The price of nails since 1695

 If your friends and relatives wonder why economists write about the things we do, this interesting paper should reassure them that someone is minding the economics store and thinking deeply about prices...

THE PRICE OF NAILS SINCE 1695: A WINDOW INTO ECONOMIC CHANGE by Daniel E. Sichel

NBER Working Paper 29617, http://www.nber.org/papers/w29617

Abstract: This paper focuses on the price of nails since 1695 and the proximate source of changes in those prices. Why nails? They are a basic manufactured product whose form and quality have changed relatively little over the last three centuries, yet the process for producing them has changed dramatically. Accordingly, nails provide a useful prism through which to examine a wide range of economic and technological developments that touch on multiple areas of both micro- and macroeconomics. Several conclusions emerge. First, from the late 1700s to the mid 20th century real nail prices fell by a factor of about 10 relative to overall consumer prices. These declines had important effects on downstream industries, most notably construction. Second, while declining materials prices contribute to reductions in nail prices, the largest proximate source of the decline during this period was multifactor productivity growth in nail manufacturing, highlighting the role of the specialization of labor and re-organization of production processes. Third, the share of nails in GDP dropped back from 0.4 percent of GDP in 1810—comparable to today’s share of household purchases of personal computers—to a de minimis share more recently; accordingly, nails played a bigger role in American life in that earlier period. Finally, real nail prices have increased since the mid 20th century, reflecting in part an upturn in materials prices and a shift toward specialty nails in the wake of import competition, though the introduction of nail guns partly offset these increases for the price of installed nails.

"nails are ideal for this analysis because there has been relatively little change in the product itself (unlike the production of computing power or lighting), thereby greatly simplifying the task of adjusting for changes in quality over time.

...

" In 1810 (the earliest year for which I could assemble necessary data), the use of nails in the US (measured as production plus imports minus exports) was about 0.4 percent of nominal GDP as shown in Figure 1. To put this share into perspective, in 2019 household purchases of personal computers and peripheral equipment amounted to roughly 0.3 percent of GDP and household purchases of air travel amounted to about 0.5 percent. That is, back in the 1700s and early 1800s, nails were about as important in the economy as computers or air travel purchased by consumers are today. "

Shrouded prices for blood tests in the U.S.

One of the features of the American health care system is that prices are heavily shrouded--insurance companies reach negotiated prices with providers, that may be very different with different providers, and very different from list prices, and are not quoted. So prices aren't nearly as informative in health care as in most other markets.

Here's a NYT story that focuses on blood tests:

They Want It to Be Secret: How a Common Blood Test Can Cost $11 or Almost $1,000
Huge price discrepancies like that are unimaginable in other industries. Also unusual: not knowing the fee ahead of time.

Donating eggs for fertility: an update

Slate brings us up to date:

INSIDE THE QUIETLY LUCRATIVE BUSINESS OF DONATING HUMAN EGGS

"The first US child conceived from a donated egg was born in 1984. Since then, the procedure has grown into a thriving industry. Demand from aspiring parents, along with a dearth of regulations, have spawned matchmaking agencies that offer to help parents find the perfect young woman whose eggs will result in the equally perfect child.

"Donating eggs can be lucrative, with agencies paying as much as $50,000 per cycle in some cases.
...
"Ads or marketing materials targeting potential donors rarely mention the risks or common complaints. Liz Scheier donated eggs three times between 2005 and 2007, and says she was told there were no known risks associated with egg donation. Today, Scheier is a media liaison for We Are Egg Donors, a women’s health organization that works with more than 1,500 donors to promote transparency and advocate for their concerns. She says that donors nowadays hear the same line she did, delivered almost verbatim. But it’s missing one key detail. “There are no known risks because no one has looked,” she adds.
...
"Egg donation has thrived in the US in part because there are few laws regarding the transfer of unfertilized eggs for reproductive purposes, according to industry experts. They say a handful of states have policies that touch on some aspect of egg donation, generally from the perspective of the recipient.

