Though we often strive to be provocative at Blawgconomics, we would like to think that we typically fall short of being what most would describe as controversial. However, the past month or so has proven to be a slight exception. We have posted stories on religion and secession. Two of the top trending topics on the site have to do with the legality of Ponzi schemes and reverse racism. Even our suggestion that job creation costs of $2 million per head were excessive was met with a very impassioned wall of reader push back. Things haven't been this contentious on the site since a senatorial candidate from Connecticut suggested that we didn't know what deficit spending was...
Luckily, one of the ideas for a post I have been keeping in my back pocket for a rainy day is a bit more innocuous. It might not surprise anyone to read that I am a fan of historical biographies. Volumes on the founding fathers in particular always seem to leave a hole in my pocket and an ache in my back after purchasing them and carrying them around for the remainder of a shopping excursion (Brattle Books in Boston, Bartleby's in DC and The Book Barn in Connecticut are all favorites - both for their alliterative qualities and their interesting collections). Yet, I can't help but think that the standard in biograpies - books by authors separated by dozens or even hundreds of years from their subjects - is destined to become a thing of the past.
Assuming we will still use books in the future*, the style of tome noted above will nonetheless become ever obsolete in a world of Wikipedia, gossip websites, 24 hour news channels and the instant analysis these innovations allow. Additionally, such scholarly efforts will become less viable with a notable lack of that favorite fodder of the biographer, personal letters, as more communication occurs in a fleeting manner through an email, a text or a quick phone call.
8.17.2011
Misadventures in Branding
Companies, particularly those peddling luxury items, spend billions of dollars, euros, pounds, yen, and more recently, renminbi, on branding efforts. Market research accounts for some of this cost. Advertising factors in as well. Some companies spend money, often a significant amount of it, on brand ambassadors who represent the type of consumer the brand would like to appeal to. We would assume that none of these statements will come as a surprise to any of our readers despite (because of?) the fact that many of them have likely fallen prey to such efforts themselves. This could lead some to wonder what the point is.
The point is this: Although some things in life seem obvious it is often the case that current events have a way of placing otherwise trite observations in a new perspective. In the past week, a nationwide riot and a hit TV show have done just that, reminding us all that despite best efforts, sometimes the branding strategies described above can go wrong.
In our first example, photos from the last week made it clear that, in addition to balaclavas and sunglasses, 'swooshes, stripes and leaping wildcats' were de rigueur uniform items for looters in the recent English riots. One would imagine that the owners of these marks, namely Nike, Adidas and Puma, were not completely happy with this fact, particularly once it became noted so widely in the press. If so, it would not be shocking to see some of these brands attempt to reposition eventually, a la Burberry after that company nearly became indelibly associated with hooligan culture in the 1980's and '90s.
Then again, as noted in the article linked to above, these companies often purposefully associate themselves with the very types of people that the looting demographic might idolize, including rappers and athletes with less than spotless records. Maybe they aren't so upset about a little extra publicity noting how 'edgy' their brands are after all. Indeed, and although most commentators we have seen haven't leapt to this conclusion, perhaps this isn't a misadventure in branding as suggested by the title of our post so much as a success story. Of course one would be hard-pressed to get representatives of any of these publicly traded companies to admit joy at becoming the uniform of choice among rioters in the aftermath of the event...
However even if there is any room for doubt where casual athletic goods are involved our second example certainly represents a case of branding gone wrong. Abercrombie & Fitch strives to be an 'aspirational' brand. It prices its goods at a certain level, advertises its brand a certain way, and generally carries on its business in a manner that supports this strategy.
At one level it seems to have succeeded in its positioning strategy as that most aspirational of individuals, Mike 'The Situation' Sorrentino has become a huge fan of the brand, often wearing its clothing on the show that made him famous, Jersey Shore. However despite earning a reported $5 million last year, The Situation does not apparently fit A&F's idea of aspirational; a recent statement by the company stated that it is prepared make a 'substantial payment' to Sorrentino if he will stop wearing its clothing. After reading this, we immediately drafted a plan to be filmed wearing several aspirational brands while doing objectionable things, but ultimately decided that the cost benefit didn't measure up for us.
In any case, the two situations (no pun intended) should offer some food for thought for brand managers everywhere. Overhead, whether for payroll or advertising, becomes more dear in a recessionary environment. In that context, companies need to constantly consider the impact that their associations with demographics have on sales, whether for better or for worse...
