In a previous post I wrote on my experience as a consultant to participants in auctions. I was interested to hear the other side of the coin: how do the ones who set the rule of the auction perceive the competitive situation they are in charge of. To answer this question I met Dorit Levy Tyller, a well known Israeli advocate who has decades of auctions in her professional past.
According to Ms. Levy Tyller, the issue that bothers her most is coordination among the bidders. In a small country like Israel, in which everybody knows everybody else and have friends who know the rest, participants do their best to talk, exchange information, and dissuade others from increasing their bid. When the bidders are all present at the same hall, the auction turns into an oriental bazaar with a lot of psychological pressure on participants.
To overcome this difficulty, Ms. Levy Tyller assigns each participant to a different room and asks the participants to arrive to their designated rooms at different times. During the auction she moves with her team from one room to the next, informing each participant of the current highest bid and asking them whether they increase their bid. This is a slow process that requires the participants’ trust in the auctioneer, a trust that she gained with the dozens of auctions she had already organized.
What are the issues that affect the participants’ behavior? According to Ms. Levy Tyller, the expectation to win the auction and the tension that builds along the process causes the bidders to increase their bids. Pressure from other participants, on the other hand, hinders price increase.
Most winners are the calculated and level-headed participants. Anxious bidders who make plenty of noise usually quit before the end. Moreover, those who come prepared and know well the status of the auctioned item, tend to win more often.
At the end of our conversation Ms. Levy Tyller admitted that I was the first game theory consultant she ever met. I take it as a good sign: the utility function of game theorists puts higher weight to research and teaching than to consulting jobs. I am glad to be part of this group.

Trump’s rise in the republican polls puzzles many. It shouldn’t. He is the Putin that some republicans have longed for. Here is a sampling:

Bush II:

I looked the man in the eye. I found him to be very straight forward and trustworthy and we had a very good dialogue.

Mike Rogers, GOP chairman of the House Intelligence Committee:

Putin is playing chess while Obama is playing marbles.

Sarah Palin:

Look it, people are looking at Putin as one who wrestles bears and drills for oil. They look at our president as one who wears mom jeans and equivocates and bloviates.

Rudolph Giuliani:

But he makes a decision and he executes it, quickly. Then everybody reacts. That’s what you call a leader.

If you think the comparison to Putin far fetched, here is Putin:

For the first time in the past 200–300 years, it (Russia) is facing the real threat of slipping down to the second, and possibly even third, rank of world states.

Now,  compare with Trump’s slogan to make America great again.

Chicago’s Booth school surveys select Economics faculty (the IMG panel)  on a variety of questions. Panelists are emailed a question and respond electronically, if so moved. They are asked to state whether they agree, strongly agree, disagree, are uncertain etc. as well as provide a level of confidence and, if they wish, some words of explanation. Here is one of the questions:

Using surge pricing to allocate transportation services — such as Uber does with its cars — raises consumer welfare through various potential channels, such as increasing the supply of those services, allocating them to people who desire them the most, and reducing search and queuing costs.

The correct answer to this question is: it depends. See below for the explanation. Back to the IMG panel. What is its purpose? According to the web site:

This panel explores the extent to which economists agree or disagree on major public policy issues. To assess such beliefs we assembled this panel of expert economists. Statistics teaches that a sample of (say) 40 opinions will be adequate to reflect a broader population if the sample is representative of that population.

Yes, but what is the underlying population? The IMG site does not say, instead it summarizes the cv’s of the sample:

The panel members are all senior faculty at the most elite research universities in the United States. The panel includes Nobel Laureates, John Bates Clark Medalists, fellows of the Econometric society, past Presidents of both the American Economics Association and American Finance Association, past Democratic and Republican members of the President’s Council of Economics, and past and current editors of the leading journals in the profession. This selection process has the advantage of not only providing a set of panelists whose names will be familiar to other economists and the media, but also delivers a group with impeccable qualifications to speak on public policy matters.

This is the high table of Economists, a group so select that the sample probably is the population. Why bother with the remarks about sampling?

How did the panelists respond to the surge pricing question? One  strongly agreed with the statement but with a level of confidence of 1 (which I think is the lowest). This panelist also provided an explanation that makes clear that the reported confidence level  was incorrect.  Another,  offers an `Agree’ with level of confidence of 3. Why not declare `uncertainty’? Or is the panelists trying to say: generally true but with some exceptions. The other responses suggest busy people  trying to be helpful (recall Truman) on a task that is low priority for them.