With few regulations, the US has become a magnet for well-off wannabe parents in other countries where egg donation is regulated, or outright illegal. Egg donation is barred in China, Germany, Italy, and Norway; paying women to donate eggs is prohibited in most of Europe, as well as in Canada and other nations.
...
"In 2011, an egg donor sued ASRM [American Society for Reproductive Medicine] over the organization’s compensation guidelines, which the donor claimed were a form of illegal price-fixing; other donors later joined the case. In a 2016 settlement, ASRM agreed to eliminate its payment suggestions, pay $1.5 million in legal fees, and give the plaintiffs $5,000 each. Agencies were freer to offer donors more money.
...
"Since then, donor pay has soared, particularly for attractive, well-educated donors."


HT: Stephanie Lo

Would government compensation of kidney donors help or hurt the poor?

Here's an article in PLOS ONE that asks a question whose answer is often simply assumed by those who oppose compensation for kidney donors:

Would government compensation of living kidney donors exploit the poor? An empirical analysis
Philip J. Held  , Frank McCormick , Glenn M. Chertow, Thomas G. Peters, John P. Roberts
Published: November 28, 2018https://doi.org/10.1371/journal.pone.0205655

Abstract
"Government compensation of kidney donors would likely increase the supply of kidneys and prevent the premature deaths of tens of thousands of patients with kidney failure each year. The major argument against it is that it would exploit the poor who would be more likely to accept the offers of compensation. This overlooks the fact that many poor patients desperately need a kidney transplant and would greatly benefit from an increased supply of kidneys. The objective of this study is to empirically test the hypothesis that government compensation of kidney donors would exploit the poor. Exploitation is defined by economists and several noted ethicists as paying donors less than the fair market value of their kidney. Exploitation is expressed in monetary terms and compared with the economic benefit recipients receive from a transplant. Data are from the Scientific Registry of Transplant Recipients and the United States Renal Data System annual data reports. Educational attainment is used as a proxy for income. We estimate that if the government rewards living donors with a package of non-cash benefits worth $75,000 per kidney, donors would not be exploited. Much more important, this compensation would likely end the kidney shortage, enabling many more patients with kidney failure to obtain transplants and live longer and healthier lives. The value of kidney transplantation to a U.S. recipient is about $1,330,000, which is an order of magnitude greater than any purported exploitation of a living donor (zero to $75,000). Consequently, the aggregate net benefit to the poor alone from kidney transplantation would increase to about $12 billion per year from $1 billion per year currently. Most of the benefit would accrue to poor kidney recipients. But poor donors would receive the fair market value of their kidney, and hence would not be exploited. If the government wanted to ensure that donors also received a net benefit, it could easily do so by increasing the compensation above $75,000 per donor."

Free versus predatory prices

Here's a new paper exploring the anti-competitive effects of giving things away for free:

An Introduction to the Competition Law and Economics of 'Free'

Forthcoming, Antitrust Chronicle, Competition Policy International

Benjamin G. Edelman

Damien Geradin

Abstract

Many of the largest and most successful businesses today rely on providing service at no charge to at least a portion of their users. Free services often delight users, yet also create a series of challenges for competition policy, including impeding entry, inviting overproduction on quality, and increasing the risk of deception and overpayment. This short paper presents these problems, examines the strategies that entrants can attempt when competing with free service, and considers possible regulatory responses.