Brand ambassadors, though not cheap, can be very effective. But
you already knew that, didn't you?
The point is this: Although some things in life seem obvious it is often the case that current events have a way of placing otherwise trite observations in a new perspective. In the past week, a nationwide riot and a hit TV show have done just that, reminding us all that despite best efforts, sometimes the branding strategies described above can go wrong.
In our first example, photos from the last week made it clear that, in addition to balaclavas and sunglasses, 'swooshes, stripes and leaping wildcats' were de rigueur uniform items for looters in the recent English riots. One would imagine that the owners of these marks, namely Nike, Adidas and Puma, were not completely happy with this fact, particularly once it became noted so widely in the press. If so, it would not be shocking to see some of these brands attempt to reposition eventually, a la Burberry after that company nearly became indelibly associated with hooligan culture in the 1980's and '90s.
Then again, as noted in the article linked to above, these companies often purposefully associate themselves with the very types of people that the looting demographic might idolize, including rappers and athletes with less than spotless records. Maybe they aren't so upset about a little extra publicity noting how 'edgy' their brands are after all. Indeed, and although most commentators we have seen haven't leapt to this conclusion, perhaps this isn't a misadventure in branding as suggested by the title of our post so much as a success story. Of course one would be hard-pressed to get representatives of any of these publicly traded companies to admit joy at becoming the uniform of choice among rioters in the aftermath of the event...
However even if there is any room for doubt where casual athletic goods are involved our second example certainly represents a case of branding gone wrong. Abercrombie & Fitch strives to be an 'aspirational' brand. It prices its goods at a certain level, advertises its brand a certain way, and generally carries on its business in a manner that supports this strategy.
At one level it seems to have succeeded in its positioning strategy as that most aspirational of individuals, Mike 'The Situation' Sorrentino has become a huge fan of the brand, often wearing its clothing on the show that made him famous, Jersey Shore. However despite earning a reported $5 million last year, The Situation does not apparently fit A&F's idea of aspirational; a recent statement by the company stated that it is prepared make a 'substantial payment' to Sorrentino if he will stop wearing its clothing. After reading this, we immediately drafted a plan to be filmed wearing several aspirational brands while doing objectionable things, but ultimately decided that the cost benefit didn't measure up for us.
In any case, the two situations (no pun intended) should offer some food for thought for brand managers everywhere. Overhead, whether for payroll or advertising, becomes more dear in a recessionary environment. In that context, companies need to constantly consider the impact that their associations with demographics have on sales, whether for better or for worse...
8.14.2011
The Divided States of America
For some, Rick Perry's announcement that he would be running for the presidency in 2012 did nothing more than affirm the latest worst-kept secret in Washington. For Blawgconomics, it was also a reminder of the day Perry entered the national spotlight with one of the more intriguing statements a politician has made in recent times. For those who need their memories refreshed, Perry suggested during the height of the Tea Party movement in 2009 that Texas might well want to secede at some point if America continued on its then trajectory. What the irony of this statement coming from a man who would now like to run America says about his fitness for the job remains unknown...
However, it got us thinking about what Texas would be like if it did secede. Of course all manner of doomsday scenarios could be dreamed up. We would also wonder what broader state of affairs would facilitate a state being able to leave the Union without military action or civil strife. However, for purposes of this post, let's just consider an amicable separation of Texas Nation from the United States.
As a practical matter, it is very likely that this new (again) nation would be very similar to Texas today, just with far more autonomy. For example, Texas Nation would still have good infrastructure, top universities and ports. Between its own industry and its exports, its agricultural industry would be self-sustaining. In all likelihood, Texas Nation would sign trade agreements with Mexico and the US, might have defense pacts with neighboring nations, and might even have reciprocal border arrangements with its old affiliates (if not Mexico).
However, it got us thinking about what Texas would be like if it did secede. Of course all manner of doomsday scenarios could be dreamed up. We would also wonder what broader state of affairs would facilitate a state being able to leave the Union without military action or civil strife. However, for purposes of this post, let's just consider an amicable separation of Texas Nation from the United States.
