Billy Foster, PhD

Billy Foster

Clinical Assistant Professor of Economics at

Find me on:

           

Quotations

As a skeptic, I reject a sole time series of the past as an indication of future performance; I need a lot more than data. My major reason for this is the rare event, but I have others. On the surface, my statement here may seem to contradict earlier discussions, where I blame people from not learning enough from history. The problem is that we read too much into shallow recent history, with statements like ‘this has never happened before,’ but not from history in general… [H]istory teaches us that things that never happened before do happen. — Nassim Nicholas Taleb

Posts Tagged ‘property rights’

Recently, an interesting feature has been made available on many new jukeboxes. It charges customers a higher amount (usually double the regular cost) to hear selections immediately.

jukebox

This factor aims to take advantage of the diverse time preferences (what economists call discount rates) that exist among customers. Those who are more determined to hear songs now (and therefore pay extra) are said to have a relatively high discount rate, those who are more willing to wait have a relatively low discount rate.

Compared to the system of “first come, first served”, this is a downgrade for most consumers. Ideally, these additional fees would be transferred to individuals that were skipped to reimburse them for doing so. You can sense the inefficiency because jukebox makers can generate additional revenue by producing no additional service. They do this by pitting customers against each other, essentially accepting bribes to let some avoid waiting.

I do not suggest this system cannot produce better results, only that at a low price, it won’t, due to overuse. After a point, the more customers that use the feature, the worse are the results. Simply illustrated, the worst case scenario occurs when everyone has a high discount rate and pays extra for the option. This has the same result as if none of them do, but costs twice as much.

Will an option to skip someone’s song ever be offered? Jukebox owners would have opportunities to charge double and produce zero. Sounds like a cushy job to me.