Author: Joshua Gans

Solving the email game

This morning’s news reported intentions by AOL and Yahoo! to provide certain delivery of email for the price of stamp.

We all know the current situation that email sent may not be delivered or may be delivered into a spam filter. As Ariel Rubinstein identified almost two decades ago, this presents real problems for reliable coordination. (His paper is conveniently available on-line).

The problem is simple: if you and I need to coordinate our activities and a lack of coordination is really costly, then if communication between us is even slightly unreliable, we may shy away from such activities altogether. Moreover, doing simple things such as acknowledging the receipt of email can’t help (and indeed may make things worse!) if the acknowledgment cannot be reliably sent.

What this means is that AOL and Yahoo!’s solution is going to have to be perfect if it is going to provide real value.

Is this a joke?

On the way to Melbourne airport there was a billboard for Villa and Hut. If you just glance at it (as you do when you are driving) you will notice that they claim to be “voted the best homewear store in the world.”

Sounds impressive but drop your eyes down and you will see in much smaller print a qualification “by internal staff poll.” Not that that is bad — if it wasn’t true that might be a problem. But really, isn’t this just a tad misleading? The homepage of their website says the same thing and much as I have tried I haven’t seen a hint that this is all tounge-in-cheek.

Attracting eyeballs: The Dark Side

When you embark upon writing a blog like this (as I have done), you can’t help but turn to wonder how you get a readership. Even if what you say is interesting, there are so many alternatives for most people, that getting noticed is a problem.

My approach was to see if I had any sources of power I could leverage (at least in away that was not ultimately self-destructive. That is, I turned immediately to the dark-side of market power.

Here is what I have done. I have 80 fresh faced MBA students starting the compulsory Managerial Economics subject here at Melbourne Business School. I like to come up with exam questions based on current business topics (that is, true). So I told them that I would use this blog as the source for those questions. If the students want a little less surprise in the exam, they should read this blog regularly.

So there you have it: I have some power to get my student’s attention and have leveraged that to build readership of this blog.

Fortunately, there is a subtle efficiency here. My main trouble in getting good ideas for exam questions is not coming up with them (I think of them all the time). It is remembering them. By commiting myself to write interesting ideas here I also make it easier for myself in writing the exam.

Actually, even this little exercise has given me an exam idea: am I really going to gain a good following from my dark-side eyeballs strategy? Tune in on exam day to find out!

Important parallels (or Survivor-off-demand)

The season premiere of Survivor: Panama began in the US on Friday. It will be shown here but as usual it is unclear when. And, as usual, it will be with enough lag that those of us using the Internet will have to keep off to avoid knowing who won.

CBS — the US owner and broadcaster of Survivor — are offering two non-free to air TV means of watching Survivor. First, it is available at Google’s new video store. Second, it is available from CBS’s own web-site as an ‘on demand’ option (viewable for 24 hours after downloading). Each will cost US$1.99. And each can be played on any Window’s based PC. Moreover, they were available only a few hours after broadcast (in time for an evening showing here) and ad-free.

But, just as in Apple’s iTunes Music Store, both sites restrict purchases to the US only. Actually, for Google the check is an IP address and so you must actually be in the US. For CBS, a US credit card address appears sufficient.

The question is why? And the answer is easy — because presumably CBS has done deals with local broadcasters that give them exclusivity (for some period of time) or at least until they are broadcast locally. Although there are indications the restrictions may be indefinite. (For example, old episodes of Star Trek available on Google are restricted to the US; long after broadcast and DVD availability everywhere).

But that is only half the answer. From an economics perspective, a channel of distribution should only be shut down by a producer if it is inefficient. Downloads are not inefficient and offer improvements in quality to some. So we have to ask ourselves: would the amount of revenue (in advertising) that a local broadcaster (such as Channel 9) loses from downloads available elsewhere exceed those that CBS could gain from making those downloads widely available? With regard to local affiliates in the US, CBS has decided that the answer is no. Why would the answer be different for Australia?

Moreover, it is unclear to me (although, I am not a lawyer) why such a restriction does not violate our parallel importing laws. After all, no local broadcaster could prevent DVDs of Survivor from being brought to and sold in Australia by an importer but what about downloads that compete with local broadcasts? There appears to be an import(ant) parallel here (pun intended!).

Beware of sharp predictions (especially about popcorn)

In a recent Slate article (click here), Steve Landsburg puzzles as to why some hotels bundle internet access for free but movie theatres never bundle popcorn for free. He writes: “… in the real world, popcorn, unlike wireless Internet, is never free.” Landsburg goes on:

It’s logically possible that by pure coincidence the
numbers at every movie theater in the world all work out the same way,
while the numbers at hotels work out one way half the time and the
other way the other half. But “pure coincidence” theory is even less
satisfying than the “differential greed” theory. There must be
something I’m missing that makes popcorn essentially different from
Internet access. I remain stumped.Well, here in Australia we can
help him out as the ‘real world’ is different: popcorn is sometimes free.
If you go to those ‘first class’ options such as Director’s Lounge or Gold
Class, the popcorn is free. Of course, your ticket price is higher.