As a practical matter, it is very likely that this new (again) nation would be very similar to Texas today, just with far more autonomy. For example, Texas Nation would still have good infrastructure, top universities and ports. Between its own industry and its exports, its agricultural industry would be self-sustaining. In all likelihood, Texas Nation would sign trade agreements with Mexico and the US, might have defense pacts with neighboring nations, and might even have reciprocal border arrangements with its old affiliates (if not Mexico).
8.13.2011
The Economics of Sports
The latest edition of the Federal Reserve Bank of Atlanta's Public Affairs Forum focused on the economics of sports, long a topic of interest on the site. Specifically, the regional Fed office event focused on whether sports teams and mega-events (think the Olympics) are good for local economies. According to at least one economist, Dr. Robert A. Baade, the answer is no. To find out why, readers can view the video interview with Dr. Baade below.
UPDATE: In response the comment of a time-strapped reader who helpfully noted that we didn't explain why the answer is 'no,' a summary provided by the Fed can be found at the link provided above as well as here:
UPDATE: In response the comment of a time-strapped reader who helpfully noted that we didn't explain why the answer is 'no,' a summary provided by the Fed can be found at the link provided above as well as here:
Why do Muslims Like Obama?
In 2008, Muslims in America overwhelmingly disapproved of the job George Bush was doing as the now ex-President had a mere 7% approval rating. That is hardly surprising. The economy was in dire straits at the time, America was embroiled in wars against two predominantly Muslim countries and the intelligence community had a nasty habit of holding threats to the nation, many of whom happened to be Muslim, indefinitely in places like Guantanamo Bay, Cuba. Of course these were not merely the gripes of one segment of society; Bush's approval ratings at the time were incredibly poor among all the major religious groups in the country. Indeed, among the major religions, the only group which viewed Bush overall favorably was the Mormons, and that only at a 52% clip.
Fast forward to 2011. The economy is, if at all possible, more precariously perched than it was in 2008. America is still involved in two wars against predominantly Muslim countries. Intelligence and military officials still find Guantanamo Bay to be a pretty convenient place to hold potential threats to the US. There is a president in office with very poor favorability ratings among the general public. In other words, the overall tide is against Obama and main factors which led to Muslims disliking Bush are still in play. However, despite this, the favorability rating of the sitting president among the Muslim population is sky high, recently found to be 80%.*
Fast forward to 2011. The economy is, if at all possible, more precariously perched than it was in 2008. America is still involved in two wars against predominantly Muslim countries. Intelligence and military officials still find Guantanamo Bay to be a pretty convenient place to hold potential threats to the US. There is a president in office with very poor favorability ratings among the general public. In other words, the overall tide is against Obama and main factors which led to Muslims disliking Bush are still in play. However, despite this, the favorability rating of the sitting president among the Muslim population is sky high, recently found to be 80%.*
Today's Stimulus Rant
That some among the Blawgconomics' contributors are not big fans of stimulus packages (particularly any that begin with 'QE' and end with a number) is no secret to regular readers. No matter how hard we try to view flooding markets with liquidity positively, the numbers just never seem to add up for us. Yet another example of the scales being tipped wildly toward the 'stimulus wasn't worth it' side of the equation came to our attention this week. Though we are aggressively in favor of green technological development at Blawgconomics (with too many examples to link to), $2 million per job, no matter how green it may be, will never add up for us...
8.10.2011
What Should the Government Do with the Residential Properties It Owns?
The title of this post is not merely some rhetorical query posited by your humble author, it is also the subject of a recent Request For Information (RFI) promulgated by a trio of US government agencies. For those unfamiliar with such things, an RFI is essentially an open request made by a government agency for answers to a specific question from those with a stake in the outcome.
In this case, the Treasury Department, The Department of Housing and Urban Development and the Federal Housing Finance Agency have jointly put forth an RFI with the intent of sounding out investors on the most palatable ways to sell-off the thousands of residential properties the US government owns.
For anyone surprised by the last sentence of the previous paragraph, the government does indeed own a sizable number of homes after its bail outs of Fannie Mae and Freddie Mac gained it de facto ownership of any properties those entities foreclose on. Though some of our readers might not be fans of this situation, there is not much that can be done about it now except to find an efficient resolution.
So what is an efficient solution to the problem? That is, in essence, what the government wants guidance on. The main scenario it wants to avoid is selling the properties off at auction. Homes sold at auction would likely be sold below market, and below market prices in those transactions would impact comparables, causing a trickle down which, at the extreme, could lead to a new round of housing market problems.