Only one panelist provides an answer that can be interpreted as `it depends’. That panelist reports being uncertain with a level of confidence of 10. This panelist also provides an explanation:

`Consumer plus producer surplus should rise but in the absence of competition consumer surplus may not. With competition consumers will gain.’

Two make things concrete, consider a monopolist who faces two states of the world characterized by two demand curves: peak and off-peak, with off-peak state occurring most of the time. Now compare consumer surplus in two scenarios: same price in both states of the world, different price in each state. In which scenario will consumer surplus be higher? Which is a lovely intermediate micro question! In addition, if buyers are liquidity constrained, a price mechanism will not efficiently match rides to riders who value them the most.

I think the answer to the question posed reveals less about agreement on policy than the default  assumption of the responder about the nature of the underlying market (passenger transportation).

Because I have white hair and that so sparse as to resemble the Soviet harvest of 1963, I am asked for advice. Just recently I was asked about `hot’ research topics in the sharing economy. `You mean a pure exchange economy?, said I in reply.  Because I have white hair etc, I sometimes forget to bite my tongue.

Returning to topic, the Economist piece I linked to above, gets it about right. With a fall in certain transaction costs, trades that were otherwise infeasible, are realized. At a high level there is nothing more to be said beyond what we know already about exchange economies.

A closer looks suggests something of interest in the role of the mediator (eBay, Uber) responsible for the reduction in transaction costs. They are not indifferent Walrasian auctioneers but self interested ones. eBay and Uber provide an interesting contrast in `intrusiveness’. The first reduces the costs with respect to search, alleviates the lemons problem and moral hazard by providing information and managing payments. It does not, however, set prices. These are left to participants to decide. In sum, eBay it appears,  tries to eliminate the textbook obstacles to a perfectly competitive market. Uber, also does these things but more. It chooses prices and the supplier who will meet the reported demand. One might think eBay does not because of the multitude of products it would have to track. The same is true for Uber. A product on Uber is a triple of origin, destination and time of day.    The rider and driver may not be thinking about things in this way, but Uber certainly must in deciding prices and which supplier will be chosen to meet the demand. Why doesn’t Uber allow riders to post bids and drivers to post asks?

Lamar Smith’s new bill to ensure that NSF research advances the national interest does not go far enough. Smith who is Chairman of the House Science, Space and technology committee writes:

We must set funding priorities that ensure America remains first in the global marketplace of basic research and technological innovation, while preventing misuse of Americans’ hard-earned tax dollars. Unfortunately, in the past NSF has funded too many questionable research grants – money that should have gone to projects in the national interest. For example, how does the federal government justify spending $220,000 to study animal photos in National Geographic? Or $50,000 to study lawsuits in Peru from 1600 – 1700? Federal research agencies have an obligation to explain to American taxpayers why their money is being used on such research instead of on more worthy projects.

To ensure that the NSF is not profligate, the bill requires that each grant award

“be accompanied by a non-technical explanation of the project’s scientific merits and how it serves the national interest.”

Why stop with the NSF? Public education consumes an even larger share of my tax dollars. Why must I support the good for nothing offspring of my neighbors who grow up to be actors, musicians and worse, number theorists? If they want their children to be artsy-fartsy pseudo intellectuals they should do it on their own dime. Would be parents should be required to submit, a grant proposal justifying their desire for children. Each successful award should be accompanied by an explanation of how their child will serve the national interest.

There are 16 republican party candidates vying for 10 slots in the first official debates to be hosted by Fox news. Disappointing is the fact that competition between TV networks has not risen to meet the challenge. MSNBC, for example,  should take the opportunity to lean in and invite the 6 who don’t make the cut to a debate on their network. Better still, for the same day and time.

According the simulations in the New York Times, Kasich, Jindal, Fiorina, Graham and Pataki will most likely not make the cut.  One of Perry, Christie and Santorum will by chance make the cut. Importantly, the alternative debate would not contain Trump. Or Cruz, who  by some accounts has not left any part of Trump’s posterior unmoistened. Spun right, MSNBC could market their alternative debate as the one for grown ups while the official one would be for the children.

To make all this work, they should invite Kasich, Jindal, Florin, Graham, Pataki, Perry, Christie and Santroum now and ask for commitments before Fox announces it selections. For the three on the bubble, it gives them the chance to say no to Fox before being barred. This may be attractive to each of them. It might cause an unraveling of the Fox debate. Which debate would Bush, for example, prefer to be a part of?

