Monday, December 31, 2018

The Amazon War and the Evolution of Private Law

By Alex Tabarrok of Marginal Revolution. Great post, well worth reading.

It seems like a legal system is developing to handle appeals at Amazon when they think fake product reviews were used. Such sites get banned but you can appeal and lawyers are specializing in this.

Amazon will ban companies with fake reviews. Sounds like a good idea. But that means your competitors can leave fake reviews saying how great your product is. Then Amazon will ban your company.

Sometimes rules give people incentives to game the system and economics is all about incentives.

Sunday, December 30, 2018

By Thomas Franck of CNBC. Excerpts:
"Key Points
  • A new Harvard Business School paper uses Yelp data to find that the entry of each Starbucks into a ZIP code is associated with a 0.5 percent increase in housing prices within a year.
  • “The presence of a Starbucks is far less important than whether the community has people who consume Starbucks,” the paper found.
  • The economists say the study is the first of its kind to track gentrification using a platform such as Yelp, a potential new tool for policymakers hoping to monitor housing prices."
"It’s not clear whether housing prices are rising due to the Starbucks opening itself or simply because more affluent customers that would go to the coffee chain have moved into the area.

Harvard economics professor Edward Glaeser said Yelp data reveals it may be the latter. The study found that each 10-unit increase in the number of reviews is associated with a 1.4 percent increase in housing prices in the ZIP code.

“The most natural hypothesis to us is that restaurants respond to exogenous changes in neighborhood composition, not that restaurant availability is driving neighborhood change,” the paper concludes.
This is the broader point of the paper, which surmises that gentrification is “strongly associated” with increases in the numbers of grocery stores, cafes, restaurants and bars."

"What remains uncertain, though, is any idea of causality, Glaeser wrote.

“Yet, it seems true that Yelp establishments from 2007-2011 predict changes in education levels over the next five years, but education from 2007 to 2011 does not predict increases in the number of Yelp establishments, once we control for the initial level of Yelp establishments.”

So Starbucks may not be causing gentrification, but its arrival may confirm the gentrification trend.
“The presence of a Starbucks is far less important than whether the community has people who consume Starbucks,” Glaeser writes in the paper. “Consequently, we think that this variable is likely to be a proxy for gentrification itself.”"

Saturday, December 29, 2018

Many economic trends don’t fit with patterns that presaged previous recessions although warning signs can be sudden

See Global Recession Alarms Aren’t Ringing, Despite Market Mayhem: Plenty could still go wrong for the global economy in 2019, but the economic data aren’t saying it has happened yet from Dec. 10 by Paul Hannon of The WSJ. Excerpts:
"Economists at UBS Securities examined 120 recessions in 40 different countries over the past 40 years for clues about how economies behave before recession sets in, for example, what happens to consumer spending, home prices, bank lending, imports, productivity and employment.

“We find that on several dimensions, the behaviour of the data over the last four quarters in the U.S., Eurozone and Japan is completely incongruous with any of the recessions that took place since 1980,” write Pierre Lafourcade and Arend Kapteyn of UBS.

Mr. Kapteyn, in an interview, said the model is consistent with a “sharp slowdown” in global growth, but not the end of the business cycle.

Productivity growth and consumer spending, for example, tend to slow before downturns set in. In the U.S., they’ve picked up. U.S. consumer spending, for example, was up 2.9% in October from a year earlier, adjusted for inflation. That’s better than the average of 2.4% over the past four years. Growth in worker productivity in the second and third quarters was among the best of the expansion."

"Economists at J.P. Morgan have drawn similar conclusions about the growth outlook. They built several alarm systems for impending recessions—one using only high frequency economic data and another including economic data and financial market behavior. The U.S. indicator using only economic data puts a 21% probability on a downturn in the next 12 months, up a bit in recent months but still below levels reached in 2016. The indicator that uses financial market behavior, such as stock price changes and changes in long-term Treasury bond yields, puts the probability at a much higher 36%.

Some economic indicators that presage downturns, such as the change in corporate profit margins, have improved this year rather than deteriorated, said Bruce Kasman, J.P. Morgan’s chief economist.