In this case, the Treasury Department, The Department of Housing and Urban Development and the Federal Housing Finance Agency have jointly put forth an RFI with the intent of sounding out investors on the most palatable ways to sell-off the thousands of residential properties the US government owns.
For anyone surprised by the last sentence of the previous paragraph, the government does indeed own a sizable number of homes after its bail outs of Fannie Mae and Freddie Mac gained it de facto ownership of any properties those entities foreclose on. Though some of our readers might not be fans of this situation, there is not much that can be done about it now except to find an efficient resolution.
So what is an efficient solution to the problem? That is, in essence, what the government wants guidance on. The main scenario it wants to avoid is selling the properties off at auction. Homes sold at auction would likely be sold below market, and below market prices in those transactions would impact comparables, causing a trickle down which, at the extreme, could lead to a new round of housing market problems.
8.09.2011
'The Downgrade'
At least for the forseeable future, it has entered the American consciousness to the point where it can be listed among the pantheon of other events memorable enough to be preceeded only by that simplest of modifiers. Now, along with 'The Catch,' 'The Flip,' and 'The Shot' we have 'The Downgrade.'
Ok, maybe famous events from sports history are not a perfect peer group for the first sovereign debt rating cut in US history. Of course there were fans on the losing end of all of those memorable events, but at least fans of the winning teams had something to celebrate. On the contrary, almost no one is celebrating in the aftermath of The Downgrade (the alleged example of one particular trader notwithstanding). That isn't to say that there is absolutely no correlation to The Downgrade from the sports world...
Ok, maybe famous events from sports history are not a perfect peer group for the first sovereign debt rating cut in US history. Of course there were fans on the losing end of all of those memorable events, but at least fans of the winning teams had something to celebrate. On the contrary, almost no one is celebrating in the aftermath of The Downgrade (the alleged example of one particular trader notwithstanding). That isn't to say that there is absolutely no correlation to The Downgrade from the sports world...
The sports world's answer to 'The Downgrade?'
Snippets...
Welcome to the latest edition of Snippets. For new readers, Snippets is our semi-regular attempt at covering a lot of topics from the worlds of law, economics and politics in a little time. Some would call this lazy; economists prefer the term 'efficient.'
- We will kick off this week's edition with the latest proof that we don't live in an over-litigious society after all. Or actually, strike that and reverse it. For the story on the lawyer who sued Michigan State Law for hiring people who weren't him, visit the Wall St. Journal's legal blog here.
- The Wall St. Journal legal blog also posted an interesting story on some of the legal issues surrounding DNA theft. While Blawgconomics has researched and posted stories on familial DNA issues before, this is the first time we have seen anything on DNA theft. For those who don't want to go to the story itself, the lesson is to never get a haircut. Or smoke cigarettes. Or ever leave your house ever again...
- DNA theft is not the only way the advance of technology can be used to screw up your day. For some thoughts on the potential challenges societies could face in the areas of cyberwarfare and spying, visit The Becker-Posner blog here.
- On to some lighter fare. Fans of the NFL will likely be familiar with the arbitrary and difficult to explain quarterback ratings system currently used by the NFL. In an effort to gain more traffic to its already mega-successful website, ESPN has launched an alternative system. Though equally as difficult to explain, at least the new rating system is on a scale of 100, making it easier to remember numbers when trying to casually throw them out during a conversation at the local watering hole. Then again, do we really need another set of numbers to tell us that Peyton Manning, Drew Brees and Tom Brady are really good?
- We will kick off this week's edition with the latest proof that we don't live in an over-litigious society after all. Or actually, strike that and reverse it. For the story on the lawyer who sued Michigan State Law for hiring people who weren't him, visit the Wall St. Journal's legal blog here.
- The Wall St. Journal legal blog also posted an interesting story on some of the legal issues surrounding DNA theft. While Blawgconomics has researched and posted stories on familial DNA issues before, this is the first time we have seen anything on DNA theft. For those who don't want to go to the story itself, the lesson is to never get a haircut. Or smoke cigarettes. Or ever leave your house ever again...
- DNA theft is not the only way the advance of technology can be used to screw up your day. For some thoughts on the potential challenges societies could face in the areas of cyberwarfare and spying, visit The Becker-Posner blog here.
