I mean the entire planet -- ever take global warming seriously, we will have to adopt some mechanism for reducing carbon emissions. A real program will require nations to implement some form of regulation and/or market mechanism to reduce carbon. But what kind of mechanism? How do we design a program that reduces carbon across nations? Some nations will be harmed significantly by global warming, while others will be better able to adapt, but in a negotiation, countries will have incentives to hide their true valuations, just like in the used car example above. Can we design a mechanism that is more likely to get nations to commit to reducing global greenhouse gases?

Now some of this analysis of global warming problem is pretty much standard economics of externalities (a la fellow Nobelists A.C. Pigou and Paul Samuelson), where the abatement of carbon pollution is seen to be a public good. But I suspect that the information asymmetries across nations will make the problem more complicated at the international level than a simple analysis would suggest. And the research by this year’s Nobel prize winners may prove to be very valuable indeed."...

(Via Ezra Klein.)

Marginal Revolution: Mechanism Design for Grandma

Marginal Revolution: Mechanism Design for Grandma: "Mechanism Design for Grandma

Ok, Grandma may still have some difficulty but in honor of today's Nobelists, Hurwicz, Maskin and Myerson let's give it a go.  Suppose that you are selling a rare painting for which you want to raise the maximum revenue.  There are two potential buyers, Tyler, who values the painting at $100,000, and Alex who values it at $20,000.  The problem would be simple if you knew this information - you would then set the price at $99,999 and Tyler would buy maximizing your revenue.  But how much Tyler and Alex value the painting is their own private information.  How then should sell the painting?

One possibility that springs quickly to mind is an auction.  In a standard English open-cry auction Alex and Tyler will bid for the painting and the bids will keep rising until Alex is forced to drop out at $20,001.  Thus the auction earns you $20,001.  Not bad but is this the maximum revenue possible?  Remember that Tyler values the painting at $100,000 so you could be leaving a lot of money on the table.

What else can you do?  Well, how about an auction with a reserve price, say $50,000 - think of a reserve price as a secret bidder who calls in his bids on the phone.  A reserve price of $50,000 works well in this case as Tyler will pay $50,001.  But note that you just got lucky, if Tyler had valued the good at $30,000 you would have earned nothing at all.  Thus you would like to know whether a reserve is always optimal and how to set it.  (Riley and Samuelson, and much more generally Myerson both show that a reserve price is always optimal and how to set it).

But why stop at a reserve price?  How about a reserve price and an entry fee?  But why stop at reserve prices and entry fees?  You can add any kind of requirement to the auction that you want but will these requirements help you to raise revenue?  Lets boil the problem down to its essence.  Think about an auction as a mechanism - bidders put information into the mechanism, their bids, and the mechanism tells them the outcome.  (Hurwicz was the first to really start thinking about mechanisms in these very general terms.)

You want to design the mechanism to achieve a certain outcome.  The mechanism can be as complicated as you want but it must satisfy certain conditions.  First, the bidders must participate voluntarily - you can't boil them in oil - so there is a participation constraint.  At the end of the day the bidders must expect to be at least as well off as if they did not play the mechanism game (at least on average).

Second, there is an incentive compatability constraint.  You don't know how much Alex and Tyler truly value the painting so suppose that Tyler mimics whatever Alex does - Tyler can do this since he values the painting at least as much as Alex does.  It follows that whatever outcome the mechanism assigns to Alex, Tyler must get at least as much.  This is a significant constraint because it means that if you want Tyler to do something different than Alex, and you do, you want Tyler to bid more, then you must give Tyler something in return.  Thus, even in the optimal mechanism you, the seller, are not going to get everything.  Tyler is going to walk away with some surplus.