As a participant in LinkedIn, I receive, periodically, what can politely be described as blather under the heading of LinkedIn Pulse. Wired magazine, which apparently still exists, had this to say about LinkedIn Pulse:

As a LinkedIn user, the company knows you well. It knows who you are, where you work, and what you do. But it also knows who you know, what industry you’re a part of, and, in some cases, what you care about. Pulse leverages all of this data with the intention of delivering a news digest that’s tailored to your professional interests and needs.

This weeks digest, like the previous weeks, was embarrassing. For me. LinkedIn Pulse believes that I read at the middle school level, possess the social skills of a 2 year old, with no grasp of logic but brimming with a Dale Carnegie like enthusiasm for winning friends and influencing people. Here is a sampling.

First, a piece by Betsy Liu (labeled an influencer) entitled: `Do This, and You’ll Always Be the Most Popular person in the Room’. She offers 3 pieces of advice: mirror people’s words, ask questions and stop looking around the room. I’m surprised she didn’t suggest avoid breaking wind in public.

Second, was from yesterday’s man, Jack Welch and Suzie Welch on why one should fear being promoted. I think they specialize in writing for blocks of wood.

Third, an article by Jeff Haden, a ghost writer. This must explain why most business books written for the airport audience rival Brezhnev’s biography as a soporific. Haden offers 15 ways in which successful people approach life differently. Number 13 is: `They believe they’re in total control…’ Which, oddly, contradicts number 8: `They’re great at self assessment’.

Fourth, from an entrepreneur called James Altschuler, on what to do upon being sacked. Some meaningless anecdotes about what it was like to be fired followed by a list. One item on the list, is to contact people who you a grateful to, tell them so and ask how they are doing. Its important to ask sincerely. Does one not do this before being fired?

Fifth, and last, a piece by one Dr. Travis Bradberry on 6 unusual habits of unusually creative people. The use of the title `Dr.’ is a warning. It was granted by the California School of Professional Psychology. Logic, apparently, is not a requirement for graduation. Number one on the list is wake up early. I think this happens naturally to anyone over 50.

Three items on copyright and revenue all on the same day.

First, is Taylor Swift’s open letter to Apple upbraiding them for not paying royalties to artists for their music during the trial period of its new streaming music service.  It caused the weenies at Apple to change their tune.

Second, a high court ruling in the UK which erased an earlier UK decision that made it lawful for users to copy purchased content for personal use. Related is freedom of panorama  which permits the photographing of copyrighted buildings and sculptures in public places. Up for vote this summer before the European parliament is legislation that would restrict such rights.

The Swift letter echoes the points she made earlier when she pulled her wares from Spotify:

“In my opinion, the value of an album is, and will continue to be, based on the amount of heart and soul an artist has bled into a body of work, and the financial value that artists (and their labels) place on their music when it goes out into the marketplace.”

One of the more poetic renditions of the labor theory of value I’ve read. Here is another line from the same missive:

“Valuable things should be paid for.”

No. Its the added value of a good or service that commands a premium. Pearsall-Smith got this right when writing of the novelists of his age.

“The diction, the run of phrase of each of them seems quite undistinguishable from that of the others, each of whose pages might have been written by any one of his fellows.”

Thus, the question is whether the heart and soul each artist bleeds into their work serve to differentiate it in a way that matters from others. The effectiveness of music recommender systems suggests not.

Enough of `Swiftian’ logic and lets turn to the UK high court ruling. The Electronic Frontier Foundation complained that it contained more economic theory than common sense. An irritating remark as the level of theory barely exceeded that you would find in an intermediate micro-economics course. It makes me wonder whether the pundits at the EFFs ever went to college.

The ruling is a perfect example of how consistency can become a procrustean bed. The UK government had earlier made the duplication of copyrighted material for personal use legal. It claimed that its reasons for doing were consistent with an EU copyright directive that requires the copyright holder to be compensated for forgone revenues lost to copying. The Judge concluded that the government’s rulings were, in fact, inconsistent with the EU directive and overturned it making copying for personal use illegal.

The law, as Dickens said, is an ass (the quadruped not the posterior). So, lets focus on the economics. The ruling by the way quotes Varian’s 2005 piece in the Journal of Economic Perspectives as well as Boldrin and Levine.