- On to some lighter fare. Fans of the NFL will likely be familiar with the arbitrary and difficult to explain quarterback ratings system currently used by the NFL. In an effort to gain more traffic to its already mega-successful website, ESPN has launched an alternative system. Though equally as difficult to explain, at least the new rating system is on a scale of 100, making it easier to remember numbers when trying to casually throw them out during a conversation at the local watering hole. Then again, do we really need another set of numbers to tell us that Peyton Manning, Drew Brees and Tom Brady are really good?
8.08.2011
S&P Downgrade Report
We should have known better than to think that the debt crisis came to a tidy conclusion with the reaffirmation of America's credit rating by two of the three major agencies last week. Thankfully, Standard & Poor's came along to humble us Friday evening with a downgrade of America's sovereign debt. In addition to the major effect this had on our egos, there was also the small matter of resulting political and market turmoil which our readers may be aware of by this point. To see the document that caused all of the fuss, visit S&P's website here.
8.04.2011
Final Thoughts on the Debt Deal
Based on reader statistics, the recent debt crisis was one of the biggest stories of the year. Though we predicted that a deal would be done, we didn't have the foresight necessary to know exactly what it would look like. For example, though it is not entirely surprising in retrospect, we didn't predict that almost all of the tough decisions would be put into the hands of a committee to be settled at a future date, or that 'budget cuts' would largely be lip service to the concept, rather than the reality, of austerity.
Because of features like this, the deal was criticized by many notable commentators from all over the political spectrum, including Paul Krugman, Richard Posner and Gregg Easterbrook. Blawgconomics can agree with these august personalities that, in a perfect world, the deal is only about as useful as the paper it was written on.
However, in our opinion, once one takes under consideration the political and economic realities of the world we live in, the deal itself was more important that any (maybe even all) of its features. Indeed, we would go so far as to say that, in the aftermath of the crisis, only one headline really matters.
Because of features like this, the deal was criticized by many notable commentators from all over the political spectrum, including Paul Krugman, Richard Posner and Gregg Easterbrook. Blawgconomics can agree with these august personalities that, in a perfect world, the deal is only about as useful as the paper it was written on.
However, in our opinion, once one takes under consideration the political and economic realities of the world we live in, the deal itself was more important that any (maybe even all) of its features. Indeed, we would go so far as to say that, in the aftermath of the crisis, only one headline really matters.
MLB Eyes A-Rod Suspension
According to ESPN.com, Major League Baseball is strongly considering whether New York Yankees star Alex Rodriguez should be suspended over his alleged participation in illegal, high-stakes poker games. According to reports the games, which have also allegedly featured Tobey Maguire, Leo DiCaprio, and in a life imitating art joke gone wrong, Matt Damon, have been occurring for at least four or five years.
There is no evidence, nor is there even a suggestion that A-Rod has bet on baseball, or that his gambling has in any way impacted his performance. And, in honesty, it is not like there are any concerns about him being able to settle potential debts.
However, baseball has, in the past, taken a hard line on gambling (for example, Pete Rose is seen by Cooperstown gatekeepers as a worse ambassador for the game than Ty Cobb). Perhaps this is a remnant of the Black Sox scandal, but the only way that one could link A-Rod's actions to the types of issues that arose there would be under the assumption that wracking up bad losses could leave him vulnerable to criminal elements. However, as noted above, his salary alone should probably place him above initial suspicion in any potential game-throwing scandal.
What is far more likely is that baseball officials are angry at being slighted by the star after he had already been warned to stay away from these games. According to the ESPN piece, one MLB executive was quoted as saying, 'You get the feeling that Alex says what he thinks he needs to say to get by, and then goes out and does what he wants.' That does not seem to be the kind of behavior Bud Selig would take too kindly to. After all, who does A-Rod think he is, Michael Jordan?
There is no evidence, nor is there even a suggestion that A-Rod has bet on baseball, or that his gambling has in any way impacted his performance. And, in honesty, it is not like there are any concerns about him being able to settle potential debts.
However, baseball has, in the past, taken a hard line on gambling (for example, Pete Rose is seen by Cooperstown gatekeepers as a worse ambassador for the game than Ty Cobb). Perhaps this is a remnant of the Black Sox scandal, but the only way that one could link A-Rod's actions to the types of issues that arose there would be under the assumption that wracking up bad losses could leave him vulnerable to criminal elements. However, as noted above, his salary alone should probably place him above initial suspicion in any potential game-throwing scandal.