“We’re in a slowing, there’s no doubt about it, but it doesn’t feel like something fundamentally is breaking down in the underpinnings of the expansion,” Mr. Kasman said in an interview."
See also Recession Is Looming, or Not. Here’s How to Know: Early indicators signal concerns, though more credible ones still look good. But the economy can turn quickly from Dec. 27 by Justin Lahart of The WSJ. Excerpts:
"The early indicators of trouble, such as stock-market selloffs and surveys of sentiment, are imperfect forecasters of a recession."

"Early indicators have more credibility when several of them are flashing warning lights, which is true now.

Besides the stock-market turmoil, short-term Treasury yields are almost as high as long-term yields, closing in on a yield curve “inversion” that in the past has portended recession.

Corporate bond yield spreads over comparable Treasurys are climbing. Business sentiment is slipping, with nearly half of chief financial officers in a recent Duke University survey forecasting a recession by the end of next year."

"The flattening yield curve, for example, could be a result of bond buying by central banks.
But these indicators tend to reinforce one another"

"initial jobless claims, auto sales, industrial production and aggregate hours worked.

Of these, only auto sales, which have leveled off lately, provide any concern."

"Economists as a group may never correctly predict a recession, but the odds they place on one coming tend to rise in advance of a downturn."

"This month, economists surveyed by The Wall Street Journal put a 22% chance of a recession occurring over the next 12 months, compared with 14% a year earlier. Those odds would need to go higher before they amounted to a danger sign."

"Before the fall of 2007, recession indicators like jobless claims suggested nothing was seriously amiss, and then suddenly, they did."
See Inverted Yield Curve by Investopedia. Inverted Yield Curve

Friday, December 28, 2018

Herfindahl-Hirschman at the Movies (Part 2)

Click here to read Part 1. It discusses the possible Disney-Fox merger. Below I talk about merger guidelines and which mergers the government might try to block.

This post deals with market shares of film studios this year. See ‘Black Panther,’ ‘Avengers’ Top Record 2018 Box Office: Hit films generated a disproportionate share of estimated $11.8 billion domestic haul by Erich Schwartzel of The WSJ.

The Justice Department uses the Herfindahl–Hirschman Index (HHI). The market share of each firm in an industry is squared and then all those numbers are added up to get the HHI. There are 3 categories according to Justice:

Unconcentrated Markets: HHI below 1500
Moderately Concentrated Markets: HHI between 1500 and 2500
Highly Concentrated Markets: HHI above 2500

If two firms merge, how likely or unlikely that the merger will be challenged depends on which of the above three categories the industry will be in once the merger takes place and how much the HHI changes as a result of the merger (again, this information is below).

So which one of the three cases above fits the movie industry (at least for 2018)? The WSJ article linked above has market shares. They are

Studio %Share Squared
Disney 26 676
Universal 17 289
Warner 15 225
20th/Fox 11 121
Sony 11 121
Paramount 6 36
Total 86 1468

The missing 14% is made up by all the other firms. If that 14% is made up by two firms with 5% each and one with 4% then that would add another 52 + 52 + 42  =  66. If we add that to 1,468, it puts the HHI over 1,500 (1,534). But if each of the other firms has just 1% each it would only add 14 to the HHI since 1 squared is just 1. That would get us 1,482. So the movie industry is between 1,482 and 1,534). It may be Unconcentrated or Moderately Concentrated.

But even if it is Moderately Concentrate, it would still be on the low end of that category. So it is probably not that threatening to consumers.

Disney and Fox are merging. How much will the HHI increase as a result of that merger? We find that by 2*26*11 = 572. Adding that to either 1,482 or 1,534 would put the HHI over 2,000. What would the Justice Department guidelines say about that? They say that this merger is likely to be challenged.

But it was approved. Disney was required to sell Fox’s regional sports networks because Disney owns ESPN. Of course, that has nothing to do with movies