We still haven't solved for optimal mechanism, however.  And here is where the magic comes.  Not magic as in something wonderful but magic as in hand-waving.  Maskin and Myerson proved something very useful about mechanisms with these types of constraints.  It turns out that if you follow the constraints then you can restrict attention to mechanisms in which Tyler and Alex always tell the truth about their values, this is called the revelation principle.  (In a sense, this is obvious for imagine that we find the optimal mechanism given that Tyler and Alex submit whatever bids/information they want.  Then you tell Tyler and Alex - next time why don't you tell the truth about your values and we promise to give you exactly the outcome that we would have given you under the previous mechanism.)

In the case of auctions the direct mechanism is well known, a second price auction.  In a second price auction the high bidder wins but pays the second highest-bid.  In this auction it makes sense for every bidder to bid his true value - see if you can work out why - and it turns out that as the revelation principle says, revenues in this direct auction are the same as in say a regular English auction (under certain conditions, of course).

Ok, I have gone on for a while.  Here's the bottom line.  The basic set-up of agents with private information submitting 'bids' which are then fed into a mechanism resulting in outcomes is very general.  How to raise taxes, regulate a monopolist, fund a public good (here's my own contribution to mechanism design), allocate organs, assign interns to hospitals, split common costs, allocate electricity across a grid - all can be thought of as mechanism design problems.   The tools that Hurwicz, Maskin and Myerson developed and their methods of paying attention to participation and incentive compatability constraints and using the revelation principle helps us to design, at least in principle, the best solutions to all of these problems."

(Via .)

Roger Myerson, Nobel Laureate

My favorite contract theory paper discussed on MR blog:

Roger Myerson, Nobel Laureate: "Here is a very important paper, with David Baron, on how to regulate a monopolist with unknown costs.  Strict marginal cost pricing is no longer possible.  Under some assumptions, allow the monopolist to charge a relatively high price, but design penalties to elicit an honest reporting of costs.  The key point of course is that monopolists won't always report their costs truthfully.  This is one of the most important papers in regulatory economics in the last thirty years and it has helped disillusion many economists with a narrow ideal of marginal cost pricing."

(Via Marginal Revolution.)

3 Americans to Share Nobel Prize in Economics - New York Times

Its for mechanism design!

3 Americans to Share Nobel Prize in Economics - New York Times: "The Nobel Prize in economics was awarded today to three Americans for their work in mechanism design theory, a branch of economics that looks at the design of institutions in situations where markets do not work properly.

Leonid Hurwicz of the University of Minnesota, Eric S. Maskin of the Institute for Advanced Study in Princeton, New Jersey, and Roger B. Myerson of the University of Chicago shared the award for ‘having laid the foundations of mechanism design theory,’ the Royal Swedish Academy of Sciences said.

Their work addresses situations in which markets work imperfectly, such as when competition is not completely free, consumers are not fully informed or people hold back private information. In such cases — for example, when people refuse to divulge how much they are willing to pay for a good — trade can break down.

Their work also addresses cases where transactions do not take place openly in public markets, but within companies, in private bargaining between individuals or between interest groups.

The prize winners’ groundbreaking work has been pivotal in assessing how institutions perform under such conditions, and in designing the best mechanism to make sure that goals, such as optimal social welfare or maximum private profit, are reached, the academy said. The winners’ work has helped determine whether government regulation may sometimes be necessary.

Mechanism design theory today plays a central role in many areas of economics and parts of political science, the academy said.

‘The theory allows us to distinguish situations in which markets work well from those in which they do not,’ the academy said in a statement. ‘It has helped economists identify efficient trading mechanisms, regulation schemes and voting procedures.’

The three economists will share the prize of 10 million Swedish krona, or $1.56 million.

Last week, former Vice President Al Gore and the Intergovernmental Panel on Climate Change, a United Nations network of scientists, were awarded the 2007 Nobel Peace Prize, for their work on man-made climate change.

Also last week, Doris Lessing, the Persian-born, Rhodesian-raised, and London-residing novelist, won the 2007 Nobel Prize in Literature.