Put here is a more straightforward possibility. Here is a link to an offer I received yesterday from Hoyts. If you pay for your tickets with Visa, the popcorn is free.

So the economic theory that predicts that we should sometimes see free popcorn is correct. It is just Professor Landsburg’s casual observation of the real world that caused a conundrum.

That wasn’t a US invention!

Thanks to www.westwingtranscripts.com I was able to read the following exchange in the live (but fictional) debate episode between Republican Vinick and Democrat Santos in The West Wing. I love the show but this gaff regarding who invented ulcer treatments really irked me.

Here is the relevant bit:

——————————————————-

SAWYER Senator, let me ask you about a related issue which is prescription drug prices and those prices have been going up at a rate more than double the inflation rate. So, would you favor re-importing American drugs from Canada where they are much cheaper?

VINICK You know why drugs are cheaper in Canada; because the government controls the price. Do you know how many life-saving drugs are invented in Canada? None, because the government controls the price.

SANTOS Well, Canadian laboratories have helped to create some very important drugs.

VINICK No, nothing like the miraculous drugs that the American pharmaceutical industry has given to the world.

SANTOS Given to the world? I guess you haven’t seen the price list lately, sir.

VINICK Not long ago, if you were HIV positive in this country you were marked for death. Not anymore. And that’s thanks to our pharmaceutical companies. You know, in the 1970s, the most common cause for surgery was ulcers. Now, you get an ulcer, you take a pill. Is it an expensive pill? Yes. A dollar does seem like a lot to pay for one pill. But how does a dollar a day sound compared to a $30,000 surgery bill? So, are prescription drugs expensive? Yes. Do they save us from getting hit with much more expensive hospital bills? Yes. Do they save lives? Yes. American pharmaceutical companies save us money and they save lives and the Democrats can not stop attacking them.

SANTOS Why should the pharmaceutical companies get protection that no other American industry gets? We can buy anything else from Canada; why not prescription drugs?

VINICK Because the Canadian price controls are unfair to American companies.
————————————————————

Now there is alot to think about here but the bit I didn’t like was the ulcer example (highlighted).

The Republican candidate was batting for protection of pharmaceutical company interests (the usual, the US people have to pay more than Canada so the companies will have an incentive to develop drugs). But he then cited as a prime example of this: the development of ulcer treatment which is now cured by a simple anti-biotic saving thousands in on-going treatment.

The problem with this example is that this treatment was discovered and developed in Australia using publicly funded research. To make matters worse, just two weeks before the live debate was aired (!), the Australians who discovered this won the Nobel prize (that is Marshall and Warren for “for their discovery of the bacterium Helicobacter pylori and its role in gastritis and peptic ulcer disease”) I am not even sure the treatment is IP protected. So this is hardly a good example of the need to protect US pharmaceutical companies against Canadian imports.

Actually, the Australian PBS system does it all — low prices and protection of innovative returns but that is a discussion for another time.

Three Words: Structure, structure, structure

Today Telstra is indicated how it will split (e.g., Australian Financial Review –). Need I remind the world that operational separation is just another form of regulation and the best thing would be a real change in structure.

Indeed, last year in New Matilda (click here) I argued that not only would this increase competition and overall welfare (lest that should be enough) but also that a split of Telstra would actually get the Federal government more money!

Now to work out why a broad win-win doesn’t occur, requires us to locate some people who would lose out. The search is quite difficult and I’ll see what I can do later.

Blogging Inspiration

You might wonder why I decided to do this at this time. Well, Andrew Leigh (a very interesting scholar from ANU) is visiting the University of Melbourne this semester (and teaching at MBS, I should ad). He has an interesting blog (imaginingaustralia.blogs.com). I thought the medium might work for me too.

I’ll point to other blogs from people I know as they post interesting stuff.

Andrew has posted a note announcing my blog. Now that qualifies as interesting to me! Go to: Imagining Australia: Ideas For Our Future : New arrival in Ozeblogistan

2005 Innovation Index

Richard Hayes (Research Fellow at MBS/IPRIA) and I have updated the Innovation Index. The index is a measure developed initially by Scott Stern and Michael Porter to measure a country’s capacity to innovate. Scott Stern and I did an update for Australia in 2003 and Richard and I produced an update in 2004.

This years Innovation Index is refined further. The bad news is that Australia’s potential has declined — mainly due to a loss in the perceived strength of IP protection. Nonetheless, our ranking with respect to other countries remains unchanged.

Welcome

Welcome to the CoreEcon blog. As is usual with these things, this is an experimental first stage. Nonetheless, let’s see how this goes.