Modern congestion pricing, by Cramton, Geddes and Ockenfels

Here's a short paper in the July 31 Nature:
Set road charges in real time to ease traffic
Track vehicles to link tolls with demand and cut congestion, urge Peter Cramton, R. Richard Geddes and Axel Ockenfels

And here's the longer working paper:
Markets for Road Use: Eliminating Congestion through Scheduling, Routing, and Real-Time Road Pricing
Peter Cramton, R. Richard Geddes, and Axel Ockenfels

Their vision:

"Efficient pricing of network capacity is not new. Indeed, wholesale electricity markets have been dynamically priced for over a decade. Communications markets are adopting dynamic pricing today. Efficient pricing of road use, however, has only recently become feasible. Advances in mobile communications make it possible to identify and communicate the location of a vehicle to within one cubic meter—allowing precise measurement of road use. User preferences can be communicated both in advance to determine scheduled transport and in real time to optimize routes based on the latest information. Computer advances also facilitate efficient scheduling and pricing of road use. Consumer apps help road users translate detailed price information into preferred transport plans. Computers also allow an independent system operator to better model demand and adjust prices to eliminate congestion and maximize the total value of road infrastructure. An independent market monitor, distinct from the
operator, observes the market, identifies problems, and suggests solutions. A board governs the market subject to regulatory oversight."

Too many traffic jams: an interview with Stanford's Mike Ostrovsky (and a paper by Ostrovsky and Schwarz)

Mike Ostrovsky at Stanford GSB is interviewed on technology and traffic:
An End to Traffic Jams? It Might Not Be a Dream

And here's the paper on which the interview is based:

Carpooling and the Economics of Self-Driving Cars
Michael Ostrovsky and Michael Schwarz
February 12, 2018

Abstract: We study the interplay between autonomous transportation, carpooling, and road pricing.We discuss how improvements in these technologies, and interactions among them, will affect transportation markets. Our main results show how to achieve socially efficient outcomes in such markets, taking into account the costs of driving, road capacity, and commuter preferences.  An important  component  of  the  efficient  outcome  is  the  socially  optimal  matching  of  carpooling riders.  Our approach shows how to set road prices and how to share the costs of driving and tolls among carpooling riders in a way that implements the efficient outcome

Uber, surge pricing, and how much battery life is left in your phone (they know)

The Telegraph has the (scary) story, after chatting with Keith Chen: Uber knows customers with dying batteries are more likely to accept surge pricing

"The car-hailing service Uber can detect when a user’s smartphone is low on battery, and therefore willing to pay more to book a ride.

Uber, which has faced the ire of London’s tax drivers since launching in the capital in 2012, can tell when its app is preparing to go into power-saving mode, although the firm says it does not use this information to pump up the price.

Keith Chen, head of economic research at Uber, told NPR that users are willing to accept a “surge price” up to 9.9 times the normal rate, particularly if their phone is about to die.

“One of the strongest predictors of whether or not you’re going to be sensitive to surge… is how much battery you have left on your cellphone,” he said.

“We absolutely don’t use that to push you a higher surge price, but it’s an interesting psychological fact of human behaviour.”
**********

Here's a paper by Chen and Sheldon: Dynamic Pricing in a Labor Market: Surge Pricing and Flexible Work on the Uber Platform

Discriminatory pricing for discriminatory services

I remember initially being surprised that security lines at airlines would be shorter for higher fare travelers, but Americans are getting used to class distinctions. The NY Times has this story, focused on cruise ships: In an Age of Privilege, Not Everyone Is in the Same Boat: "Companies are becoming adept at identifying wealthy customers and marketing to them, creating a money-based caste system."

"In theory, according to Steve Tadelis, a professor of economics at the Haas School of Business at Berkeley, “when an industry is able to create a richer line of products for people looking to spend their money, that makes everybody happier. But getting it right in reality is very, very hard.”

"As companies separate their clientele, a debate has developed over just how obvious the distinctions should be. Some experts, like David Clarke, who works with leisure industry giants as a principal at PricewaterhouseCoopers, say that it is best to be open about what amounts to a money-based caste system.

“It’s about transparency,” he said. “What customers hate is when you’re trying to hide stuff and are not being honest with them.”

"Many companies, though, have discovered that offering ordinary customers just a whiff of the rarefied air can actually enhance the bottom line, even if it stirs a certain amount of envy and resentment.
...
"Even though this kind of pampering might be good for business, and delight those on the right side of the velvet rope, the gap between the privileged and the rest may ultimately leave everyone feeling uneasy, said Barry J. Nalebuff, a professor of management at Yale.