Mr. Hurwicz, 90, who was born in Moscow, is Regents Professor Emeritus of Economics at the University of Minnesota. He pioneered the development of the field, and was followed later by Mr. Maskin and Mr. Myerson.

In a conference call with reporters today, Mr. Maskin was quoted by The Associated Press as saying of Mr. Hurwicz: ‘Many of us had hoped for many years that he would win. He is 90 years old now, and we thought time was running out. It is a tremendous honor to have the opportunity to share the prize with him and with Roger Myerson.'

Mr. Maskin, 56, was born in New York City. He has been the Albert O. Hirschman Professor of Social Science at the Institute for Advanced Study in Princeton since 2000. Mr. Myerson, 56, was born in Boston. He is the Glen A. Lloyd Distinguished Service Professor at the University of Chicago.

'There were a lot of us working in this area in the late 1970s,' Mr. Myerson told the A.P., describing his work as investigating ‘How does information get used in society to allocate resources.’

Last year, the Nobel Memorial Prize in Economic Science was won by Edmund S. Phelps, a Columbia University professor, for his contribution to macroeconomics, in particular his sophisticated explanation of how wages, unemployment and inflation interact with one another. His explanation held, in essence, that wages and inflation tend to rise in tandem, one pushing up the other, until the unemployment rate reaches an ‘equilibrium’ or ‘natural’ level at which prices no longer rise."

(Via .)

Radiohead’s Warm Glow

Radiohead’s Warm Glow - New York Times: "I didn’t pay anything to download Radiohead’s ‘In Rainbows’ last Wednesday. When the checkout page on the band’s Web site allowed me to type in whatever price I wanted, I put 0.00, the lowest I could go. My economist friends say this makes me a rational being.

Apparently not everybody is this lucid, at least not in matters related to their favorite British rock band. After Radiohead announced it would allow fans to download its album for whatever price they chose, about a third of the first million or so downloads paid nothing, according to a British survey. But many paid more than $20. The average price was about $8. That is, people paid for something they could get for free.

This phenomenon is not new. It’s called tipping. We do it when we go to the restaurant or the barber, or when we ride in a taxi. Though one could argue there are real tangible reasons for this payment — like not losing an ear the next time we get a haircut — the practice of paying more money than we are legally bound to do is still mystifying in an economic sense. For instance, why tip a cabdriver you will probably never see again?

‘Since we economists don’t understand tipping, we can’t really say whether this new scheme will work,’ Greg Mankiw, a Harvard professor of economics, said in an entry on his blog. He is not the only economist who is fascinated by the phenomenon. His Harvard colleague, Dani Rodrik, asked his blog readers, ‘Has Radiohead gone bonkers?’ He concluded, ‘Not at all.’ Radiohead will make money. But those who are paying for the download may truly be nuts.

One could argue that rationality isn’t everything. Radiohead fans might just be altruistic beings who out of the goodness of their hearts would like to give some money to a spectacularly successful and probably stinking rich rock band. But somehow, that doesn’t work as an explanation.

Or does it? Some economists suspect that what is going on is that people get a kick from the act of giving the band money for the album rather than taking it for free. It could take many forms, like pleasure at being able to bypass the record labels, which many see as only slightly worse than the military-industrial complex. It could come from the notion that the $8 helps keep Radiohead in business. Or it could make fans feel that they are helping create a new art form — or a new economy. People who study philanthropy call it the ‘warm glow’ that comes from doing something that we, and others, believe to be good.

Mr. Rodrik tested some of this with an experiment of his own. He offered his blog readers the opportunity to get a copy of his new book on globalization and economic growth for whatever price they wanted to pay, and said proceeds would go to the charity Save the Children.

The response suggested that ‘warm glow’ is in demand. A third of the people offered nothing. But the average bid was $21, and he received bids for as much as $145, more than four times the list price. The most interesting part was to hear bidders explain themselves. Those who bid little felt it necessary to provide a reason, like being a poor student. But those who bid high justified it too: many said they liked saving children.