See Horizontal Merger Guidelines.  But here is an excerpt:
"Based on their experience, the Agencies generally classify markets into three types:
  • Unconcentrated Markets: HHI below 1500
  • Moderately Concentrated Markets: HHI between 1500 and 2500
  • Highly Concentrated Markets: HHI above 2500
The Agencies employ the following general standards for the relevant markets they have defined:
  • Small Change in Concentration: Mergers involving an increase in the HHI of less than 100 points are unlikely to have adverse competitive effects and ordinarily require no further analysis.
  • Unconcentrated Markets: Mergers resulting in unconcentrated markets are unlikely to have adverse competitive effects and ordinarily require no further analysis.
  • Moderately Concentrated Markets: Mergers resulting in moderately concentrated markets that involve an increase in the HHI of more than 100 points potentially raise significant competitive concerns and often warrant scrutiny.
  • Highly Concentrated Markets: Mergers resulting in highly concentrated markets that involve an increase in the HHI of between 100 points and 200 points potentially raise significant competitive concerns and often warrant scrutiny. Mergers resulting in highly concentrated markets that involve an increase in the HHI of more than 200 points will be presumed to be likely to enhance market power. The presumption may be rebutted by persuasive evidence showing that the merger is unlikely to enhance market power.
The purpose of these thresholds is not to provide a rigid screen to separate competitively benign mergers from anticompetitive ones, although high levels of concentration do raise concerns. Rather, they provide one way to identify some mergers unlikely to raise competitive concerns and some others for which it is particularly important to examine whether other competitive factors confirm, reinforce, or counteract the potentially harmful effects of increased concentration. The higher the post-merger HHI and the increase in the HHI, the greater are the Agencies’ potential competitive concerns and the greater is the likelihood that the Agencies will request additional information to conduct their analysis."
 Related posts:

The Herfindahl-Hirschman Index & The Anheuser-Busch InBev/Grupo Modelo Merger

Is The Airline Industry An Oligopoly? 

How concentrated are U.S. industries?

Thursday, December 27, 2018

Check Clearing for the 21st Century Act (Check 21)

See Check Services from The Federal Reserve.
"The Federal Reserve Banks provide check collection services to depository institutions. When a depository institution receives deposits of checks drawn on other institutions, it may send the checks for collection to those institutions directly, deliver them to the institutions through a local clearinghouse exchange, or use the check-collection services of a correspondent institution or a Federal Reserve Bank. For checks collected through the Federal Reserve Banks, the accounts of the collecting institutions are credited for the value of the checks deposited for collection and the accounts of the paying banks are debited for the value of checks presented for payment. Most checks are collected and settled within one business day.

The number of checks written nationally has been declining since the mid-1990s as the use of electronic payment instruments has grown. In addition, the Check Clearing for the 21st Century Act (Check 21) removed barriers to the electronic collection of checks and electronic check collection has now become the primary method for collecting checks. Indeed, almost all checks processed by the Reserve Banks today are deposited and presented using the Reserve Banks' electronic check collection services. These changes have enabled the Reserve Banks to reduce their national check-processing infrastructure so that, since early 2010, they have been processing paper checks at one location nationwide, down from 45 in 2003.

Further information on Federal Reserve check services"

Wednesday, December 26, 2018

Broncos to debut beer-pouring robot at upcoming game

By Matt Birch of The Sports Daily. They have a short video showing how it works. Excerpt:

"Apparently, the team will be using a robot known as the Bud Light Bot to pour beer for fans located in the stadium’s United Club East level. The robot will pick up the cup and hold it over a bottoms-up machine that will dispense the beer"

In my macroeconomics class, we talk about the types of unemployment. Here is one of them:

Structural-unemployment caused by a mismatch between the skills of job seekers and the requirements of available jobs. One example of this is when you are replaced by a machine.

Related posts:

Robot Journalists-A Case Of Structural Unemployment?

Structural Unemployment In The News-Computers Can Now Tell Jokes 

WHAT do you get when you cross a fragrance with an actor?

Answer: a smell Gibson.

Robot jockeys in camel races

Are Computer Programs Replacing Journalists?

Automation Can Actually Create More Jobs 

The Robots Are Coming And It Might Not Be A Case of Structural Unemployment

Sunday, December 23, 2018

More on the social aspects of Venmo

See What’s Wrong With Your Venmo Account, and How to Fix It: You’re sharing more than you think via the payment app. Here’s how to tighten up your privacy settings by Katherine Bindley of The WSJ. Excerpt:
"Few social-media experiences have made me cringe more than viewing my “friend” list on the peer-to-peer payment app Venmo for the first time. Seeing the names of people I’d been on dates with years ago was jarring. Seeing someone I’d blocked on Facebook was unsettling. Seeing names I didn’t recognize and couldn’t find in my contacts was baffling. But one name horrified me above all others: my former therapist.

I went to her profile, clicked on her friend list and saw another name I recognized, the friend who initially referred me. It hit me that I was scrolling through a list that included a psychologist’s patients.

