The Answer Is Transaction Costs

Exploring the concept of transaction costs and its influence on pricing and packaging policies in the restaurant industry. Discussion on pricing options for salad and food bars, including all-you-can-eat buffets by the ounce and the challenges they present. The process of valuing food inventory in a buffet-style restaurant and the benefits of pricing by the ounce. Comparison of cost savings of pricing by the ounce versus all you can eat. A funny incident involving Keynesian economists on a moose hunting trip and their unexpected optimism in the situation.

The podcast explores the concept of HOAs as a form of anarchy and the role of transaction costs. It discusses the pricing of services within private clubs and the impact on wealth distribution. The significance of reputation and security services for property value is highlighted. The challenges of enforcement and exclusion are examined through the example of Tuh and a plumber. The episode also includes humorous stories and listener letters discussing perceptions of economists and pricing issues.

Send us a textThe listener letter last week asked about the the three "red dots" that are used to identify liquor stores in South Carolina.Turns out that this kind of "shibboleth" is a way of identifying and discriminating, in ways that can be useful, or harmful.Red Dots in South Carolina:The Robert Moss (SOUTHERN SPIRITS) versionSouth Carolina Encyclopedia (from Moore, John H. “Solving the Red Dot Mystery.” Sandlapper,  spring 2000: 32–34.)ShibbolethGileadites and EphraimitesBackground on the conflictNaked mole rats use shibboleths (thanks to Robert Lawson, who knows him some mole rats)The Stone Signposts of PompeiiWorld Series as Shibboleth  (Robert T. Gravlin, 23rd Armored Engineer Battalion)Appropriate Measures of InflationERRATUM: MJ writes to point out that if the economist could really count, he would have miscounted the number of sheep, adding one, because he counted the dog. That's fine. But then why did the shepherd agree that the number of sheep was correct? It should have been one over. It's okay that TWEJ's are not funny, that comes with the territory. But in this case there is a logical problem. My mistake, and thanks, MJ!If you have questions or comments, or want to suggest a future topic, email the show at taitc.email@gmail.com ! You can follow Mike Munger on Twitter at @mungowitz

Send us a textHow do you trade off your own interests against the interests of others? And what role do transaction costs play? A discussion of our "interest" in the welfare of others,  and the complexity that adds to economic indifference curves. Things take an interesting turn, going toward how transaction costs can shape our institutions and preferences, ranging from  a marine fishery to a bowl of M&M's. And TWEJ. Always, TWEJ.Some Resources:Gary Lynne, on Dual Interest Theory:   https://journals.sagepub.com/doi/abs/10.1177/02601079231172366?journalCode=jieaNeo(Classical) and Rama-Kandra, on caring about others:  https://www.imdb.com/title/tt0242653/characters/nm0924502On Coase, Olson, and the Problem of Encompassing Institutions:Justice Department Merger Guidelines:  https://www.justice.gov/archives/atr/merger-guidelines-and-integration-efficiencies-antitrust-review-horizontal-mergers: https://www.justice.gov/archives/atr/merger-guidelines-and-integration-efficiencies-antitrust-review-horizontal-mergersRonald Coase, 1937, "The Theory of the Firm." https://onlinelibrary.wiley.com/doi/full/10.1111/j.1468-0335.1937.tb00002.xRichard Jankowski on Encompassing Organizations:  (1989). Preference Aggregation in Firms and Corporatist Organizations: The Enterprise Group as a Cellular Encompassing Organization. American Journal of Political Science, 33(4), 973–996. https://www.jstor.org/stable/2111117Robert Keohane, "International Institutions": https://www.jstor.org/stable/2600589Mancur Olson, the Rise and Decline of Nations. https://www.jstor.org/stable/j.ctt1nprddThe "Coase Theorem" and the "$100 Bill on the Sidewalk" Joke: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3405632On Brown M&Ms:The DLR interview (excerpts): https://www.youtube.com/watch?v=_IxqdAgNJckNPR on Brown M&Ms:  https://www.npr.org/sections/therecord/2012/02/14/146880432/the-truth-about-van-halen-and-those-brown-m-msBackground, including a copy of the relevant part of the contract:  https://www.insider.com/van-halen-brown-m-ms-contract-2016-9If you have questions or comments, or want to suggest a future topic, email the show at taitc.email@gmail.com ! You can follow Mike Munger on Twitter at @mungowitz

Send us a textWhat do Monty Python, George Akerlof, and the academic publishing industry have in common? They're all part of the explanation for the way academic publishing works.  High transaction costs and the race for tenure often push scholars to prioritize quantity over quality.  So, if you've ever wondered why professors seem to produce endless streams of research, this episode is for you.  Plus the TWEJ, a triple-header!Some links:1.  Some images sent by EA, about "Desert Town", by Claude GillotTwo carriages at an intersection, arguing about who gets to go firstA drawing of same, with a judge to determine the merits of the claims2. The Insectivore's Dilemma: An actual instant of the "eat a bug!" coupon.3. George Akerlof and the "Loyalty Filters" article in the American Economic Review, 73(1), 54–63.  4. Kevin Munger and the Journal of Quantitative DescriptionIf you have questions or comments, or want to suggest a future topic, email the show at taitc.email@gmail.com ! You can follow Mike Munger on Twitter at @mungowitz