What is far more likely is that baseball officials are angry at being slighted by the star after he had already been warned to stay away from these games. According to the ESPN piece, one MLB executive was quoted as saying, 'You get the feeling that Alex says what he thinks he needs to say to get by, and then goes out and does what he wants.' That does not seem to be the kind of behavior Bud Selig would take too kindly to. After all, who does A-Rod think he is, Michael Jordan?
Respondeat Superior in Military Torture Cases
These days, not many observers from either side of the aisle will say publicly that they approved of the job he did as a wartime Secretary of Defense. Based on many reports from Beltway insiders, he is not the most well-liked of individuals to ever step foot into a White House cabinet meeting. He has exhibited a sense of arrogance bordering on disdain during interviews, both during and subsequent to his time in politics.
However, despite a number of character flaws, is Donald Rumsfeld legally responsible for the torture of US citizens? That is exactly what will be determined in U.S. District Court in Washington D.C. after Judge James Gwin decided to let a case addressing this question proceed. According to the A.P., Gwin wrote 'The court finds no convincing reason that United States citizens in Iraq should or must lose previously declared substantive due process protections during prolonged detention in a conflict zone abroad' in his ruling allowing the case to move forward.
Notably, this case, similar to an in-progress suit in Illinois, involves U.S. citizens serving as contractors and not foreigners and 'enemy combatants.' This makes the analysis different from that of high-profile cases from the middle of the past decade and shifts the focus onto whether a citizen's constitutional rights were violated. Assuming that the torture itself is proven (which, unfortunately, does not seem as if it will be much of a hurdle), the plaintiffs in these cases would need to prove that Rumsfeld was directly tied to this violation of constitutional due process rights and that he understood that these actions were over the line.
This is a relatively high hurdle, and surely a much more difficult theory of liability than one would see in a more garden-variety tort-based respondeat superior case. However it is worth considering the mood of the nation in addition to the pure legal analysis, and it would not be difficult to imagine a jury finding liability, particularly if Rumsfeld ends up taking the stand a la Jack Nicholson in a certain mid-90's film also featuring Tom Cruise.
Ultimately, and particularly with at least two cases proceeding in different districts, it also wouldn't be a shocker to see this issue make its way to the Supreme Court in a few terms depending on results. In the meantime, it is sure to be watched closely by the Obama White House, under which many of the prisoner holding and interrogation practices of the Bush era have largely continued without dramatic change.
However, despite a number of character flaws, is Donald Rumsfeld legally responsible for the torture of US citizens? That is exactly what will be determined in U.S. District Court in Washington D.C. after Judge James Gwin decided to let a case addressing this question proceed. According to the A.P., Gwin wrote 'The court finds no convincing reason that United States citizens in Iraq should or must lose previously declared substantive due process protections during prolonged detention in a conflict zone abroad' in his ruling allowing the case to move forward.
Notably, this case, similar to an in-progress suit in Illinois, involves U.S. citizens serving as contractors and not foreigners and 'enemy combatants.' This makes the analysis different from that of high-profile cases from the middle of the past decade and shifts the focus onto whether a citizen's constitutional rights were violated. Assuming that the torture itself is proven (which, unfortunately, does not seem as if it will be much of a hurdle), the plaintiffs in these cases would need to prove that Rumsfeld was directly tied to this violation of constitutional due process rights and that he understood that these actions were over the line.
This is a relatively high hurdle, and surely a much more difficult theory of liability than one would see in a more garden-variety tort-based respondeat superior case. However it is worth considering the mood of the nation in addition to the pure legal analysis, and it would not be difficult to imagine a jury finding liability, particularly if Rumsfeld ends up taking the stand a la Jack Nicholson in a certain mid-90's film also featuring Tom Cruise.
Ultimately, and particularly with at least two cases proceeding in different districts, it also wouldn't be a shocker to see this issue make its way to the Supreme Court in a few terms depending on results. In the meantime, it is sure to be watched closely by the Obama White House, under which many of the prisoner holding and interrogation practices of the Bush era have largely continued without dramatic change.