Suppose I sell you a song in a medium which is costly to reproduce and transport. If you want to listen to the song both at home and in your office you must purchase two copies. Now, a sea change. The medium on which the song is transmitted changes. The cost of duplication and transport is now zero. Am I worse off? If I am, then under the EU directive I should be compensated for this loss.

With this sea change, you would buy one fewer copy. However, I, recognizing the sea change gives you the same benefit as buying two copies, can simply raise my price to account for this. The High court ruling called this  pricing-in and the case turned upon whether the music seller, me in this example, could perfectly price-in. If not, then under the EU directive I am entitled (bizarre, I know) to compensation for lost profits.

If the sea change allows you to consume music in ways you previously could not (in the bathroom, in your car at night etc.) then it seems obvious that I could anticipate this and price-in. If the sea-change allows you to copy and distribute my music costlessly, then, I may be forced to sell my music at a discount or withhold it (see the Varian paper for intermediate cases). Whether I am harmed or not depends on whether you intend to use the sea change for personal use or to compete with me.

Interestingly, the discussion in the ruling as well as Varian’s paper ignores those who own the devices for transmitting, duplicating, storing and playing the music. Lets use the example in Varian pg. 11. You are willing to pay $20 for home use of a CD and $10 (actually 10 - \epsilon to break ties) for office use. The cost of copying is initially infinity.

The revenue maximizing price is clearly $20 for a CD, unless I could use a 2-part tariff. Now a third party develops a technology for copying CDs that is simple and convenient. Copying is now legal. Under the pricing-in story I should just charge $30 (assuming you have the technology). I’m better off and you are no worse off. However, we have ignored the owner of the copying technology. You, the music consumer have $30 to shell out. I can certainly capture $20 of it but to capture the remaining $10, I need the owner of the copying technology. Any simultaneous split of the $10 is a Nash equilibrium. The point is that the music and the technology that allows one to copy, format shift etc complements the music itself. That $10 is a joint gain to the owner of the song as well as the owner of the copying technology. One might argue that the owner of the copying technology is entitled to the full $10 as it is her innovation that allowed one to capture it. Hence, the copyright holder, me in this example, suffers no loss from the fact you can now copy my music.

Consider the following passage:
The first sound in the mornings was the clumping of the mill-girls’ clogs down the cobbled street. Earlier than that, I suppose, there were factory whistles which I was never awake to hear. There were generally four of us in the bedroom, and a beastly place it was, with that denied impermanent look of rooms that are not serving their rightful purpose. One afternoon, early in October, I was invited to black coffee at Fritz Wendel’s flat.  Fritz always invited you to ‘Black coffee’ with emphasis on the black. He was very proud of his coffee. People used to say that  it was the strongest in Berlin. Fritz himself was dressed in his usual coffee-party costume–a very thick white yachting sweater and very light blue flannel trousers.
Was it written by George Orwell or Christopher Isherwood? In fact, both. Its part of a longer passage composed by Cyril Connolly, a noted literary critic, whose name is now lost to posterity. The longer passage melds Orwell with Isherwood and Hemingway to produce something coherent (it appears in Connolly’s semi-autobiographical Enemies of Promise). With current technologies one wonders if one might form an entire novel using only sentences that have appeared in various other books.
What was Connolly’s purpose for sampling in this way? It was to make a point about competition for market share in literature. Best to let him relate it in his own words:
This, then, is the penalty for writing for the masses. As the writer goes out to meet them half-way he is joined by other writers going out to meet them half-way and they merge into the same creature-the talkie journalist, the advertising, lecturing, popular novelist.

Fox News and CNN have been in knots recently about how to allocate scarce debate slots to the many Republican pretenders to the oval office. Should Poll numbers be the criteria? What about gender, race, state office etc. etc. There is a simple and transparent way to allocate the slots: an auction. Neither CNN or Fox are charities. If the debates are a public good, there is no reason why Fox and CNN alone should forgo profits to host them. They should, instead auction off the rights to participate in the debates.

What design questions would have to be answered? First, how much time to allocate to the debate, i.e., what is the supply of the resource to be allocated? Second, should one auction slots or time. For example, should it be 10 slots of equal time lengths in a 2 hour time period? Or, should one allow the bidders to bid on the actual amount of time they would get in the 2 hour period? Are candidates the only ones allowed to bid, or can anyone submit bids on their behalf? Can one bid to deny time to the candidates? Actually, as these are not debates at all, but parallel news conference, perhaps one should auction off the right to answer questions. In real time. That would be entertainment!

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