Venmo does well what it’s supposed to do: let friends exchange money quickly and easily. By default, it posts those transactions in a social-media-style feed—seeing who shared meals and drinks with whom, and which emojis they favor, can make an otherwise boring process mildly entertaining.

Theoretically, Venmo lets users control who sees those posted items. But Venmo has a spotty record on privacy and transparency: In February, the FTC announced a settlement with Venmo’s parent company, PayPal Holdings Inc., after finding Venmo “misled consumers about the extent to which they could control the privacy of their transactions.” PayPal didn’t pay a fine but agreed to make privacy-policy updates and to make sharing controls clearer.

Still, Venmo has so far been unwilling to make privacy adjustments to some of the features many users have issues with. Between the uproar this past summer over the app’s public-by-default settings, the enduring inability to make your “friend” list private, and my feeling like a potential victim of a HIPAA violation, I started wondering if I—or anyone else—should really be using the app. Figuring that out took far more digging than users should reasonably have to deal with."
She also explains how to change certain settings in Venmo to get more privacy.

See a post from last year Is Venmo Affecting Friendships?

Saturday, December 22, 2018

Court Questions Law That Underpins Trump’s Trade Policy (Tariff vs. Quota)

See article by William Mauldin of The WSJ.
"A tribunal of trade-focused judges raised constitutional questions over President Trump’s expansive regulation of trade, focusing on a national security law the president has used to impose tariffs on imported goods.

Judges at the U.S. Court of International Trade, presiding over a suit against the Trump administration brought by steel importers and foreign producers, quizzed administration lawyers on whether Congress has improperly delegated too much of its constitutional power to the president. The lawsuit targets Section 232 of the 1962 Trade Expansion Act, in which Congress delegated the president some of the authority to set tariffs.

“It seems Congress has given away an awful lot,” said Judge Claire Kelly. “Maybe it shouldn’t be able to do that.”

Mr. Trump has used Section 232 to impose tariffs on key industries in the name of national security. It was the rationale behind global tariffs of 25% on steel and 10% on aluminum products entering the U.S. earlier in the year, with the administration arguing a vibrant and viable steel industry is crucial for the nation to defend itself. The administration then granted exemptions to some trading partners, including Australia, in exchange for steel quotas.

“No president has ever used Section 232 in the way that President Trump has,” said Alan Morrison, the lead lawyer representing the international steel firms."
The part in red is what stood out for me. A tariff raises the price of a good. The foreign seller ends up selling at a higher price but that is only just enough to pay the tariff. So they receive the same amount from each sale. They also end up selling less than under complete free trade. But if the amount of the quota (with no tariff) is equal to how much the foreign companies sold when there was a tariff, the price consumers end up paying is the same (as is the total quantity bought). The U.S. (or domestic companies) sell the same amount. The government gets no revenue and that money ends up with the foreign sellers.

See Are Tariffs and Quotas Equivalent in their Economic Effects. It includes some graphs in its explanation.

Friday, December 21, 2018

Payless sold its discount shoes for $600 a pair at mock luxury influencer event

By Mike Snider of USA TODAY. Excerpt:
"The privately held Topeka, Kansas-based shoe seller executed the reverse of a bait-and-switch operation recently with a luxury influencer event held in Santa Monica, California.

Payless took over a former Armani store, renamed the retail location as "Palessi" and stocked the outlet with its discount-priced boots, heels, tennis and leisure shoes. Then, it invited a flock of partygoers and sold them the shoes, typically priced at $20 to $40 in Payless stores, at inflated designer price tags of $200 to $600.

"Palessi" sold about $3,000 worth of shoes within a few hours and, after the shoppers paid, staffers told them that the shoes were actually from Payless, according to AdWeek, which reported on the event Wednesday. "They are elegant (and) sophisticated," one shopper described her purchase as, in a Payless video posted on YouTube.

Then, the woman, who Payless says is a real person not an actor, was told the shoes actually were the handiwork of Payless. "You’ve got to be kidding me," she said.

Another shopper, this one a man, said about his purchase, "I could tell it's made with high-quality material.""
 This reminds me of conspicuous consumption, a well known term in economics and sociology. See Thorstein Veblen and What is Conspicuous Consumption. Veblen first coined the term over 100 years ago. The idea is that rich people buy things just to show how rich they are.