Exploring the Costco Effect
As Matthew Phillips at Freakonomics points out, the phenomenon whereby the arrival of a Walmart in a neighborhood leads to a drop in general consumer goods prices locally has been well-studied and widely discussed in the media. However, what of other big box retailers? According to a working paper titled Competing with Costco and Sam's Club: Warehouse Club Entry and Grocery Prices by Charles J. Courtemanche and Art Carden, the impact in some cases is much different. From the abstract:
Prior research shows grocery stores reduce prices to compete with Walmart Supercenters. This study finds evidence that the competitive effects of two other big box retailers – Costco and Walmart-owned Sam's Club – are quite different. Using city-level panel grocery price data matched with a unique data set on Walmart and warehouse club locations, we find that Costco entry is associated with higher grocery prices at incumbent retailers, and that the effect is strongest in cities with small populations and high grocery store densities. This is consistent with incumbents competing with Costco along non-price dimensions such as product quality or quality of the shopping experience. We find no evidence that Sam’s Club entry affects grocery stores’ prices, consistent with Sam’s Club’s focus on small businesses instead of consumers.
So, it appears that Sam's Club has little impact on prices in area stores. The authors believe that this is due to that store's targeting small businesses, a sensible conclusion. However, the authors note that in the case of Costco, prices in the surrounding area actually rise. I have been to a number of Costcos before and will admit that they aren't typically the most aesthetically pleasing of places, but is the warehouse chic look really enough to drive potential customers into the waiting arms of green grocers armed with itchy price gun trigger fingers? At first blush, I doubted that customers would be so picky in these economic times, but I have also been inside Whole Foods stores and will say that harried young mothers running rampant with carriages aside, such visits are typically a very pleasant experience.
Maybe the cosiness of, for example, a Whole Foods is enough of a stimulus to get customers to open the wallets and purses a bit further to avoid a trip to Costco. However, does this by extension suggest that people feel that the Walmart experience is just comfortable enough that they will happily take the lower prices there? Are there other factors such as geography at play? I feel like more data might be necessary before some of these questions are answerable, but they are not insignificant in a multi-billion dollar business.
In the meantime, what do our readers think? Will you save a buck at the expense of shopping in a wood-panelled, tile-floored environment? Is Walmart that much more comfortable than Costco? Any high-end green grocer fans out there? Any comments below would be appreciated, as always.
Prior research shows grocery stores reduce prices to compete with Walmart Supercenters. This study finds evidence that the competitive effects of two other big box retailers – Costco and Walmart-owned Sam's Club – are quite different. Using city-level panel grocery price data matched with a unique data set on Walmart and warehouse club locations, we find that Costco entry is associated with higher grocery prices at incumbent retailers, and that the effect is strongest in cities with small populations and high grocery store densities. This is consistent with incumbents competing with Costco along non-price dimensions such as product quality or quality of the shopping experience. We find no evidence that Sam’s Club entry affects grocery stores’ prices, consistent with Sam’s Club’s focus on small businesses instead of consumers.
So, it appears that Sam's Club has little impact on prices in area stores. The authors believe that this is due to that store's targeting small businesses, a sensible conclusion. However, the authors note that in the case of Costco, prices in the surrounding area actually rise. I have been to a number of Costcos before and will admit that they aren't typically the most aesthetically pleasing of places, but is the warehouse chic look really enough to drive potential customers into the waiting arms of green grocers armed with itchy price gun trigger fingers? At first blush, I doubted that customers would be so picky in these economic times, but I have also been inside Whole Foods stores and will say that harried young mothers running rampant with carriages aside, such visits are typically a very pleasant experience.
Maybe the cosiness of, for example, a Whole Foods is enough of a stimulus to get customers to open the wallets and purses a bit further to avoid a trip to Costco. However, does this by extension suggest that people feel that the Walmart experience is just comfortable enough that they will happily take the lower prices there? Are there other factors such as geography at play? I feel like more data might be necessary before some of these questions are answerable, but they are not insignificant in a multi-billion dollar business.
In the meantime, what do our readers think? Will you save a buck at the expense of shopping in a wood-panelled, tile-floored environment? Is Walmart that much more comfortable than Costco? Any high-end green grocer fans out there? Any comments below would be appreciated, as always.
