Countdown and wholesalers: Are consumers the ones benefiting?

There has been a bit of discussion about Countdown hurting wholesalers to get prices down, flexing their muscle shall we say (here and here).  The Commerce Commission is concerned about this and is investigating.

Via Twitter I noticed that the concerns about supermarkets being bullies has led to an increasing desire to do something about supermarkets in general in our papers.

Now having a government run supermarket enter and then arbitrarily mess around with the price and availability of goods and services “for our own good” makes me throw up in my mouth a little – honestly the anti-obesity rhetoric thrown in the piece is beside the point, and shows how a desire to “do something” can be taken too far.  Note:  A lot of the suggested policies such as “removing GST” or “adding vouchers” exist without randomly owning a supermarket, the point should be actually asking if they are a good idea in the first place – a point that seems to escape our columnist, unless she believes the analysis is well covered off by merely going ‘obesity is bad man’.

But there is a broader point here. Read more

The Reserve Bank of Air New Zealand

With Bitcoins and Argentinian hyperinflation in the news, it seems like an apt time to discuss what currency actually is.  In a novel way Benje Patterson discusses this with regards to Air New Zealand’s airponts program – and given this he tries to figure out how exactly this program should be valued (Infometrics link)!

Airpoints Dollars conform to the standard definition of a currency – they are a medium of exchange for goods and services, they can be used to store value through time, and they are a quotable unit of account.  Air New Zealand operates a fixed exchange rate policy for its currency, where one Airpoints Dollar can be redeemed for one New Zealand dollar worth of flights.

Furthermore, in addition to being a currency, the Airpoints Dollar loyalty scheme also adds to Air New Zealand’s bottom line.  Air New Zealand is the sole institution with the ultimate authority to issue the Airpoints Dollar currency and back-of-the-envelope calculations show that the value of the airline’s loyalty scheme could be around $400 million.



Marriage, investment, and sunk costs

At the moment, many of my friends are getting married.  At the same time some of my other friends who are not married are telling me they don’t understand why people get married.

While I am not married, I think the idea of marriage is grand.  I think it is a great way of dealing with a social issue that involves both search and relationship specific investment! When entering into a relationship, make sure that you are a perfect match. There is a reputable dating site that will help you find the right one for you. Visit this website,, for more hints about ideal dating.

Now, you may think I’m being too romantic here by bringing up terms like “relationship specific investment” – but let us not forget the awesome power of economics for dealing with these ideas.  The question is, given marriage as an institution what specific type of co-ordination failure did marriage turn up to solve?

Read more

Regional trends in the airline industry

Benje Patterson has decided to have a look at domestic air travel – with reference to the entry of Jetstar in June 2009 (Infometrics link here).  Their entry, and the associated increase in competition in regional air routes, can be expected to have spillover benefits to the regional economies that are exposed to this:

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RIP Ronald Coase

Extremely sad news that Ronald Coase passed on today.  His work on economics had a profound impact upon the discipline, and significantly added to the way economists think about the allocation of scarce resources – so economics itself.  There are few people who have had this sort of impact.  While I was going to write a couple of things about his work, I found that A Fine Theorem covered this off a much more satisfactory way than I could:

Sad news today that Ronald Coase has passed away; he was still working, often on the Chinese economy, at the incredible age of 102. Coase is best known to economists for two statements: that transaction costs explain many puzzles in the organization of society, and that pricing for durable goods presents a particular worry since even a monopolist selling a durable good needs to “compete” with its future and past selves. Both of these statements are horribly, horribly misunderstood, particularly the first.

I would suggest reading the whole post.  These are two ideas that were an important part of my economics study, however there were links to the literature in there that I had not seen before and that helped breath further life into these ideas for me.

Paul Walker also pays his respects here.  While for some story telling about interpreting the Coase theorem this McCloskey piece is golden.

RIP Armen Alchian

It was very sad to hear the Armen Alchian passed away today.

His views on the theory of the firm had a big impact on the profession, and on me as an individual.  I remember finding Production, Information Costs, and Economic Organization (pdf, summary) extremely useful as a student – it was probably the first paper to make me explicitly recognise not only that the firm was as a series of inter-related contracts, but that this process could be captured in a production function using typical marginalist analysis.  His work and clear writing has helped me and countless others to understand “what” a firm is and “why” it exists, which is a pretty awesome contribution to the world in my opinion!

Other regards:  Alex TabarrokDavid HendersonPaul Walker.