This is all good news for Radiohead, which has boosted its indie credibility, while all the attention might actually boost its revenues. The band also offered online a package of two CDs, two vinyl records and a booklet for about $80, and it plans to release ‘In Rainbows’ as a single CD in January for fans who would rather hear the music with a better resolution than the medium-quality MP3 file available for download.

It is also potentially comforting news for the recording business. The industry has been struggling to find a business plan that will work in an online market in which — despite billions invested in antipiracy measures — fans can pretty much get their music for free if they want to.

Today, music lovers are left but two options: pay list price for an album, or perform what a fan might call a free download and a record company would call theft. Radiohead’s experiment suggests a third way out: let fans pay what they want and give them lots of touchy-feely reasons to want to give as much money as they can."

(Via .)

Is our sense of fairness genetic?

Is our sense of fairness genetic?: "Chapter 22 of my favorite economics textbook introduces students to the ultimatum game as part of a unit on behavioral economics. Users of the book might be interested in this new research out of MIT, which suggests that how people play the ultimatum game has a genetic component:

An international team of researchers including an MIT graduate student has demonstrated for the first time that genes exert influence on people's behavior in a very common experimental economic game.

Traditionally, social scientists have been quite hesitant to acknowledge a role for genes in explaining economic behavior. But a study by David Cesarini, a Ph.D. student in MIT's Department of Economics, and by colleagues in Sweden indicates that there is a genetic component to people's perception of what is fair and what is unfair.

The paper, published in the Oct. 1 advanced online issue of the Proceedings of the National Academy of Sciences, looked at the ultimatum game, in which a proposer makes an offer to a responder on how to divide a sum of money. This offer is an ultimatum; if the responder rejects it, both parties receive nothing.

Because rejections in the game entail a zero payoff for both parties, theories of narrow self-interest predict that any positive amount will be accepted by a responder. The intriguing finding in the laboratory is that responders routinely reject free money, presumably in order to punish proposers for offers perceived as unfair.

To study genetic influence in the game, Cesarini and colleagues took the unusual step of recruiting twins from the Swedish Twin Registry, and had them play the game under controlled circumstances. Because identical twins share the same genes but fraternal twins do not, the researchers were able to detect genetic influences by comparing the similarity with which identical and fraternal twins played the game.

The researchers' findings suggest that genetic influences account for as much as 40 percent of the variation in how people respond to unfair offers. In other words, identical twins were more likely to play with the same strategy than fraternal twins.

Thanks to Mark Thoma for pointing out the source article.

Meanwhile, over at his blog, George Borjas points us to a related article about chimps playing the ultimatum game:

German researchers have demonstrated chimpanzees make choices that protect their self-interest more consistently than do humans.Researchers from the Max Planck Institute of Evolutionary Anthropology in Leipzig studied the chimp's choices by using an economic game with two players.

In the game, a human or chimpanzee who receives something of value can offer to share it with another.If the proposed share is rejected, neither player gets anything.Humans typically make offers close to 50 percent of the reward. They also reject as unfair offers of significantly less than half of the reward, even though this choice means they get nothing.

The study, however, showed chimpanzees reliably made offers of substantially less than 50 percent, and accepted offers of any size, no matter how small. The researchers concluded chimpanzees do not show a willingness to make fair offers and reject unfair ones. In this way, they protect their self interest and are unwilling to pay a cost to punish someone they perceive as unfair.

The study appeared in the Oct. 5 issue of the journal Science.

(Via Greg Mankiw's Blog.)

Chimps choose more rationally than humans

LEIPZIG, Germany, Oct. 8 (UPI) -- German researchers have demonstrated chimpanzees make choices that protect their self-interest more consistently than do humans.

Researchers from the Max Planck Institute of Evolutionary Anthropology in Leipzig studied the chimp's choices by using an economic game with two players. In the game, a human or chimpanzee who receives something of value can offer to share it with another.