8.01.2011
PSA: President's Remarks on the Debt Deal
The following is a reprinting of President Obama's remarks regarding Washington's debt deal. For the offilcial transcript, visit the White House press office here. For a fact sheet on the deal, visit here. To read our previous thoughts on the probability of a deal, visit here.
THE PRESIDENT: Good evening. There are still some very important votes to be taken by members of Congress, but I want to announce that the leaders of both parties, in both chambers, have reached an agreement that will reduce the deficit and avoid default -- a default that would have had a devastating effect on our economy.
The first part of this agreement will cut about $1 trillion in spending over the next 10 years -- cuts that both parties had agreed to early on in this process. The result would be the lowest level of annual domestic spending since Dwight Eisenhower was President -- but at a level that still allows us to make job-creating investments in things like education and research. We also made sure that these cuts wouldn’t happen so abruptly that they’d be a drag on a fragile economy.
Now, I've said from the beginning that the ultimate solution to our deficit problem must be balanced. Despite what some Republicans have argued, I believe that we have to ask the wealthiest Americans and biggest corporations to pay their fair share by giving up tax breaks and special deductions. Despite what some in my own party have argued, I believe that we need to make some modest adjustments to programs like Medicare to ensure that they’re still around for future generations.
That's why the second part of this agreement is so important. It establishes a bipartisan committee of Congress to report back by November with a proposal to further reduce the deficit, which will then be put before the entire Congress for an up or down vote. In this stage, everything will be on the table. To hold us all accountable for making these reforms, tough cuts that both parties would find objectionable would automatically go into effect if we don’t act. And over the next few months, I’ll continue to make a detailed case to these lawmakers about why I believe a balanced approach is necessary to finish the job.
THE PRESIDENT: Good evening. There are still some very important votes to be taken by members of Congress, but I want to announce that the leaders of both parties, in both chambers, have reached an agreement that will reduce the deficit and avoid default -- a default that would have had a devastating effect on our economy.
The first part of this agreement will cut about $1 trillion in spending over the next 10 years -- cuts that both parties had agreed to early on in this process. The result would be the lowest level of annual domestic spending since Dwight Eisenhower was President -- but at a level that still allows us to make job-creating investments in things like education and research. We also made sure that these cuts wouldn’t happen so abruptly that they’d be a drag on a fragile economy.
Now, I've said from the beginning that the ultimate solution to our deficit problem must be balanced. Despite what some Republicans have argued, I believe that we have to ask the wealthiest Americans and biggest corporations to pay their fair share by giving up tax breaks and special deductions. Despite what some in my own party have argued, I believe that we need to make some modest adjustments to programs like Medicare to ensure that they’re still around for future generations.
That's why the second part of this agreement is so important. It establishes a bipartisan committee of Congress to report back by November with a proposal to further reduce the deficit, which will then be put before the entire Congress for an up or down vote. In this stage, everything will be on the table. To hold us all accountable for making these reforms, tough cuts that both parties would find objectionable would automatically go into effect if we don’t act. And over the next few months, I’ll continue to make a detailed case to these lawmakers about why I believe a balanced approach is necessary to finish the job.
PSA: Debt Deal Fact Sheet
The following is a reprinting of the White House's official debt deal fact sheet. The original can be found here.
Bipartisan Debt Deal: A Win for the Economy and Budget Discipline
Bipartisan Debt Deal: A Win for the Economy and Budget Discipline
- Removes the cloud of uncertainty over our economy at this critical time, by ensuring that no one will be able to use the threat of the nation’s first default now, or in only a few months, for political gain;
- Locks in a down payment on significant deficit reduction, with savings from both domestic and Pentagon spending, and is designed to protect crucial investments like aid for college students;
- Establishes a bipartisan process to seek a balanced approach to larger deficit reduction through entitlement and tax reform;
- Deploys an enforcement mechanism that gives all sides an incentive to reach bipartisan compromise on historic deficit reduction, while protecting Social Security, Medicare beneficiaries and low-income programs;
- Stays true to the President’s commitment to shared sacrifice by preventing the middle class, seniors and those who are most vulnerable from shouldering the burden of deficit reduction. The President did not agree to any entitlement reforms outside of the context of a bipartisan committee process where tax reform will be on the table and the President will insist on shared sacrifice from the most well-off and those with the most indefensible tax breaks.
Subscribe to:
Posts (Atom)