Send us a textTransaction costs can help institutions build loyalty and commitment among their members. Starting with the biblical story of Abraham, we delve into the delicate balance of setting transaction costs to neither alienate nor diminish values. Then: loyalty filters. The civil service of imperial China.  Email spam.  "The Word of Wisdom", a LDS dietary and lifestyle principle. But....there are cola vending machines at Brigham Young University, a seeming detour from the teachings of the Word of Wisdom. Links:Genesis 22 TextWord of Wisdom Text from D&CCaffeinated drinks at "The Y."Why is SPAM so badly written? Calligraphy in the Chinese Civil ServiceGeorge Akerlof. (1983). Loyalty Filters. The American Economic Review, 73(1), 54–63. David Kreps (1990). Corporate Culture and Economic Theory ("culture" as a signalling device)Lagniappe: A note from listener J:  I was particularly interested in today's topic as I am a member of the "Mormon" faith. I remember growing up when caffeinated sodas were seen as a huge deal, you would never bring one to a church BBQ and I remember being kicked out of a friend's house for drinking a diet mountain dew. I thought you may find it funny that after almost 100 years of confusion around caffeinated sodas, the church finally clarified in 2012 that in fact, caffeinated sodas are okay and not against the word of wisdom. Many speculate that this was due to MItt Romney being thrust into the spotlight as a presidential candidate, and he often drinks diet coke, and the chIf you have questions or comments, or want to suggest a future topic, email the show at taitc.email@gmail.com ! You can follow Mike Munger on Twitter at @mungowitz

Send us a textHow is buying lettuce like buying lumber? Each is idiosyncratic, and has to be sorted. Imposing the sorting costs on the buyer is actually a way of price discriminating.Clement Atlee and Winston Churchill, for the best TWEJ ever.And a cool new letter, about using transaction costs to separate by type, when type is "private information."Links:"Measurement Costs and Pricing in Retail Produce"  Clement Atlee:  https://blog.oup.com/2017/06/clement-attlee-timeline/ Atlee and Churchill:  https://www.amazon.com/Attlee-Churchill-Allies-Adversaries-Peace/dp/1848876602 Atlee speech  https://www.youtube.com/watch?v=XLuIlkT4gV4 SOURCE for the joke:  https://quoteinvestigator.com/2015/08/13/working-well/ If you have questions or comments, or want to suggest a future topic, email the show at taitc.email@gmail.com ! You can follow Mike Munger on Twitter at @mungowitz

Send us a text(NOTE: SORRY for audio glitch earlier. Fixed now!)BR asks about the economic content of "old sayings."We talk about habits, character, and "thinking fast and slow."Plus, TWEJ takes on cultural norms.Some links and background:F.A. Hayek on habit and informationB. Hooker on Rule ConsequentialismMunger on Pave the Muddy PathsMunger on Rule UtilitarianismRuss Roberts on Wild ProblemsRoberts and Munger on Norms and SportsRoberts and Munger on Cultural NormsDavid Schmidtz on "Desert Town"Adam Smith on being committed to your principlesAlfred North Whitehead on habitLagniappe:I think we all see different headlines. This one (to me) says, "Sheetz raises gas prices using long lines and frayed tempers on one of the hottest days of the year!"If you have questions or comments, or want to suggest a future topic, email the show at taitc.email@gmail.com ! You can follow Mike Munger on Twitter at @mungowitz

Send us a textLast week's letter asked about the role of transaction costs in rationing discounted products, or "sales," like "Dollar Hotdog Night!" at the ballpark.  As the listener correctly pointed out, this relates to price discrimination, which is a great topic.And....coupons!Some additional links and info:The $21 "Dodger Dog" at Chavez RavineThe "Monkey App" kerfuffle in the Bay Area$1 hotdog night at Philadelphia got out of hand, because of course it didRobert Murphy and the Argument FOR CouponsEcontalk discussion of "found wallets" There is no such thing as a free coupon!If you have questions or comments, or want to suggest a future topic, email the show at taitc.email@gmail.com ! You can follow Mike Munger on Twitter at @mungowitz

Send us a textLast week's letter asked if charging prices below the "market" price might be rational, but might be an antitrust violation.  The TWEJ is a joke about women in prison for having violated rules against "moral" pricing. The actual cartoon is here, preserved for posterity by the good Timothy Taylor. Some links, for more information:Russ Roberts and Michael Munger on John Locke, Prices, and Hurricane SandyJohn Locke, "Venditio"Guzman and Munger, "Moral Dilemmas from Locke's Venditio," Public Choice. A "Loudwire" article that fails to understand even basic economics of scarcity.Mark Perry drops the truth about "Ticket Scalping" and why it happens...Adam Smith:  "The real price of everything is the toil and trouble of acquiring it."  (WoN, Bk I, Chapter 5) Michael Munger, "To the Consumer, All Costs are Transaction Costs." AIER. If you have questions or comments, or want to suggest a future topic, email the show at taitc.email@gmail.com ! You can follow Mike Munger on Twitter at @mungowitz