“If I’m in the back of the plane, I want to hiss at the people in first class,” said Mr. Nalebuff, who has advised many Fortune 100 companies. “If I’m up front, I cringe as people walk by.”

Bargaining, and the law of one price on the internet: Axiomatic Models of Bargaining

Sometimes price variation on the internet is explained by search costs, etc., but below is an example that is hard to explain that way, since all the options are on the same page (e.g. who would rent a book for more than its purchase price?)  The example below is for my book, Axiomatic Models of Bargaining, which is available for free here (although just in pdf, not in the collectors' edition, which you can buy from Springer for $69.95).

Dynamic Allocation and Pricing: A Mechanism Design Approach, by Alex Gershkov and Benny Moldovanu

Here's a book I haven't had a chance to see yet, but looks worthwhile:

Dynamic Allocation and Pricing
A Mechanism Design Approach
By Alex Gershkov and Benny Moldovanu

"Overview
Dynamic allocation and pricing problems occur in numerous frameworks, including the pricing of seasonal goods in retail, the allocation of a fixed inventory in a given period of time, and the assignment of personnel to incoming tasks. Although most of these problems deal with issues treated in the mechanism design literature, the modern revenue management (RM) literature focuses instead on analyzing properties of restricted classes of allocation and pricing schemes. In this book, Alex Gershkov and Benny Moldovanu propose an approach to optimal allocations and prices based on the theory of mechanism design, adapted to dynamic settings.

Drawing on their own recent work on the topic, the authors describe a modern theory of RM that blends the elegant dynamic models from the operations research (OR), management science, and computer science literatures with techniques from the classical mechanism design literature. Illustrating this blending of approaches, they start with well-known complete information, nonstrategic dynamic models that yield elegant explicit solutions. They then add strategic agents that are privately informed and then examine the consequences of these changes on the optimization problem of the designer. Their sequential modeling of both nonstrategic and strategic logic allows a clear picture of the delicate interplay between dynamic trade-offs and strategic incentives. Topics include the sequential assignment of heterogeneous objects, dynamic revenue optimization with heterogeneous objects, revenue maximization in the stochastic and dynamic knapsack model, the interaction between learning about demand and dynamic efficiency, and dynamic models with long-lived, strategic agents."

***************
And apparently it's on sale 'til March 31: MIT Press writes,
"The MIT Press is delighted to announce the recent release of Dynamic Allocation and Pricing: A Mechanism Design Approach by Alex Gershkov and Benny Moldovanu. In celebration of its publication, we invite friends and colleagues of the authors to receive a 30% discount off the book’s cover price when ordering this title directly through our website, mitpress.mit.edu, with discount code MDAP30."

Personalization of prices, and other things, on the web

Elizabeth Dwoskin has the story in the WSJ:
Why You Can’t Trust You’re Getting the Best Deal Online
A Study Finds Discriminatory Pricing on E-Commerce Sites Is More Widespread Than Thought

"The study, by a team of computer scientists at Northeastern University, tracked searches on 16 popular e-commerce sites. Six of those sites used the pricing techniques; none of the sites alerted consumers to that fact.

"Among the study’s findings: Travel-booking sites Cheaptickets and Orbitz charged some users searching hotel rates an average $12 more per night if they weren’t logged into the sites, and Travelocity charged users of Apple Inc. ’s iOS mobile operating system $15 less for hotels than other users.

"Home Depot Inc. shows mobile-device users products that are roughly $100 more expensive than those offered to desktop-computer users. And Expedia and Hotels.com steer users at random to pricier products, the study said.

“In the real world, there are coupons and loyalty cards, and people are fine with that,” said Christo Wilson, an assistant professor at Northeastern who led the research team. “Here, there’s a transparency problem. The algorithms change regularly, so you don’t know if other people are getting the same results.”


