Recently, I posted a blog about the folly of price controls on gasoline, particularly during hurricanes and other times of potential shortages. It was met with some consternation on the part of a few, which I wholeheartedly welcomed as part of a lively discussion. Price-gouging, as many suppliers are often accused of during hurricane season, is a controversial topic, especially when consumers feel they are being taken advantage of in a time of need.
To my delight, I learned that I was in good company. Walter Williams, a well-respected economist from George Mason University, wrote an eloquent column that far better explained the beauty of free-market pricing than I ever could. He even praised the role of oil speculators and how their purchases reduce oil usage in the present to provide for ample supplies in the future. Brilliant.
Moving on…since the blog post, I have seen a couple of other examples of how prices and markets respond to supply and demand in a utility-maximizing way. Cases in point:
Baseball. The Texas Rangers are doing extraordinarily well right now, but there are very games left during the regular season. Having been to just one game this summer, I have been wanting to attend another game, but most of the tickets are sold out. So enter ticket resellers, such as Stubhub. These are sites where individuals sell tickets they don’t want. Perhaps the sellers are season ticket holders and cannot attend a game, so their tickets go up for sale on one of these sites. Prices vary and do not usually reflect the face value of the ticket. In fact, when the Rangers are doing well and the demand for tickets is high, tickets behind home plate might sell for twice their face value. Some may call that highway robbery. But on the same site, there are tickets to the same game (in grandstand seating mind you, so bring the binoculars) that may go for as little as one dollar each, well below their face value. As the game date gets closer, prices for many of the tickets will fall if they have not sold yet. After all, a seller would rather get some money for the tickets than no money at all. The beauty of all of this is two-fold: 1) Ticket resellers provide opportunities for the budget-conscious to attend baseball games. Those who are unwilling or unable to pay for even the cheapest seats may be able to purchase tickets well below face value; and 2) Ticket resellers also enable those who are willing to pay to purchase seats that otherwise be sold out through the official Major League Baseball ticket outlets. This is all made possible by the invisible hand of supply and demand.
Replacement Referees. Meanwhile, in football, it appears that the regular referees are back on the job. Before this happened though, ESPN analyst Steve Young tossed used a little economic analysis to describe the situation for fans:
“The NFL is “inelastic for demand,” Young said, meaning that nothing — including poor officiating — can deter a significant percentage of fans and corporate sponsors away from the most popular game in the country. It”s the primary reason the NFL has held steady in its labor impasse with regular officials: There is no sign that enough of the sporting public cares to make it a priority.”
He is right — partly. When football demand is inelastic, it means there are no close substitutes to the sport. (And no, arena football is not a close substitute for many). Thus it means that viewers are stuck with bad calls from substitute refs, and since viewers will keep watching, advertisers will keep pouring money into advertising, right? Not so fast. Some viewers did stop watching. The refs’ calls became so controversial (even possibly changing the outcome of a certain game) that viewers growled in disgust, complained to the networks by phone and email, and even started flipping channels to shows they would not normally watch in a million years. the outcome of
a certain game) that viewers growled in disgust, complained to the networks by phone and email, and even started flipping channels to shows they would not normally watch in a million years. What the NFL may have kept in advertising dollars, they began to lose in credibility. It took Major League Baseball many years to regain fans and credibility from its players’ strike in 1994 to 1995.
What does the referees’ strike have to do with the free market, one might ask? Everything. It did not take a Congressional Committee or an intervention from the president to resolve this situation. All it took was the response from fans – the movement of the market, so to speak – to propel negotiations into action.
Isn’t the free market a beautiful thing?