If the proposed share is rejected, neither player gets anything.

Humans typically make offers close to 50 percent of the reward. They also reject as unfair offers of significantly less than half of the reward, even though this choice means they get nothing.

The study, however, showed chimpanzees reliably made offers of substantially less than 50 percent, and accepted offers of any size, no matter how small.

The researchers concluded chimpanzees do not show a willingness to make fair offers and reject unfair ones. In this way, they protect their self interest and are unwilling to pay a cost to punish someone they perceive as unfair.

The study appeared in the Oct. 5 issue of the journal Science.

[RA]

Marginal Revolution: Pay what you want for the new Radiohead album

Marginal Revolution: Pay what you want for the new Radiohead album: "Pay what you want for the new Radiohead album

Here is the story, but no this model won't much change the music industry.  Yes you really can download this album and 'tip' Radiohead as you feel inclined to.  But note that:

1. Radiohead is an indie cult band with extreme loyalties from its partisans and the possibility of attracting more such partisans by seeming 'cool.'

2. Radiohead peaks high on the charts (#3 for their last release, if I recall...) but I believe they sell the product pretty quickly and don't have a long run at the top.  Again, they'd like to widen their fan base.

3. Radiohead's gambit has reaped enormous publicity, but this won't be the case next time.

4. Many donors will give to a highly visible 'cause of the month' (remember the outpouring of support for the tsunami victims?) but they won't necessarily give on a regular basis.

5. Radiohead probably has an especially high ratio of touring to CD and iTunes income; see #1.  This scheme is a natural for them but not for Kelly Clarkson. 

What we will see is lots of lesser bands (and authors) giving their work away for free, but that trend has been underway for some time.  And by the way, Radiohead's best album is Kid A."

(Via .)

The Dilbert Blog: On the Other Hand

The Dilbert Blog: On the Other Hand: "I studied economics in college. One thing I’ve noticed is that other people who have studied economics tend to think a similar way. Some of the similarity is probably because it takes a certain kind of person to be interested in economics in the first place. But I’m convinced that the study of economics changes brains in a way I can identify after about five minutes of conversation. In particular, I think the study of economics makes you relatively immune to cognitive dissonance.

http://en.wikipedia.org/wiki/Cognitive_dissonance

The primary skill of an economist is identifying all of the explanations for various phenomena. Cognitive dissonance is, at its core, the inability to recognize and accept other explanations. I’m oversimplifying, but you get the point. The more your brain is trained for economics, the less it is susceptible to cognitive dissonance, or so it seems.

The joke about economists is that they are always using the phrase ‘On the other hand.’ Economists are trained to recognize all sides of an argument. That seems like an easy and obvious skill, but in my experience, the general population lacks that skill. Once people take a side, they interpret any argument on the other side as absurd. In other words, they are relatively susceptible to cognitive dissonance.

Recently I saw the best case of cognitive dissonance I have ever seen. It was on Bill Maher's show, Real Time, which I love. Bill was interviewing Danish economist Bjorn Lomborg, who has a book about global warming, called 'Cool It.' The economist made the following points clearly and succinctly:

1. Global warming is real, and people are a major cause.

2. When considering the problems that global warming will cause, we shouldn't ignore the benefits of global warming, such as fewer deaths from cold. 

3. The oceans rose a foot in the last hundred years, and the world adapted, so the additional rise from global warming might not be as big a problem as people assume.

4. Developing economical fossil fuel alternatives is the only rational solution to global warming because countries such as China and India will use the cheapest fuel, period. If only the developed countries who can afford alternatives change their ways, it’s not enough to make a dent in the problem.

The Danish economist’s argument doesn't fall into the established views about global warming. He wasn't denying it is happening, or denying humans are a major cause. But he also wasn’t saying we should drive hybrid cars, since he thinks it won’t be enough to help. He thinks we need to make solar (or other alternatives) more economical. "

(Via Mankiw.)