Here's the paper that sparked the newspaper story:
Measuring Price Discrimination and Steering on E-commerce Web Sites
by Aniko Hannak, Gary Soeller, David Lazer, Alan Mislove,  and Christo Wilson (all at Northeastern University).

and here's the website of the group: Personalization Research @ Northeastern

Tourism pricing at the Jaipur observatory

Here's the price list...

And well worth it, to see a sculpture garden of assorted sundials of varying sophistication:

State laws against price gouging

Michael Giberson provides this list:

State	Year	Notes
Alabama	1996	Code of Ala. § 8-31-1 thru § 8-31-6. LINK Alabama law; Any commodity or rental facility.
Arkansas	1997	A.C.A. § 4-88-301 – 4-88-305.
California	1994	Cal. Pen. Code § 396.
Connecticut	1986	Conn. Gen. Stat. § 42-230.
District of Columbia	2007	D.C. Code § 28-4101 thru 28-4102.
Florida	1992	Fla. Stat. § 501.160.
Georgia	1995	O.C.G.A. § 10-1-393.4.
Hawaii	1983	Haw. Rev. Stat. § 209-9
Idaho	2002	Idaho Code § 48-603; Food, fuel, pharmaceuticals, water.
Illinois	2005	Ill. Admin. Code tit. 14, §§ 465.10 thru 465.30.
Indiana	2002	Ind. Code §§ 4-6-9.1-1 thru 4-6-9.1-7; Fuel.
Iowa	1993	61 IAC 31.1(714); Merchandise needed by victims of disasters.
Kansas	2002	K.S.A. § 50-6,106; Any necessary property or service.
Kentucky	2004	Ky. Rev. Stat. Ann.  § 367.374.
Louisiana	1993	La. R.S. 29:732 LINK Louisiana law.
Maine	2006	10 M.R.S.A. § 1105.
Massachusetts	1990	Md. Reg. Code tit. 940, § 3.18; Petroleum products only.
Michigan	*	Mich. Stat. Ann. § 445.903(1)(z); General consumer code provisions not limited to emergencies.
Mississippi	1986	Miss. Code Ann. § 75-24-25(2).
Missouri	1994	15 CSR § 60-8.030; Necessities.
New Jersey	2001	N.J.S.A. §§ 56:8-107 to 8:109; LINK New Jersey law; Necessities.
New York	1979	NY Gen Bus §396-r.
North Carolina	2003	N.C. Gen. Stat. § 75-38; LINK North Carolina law.
Oklahoma	1999	15 OK St. §§ 777.1 thru 777.5.
Oregon	2007	ORS 401.960 thru 401.970; LINK Oregon law; Essential consumer goods and services.
Pennsylvania	2006	Link Pennsylvania law.
Rhode Island	2012	Rhode Island General Laws §30-15-19; Essential commodities including home heating fuels, motor fuels, food and water.
South Carolina	2002	SC Code 39-5-145.
Tennessee	2002	TCA Title 47 Chapter 18 Part 51; LINK Tennesee Law.
Texas	1995	Tex. Bus. & Com. Code Ann. § 17.46(b)(27) LINK Texas law; Necessities.
Utah	2005	Utah Code § 13-41-101 thru 13-41-202. Link Utah law; Retail goods and services.
Vermont	2006	9 V.S.A. § 2461d; LINK Vermont law; Petroleum or heating fuel product only.
Virginia	2004	Va. Code §§ 59.1-525 et seq., LINK Virginia law; Any necessary goods and services.
West Virginia	2002	W.V. Code § 46A-6J-1
Wisconsin	2006	Wisc. ATCP Ch. 106; Link Wisconsin law.
		List updated November 3, 2012 by Michael Giberson. Please see list of resources below for useful links on price gouging. (http://knowledgeproblem.com/2012/11/03/list-of-price-gouging-laws/