Adam Smith may have beaten Veblen to the punch. In The Wealth of Nations, he wrote:

"With the greater part of rich people, the chief enjoyment of riches consists in the parade of riches, which in their eyes is never so complete as when they appear to possess those decisive marks of opulence which nobody can possess but themselves. In their eyes the merit of an object which is in any degree either useful or beautiful, is greatly enhanced by its scarcity, or by the great labour which it requires to collect any considerable quantity of it, a labour which nobody can afford to pay but themselves. Such objects they are willing to purchase at a higher price than things much more beautiful and useful, but more common." (the entire book is online)
See also an earlier blog post I did called Conspicuous Consumption, Conspicuous Virtue, Thorstein Veblen (and Adam Smith, too!) . See also Doctoral Thesis Says Rich People Spend More on Conspicuous Things

Thursday, December 20, 2018

San Antonio’s credit rating is downgraded

City’s creditworthiness takes hit by Josh Baugh of The San Antonio Express-News. A lower credit rating means the city will have to pay higher interest rates any time it wants to borrow money. The binding arbitration could lead to greater spending by the city, hurting its ability to pay back loans.  Excerpts:
"Fitch, one of three major ratings agencies, announced that it’s downgraded the city of San Antonio’s long-standing AAA bond rating.

The downgrade to AA+ occurred because of the Nov. 6 charter amendment election in which voters gave the San Antonio Professional Firefighters Association the unilateral right to demand binding arbitration on contract matters.

The downgrade is expected to cost local taxpayers millions of dollars a year."

Wednesday, December 19, 2018

More On The Economics Of Gift Giving

Yesterday's post was "Is Christmas Gift Giving Inefficient?" The idea is that you might buy a gift for $30 but the person receiving it only values it at $20. 

See The science of giving gifts your loved ones won’t want to return by Kathleen D. Vohs, professor of marketing at the University of Minnesota. Excerpts:
"First, should we give gifts at all? Some economists think gifts — unless they’re cash — are a waste of money, pointing with horror at the “deadweight loss” that occurs when people give each other goods that don’t mesh precisely with what consumers would have bought for themselves. “Holiday gift-giving destroys between 10 percent and a third of the value of gifts,” the economist Joel Waldfogel has written.

But that mind-set misses the point of gift-giving — and it’s just plain unromantic. The value of a gift extends beyond the price of the item and its raw usefulness to include sentimental value, and this second kind of value can be empirically measured. One study from researchers at the University of Florida and Carnegie Mellon University demonstrated that people valued comparably useful objects more highly when they were gifts, as opposed to when they were self-purchases. What’s more, while the pleasure derived from all new acquisitions wanes over time, broadly speaking, the part of a gift’s value that comes from sentimental attachment is largely immune to decline, the study found."

"When most people think of a successful gift, they picture the recipient beaming and exclaiming with delight; marketing professors from the National University of Singapore and the University of Chicago call this the “smile-seeking” motive, and it’s rewarding for the giver. But it can lead you to buy something that scores higher on the initial “wow” factor than on long-term satisfaction. Fresh flowers or a big basket of sweets may get a big reaction, but a book, a cactus or an elegant serving bowl delivers happiness over months or years, and is therefore ultimately more satisfying."

"According to marketing scholars at Emory University and the University of Texas, people who are personally close to a recipient are especially inclined to ignore wish lists, and to seek out something distinctive and “just right.” But going rogue in that way leads to presents that recipients like less than gifts they asked for, the study found."

"For the past 15 years or so, the received wisdom in behavioral economics has been that buying experiences, or giving them as gifts, produces more happinessover the long run than purchased material things do. So instead of buying your sister a kitchen mixer, for instance, consider a gift of cooking lessons from a local chef.

Experiences are thought to trump material goods for several reasons, chiefly because people tend to use material things on their own, whereas experiences are often shared with others. And material goods are easily compared against rival goods, or against things friends and acquaintances own, which fosters discontentedness. Experiences are more idiosyncratic, effectively blocking such comparisons.
Yet other researchers have recently pushed back against the “buy experiences” conventional wisdom. Two academic psychologists at the University of British Columbia found that objects received as gifts tend to produce modest and consistent happiness, whereas experiences given as gifts sparked brief, intense bursts of happiness."

"At moments in life worth celebrating, material goods beat out experiences as gifts, according to researchers from Ohio State University and Washington University, because those objects can evoke memories and feelings of meaningful events for years to come."