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.