Baseball for the Thinking Fan

Login | Register | Feedback

btf_logo
You are here > Home > Baseball Newsstand > Baseball Primer Newsblog > Discussion
Baseball Primer Newsblog
— The Best News Links from the Baseball Newsstand

Friday, March 29, 2019

‘Ready to strike tomorrow’: How one $20 trinket captures the strife within a $10 billion industry

The​ Belt​ changes​ hands​ shortly after​ season’s​ end,​ in a crowded conference room at​ a luxury​ resort, where​ delegates from​​ every MLB team have been summoned for a symposium on arbitration. For three hours, they will work together at the direction of the league to set recommendations, which teams will use in negotiations with their players. It’s a thankless job. So before the meeting adjourns, they’ll celebrate an unsung hero in this battle over dollars. The ceremony ends with the presentation of a replica championship belt, awarded by the league to the team that did most to “achieve the goals set by the industry.” In other words: The team that did the most to keep salaries down in arbitration.

For the last few years, The Belt has been an urban legend of sorts, known mostly by player agents and the small circle of mid-level team officials tasked with the tedious process of arbitration. But its existence, confirmed to The Athletic by multiple sources, has emerged as a tangible example of the animosity that could plunge the sport into a bruising labor conflict.

To its creators, it is nothing more than a morale booster, a nod for a job well done in the unglamorous arena of arbitration. But to others within the industry, it is emblematic of a climate in which the livelihoods of players can be turned into a parlor game.

RoyalsRetro (AG#1F) Posted: March 29, 2019 at 11:14 AM | 66 comment(s) Login to Bookmark
  Tags: labor

Reader Comments and Retorts

Go to end of page

Statements posted here are those of our readers and do not represent the BaseballThinkFactory. Names are provided by the poster and are not verified. We ask that posters follow our submission policy. Please report any inappropriate comments.

   1. JRVJ Posted: March 29, 2019 at 11:42 AM (#5826663)
Strange story.

It could be me, but it seems that the point of the story is that teams have gotten MUCH more professional and the union is lagging, so the union is somewhat ticked off about being left behind.
   2. Jeremy Renner App is Dead and I killed it Posted: March 29, 2019 at 11:55 AM (#5826667)
Thanks for sharing. I was going to do same but there are so many posters around here to seem to have a crank with this website held off to avoid the weird feedback tied to any Athletic article
   3. snapper (history's 42nd greatest monster) Posted: March 29, 2019 at 12:04 PM (#5826671)
This seems incredibly collusive. How are the teams allowed to meet together to discuss salary offers?
   4. Barry`s_Lazy_Boy Posted: March 29, 2019 at 12:04 PM (#5826672)
Well, the constant posting of paywall articles from one web site is odd.

I do agree that this seems incredibly collusive.

   5. snapper (history's 42nd greatest monster) Posted: March 29, 2019 at 12:11 PM (#5826674)
Well, the constant posting of paywall articles from one web site is odd.

It's probably the single best baseball journalism site going.
   6. BrianBrianson Posted: March 29, 2019 at 12:57 PM (#5826686)
How are the teams allowed to meet together to discuss salary offers?


1st Amendment.

Well, doesn't apply to the Blue Jays. But otherwise.
   7. Barry`s_Lazy_Boy Posted: March 29, 2019 at 01:22 PM (#5826691)
It's probably the single best baseball journalism site going.


whatever. they're the only paywall articles linked here. it is inconsistent with posting SOP, leading to the "weird feedback" tied to their articles being posted.

   8. Jeremy Renner App is Dead and I killed it Posted: March 29, 2019 at 02:03 PM (#5826716)
7--hey man, the weird feedback is people trashing the site claiming it sucks for basically being a paywall site. That is weird to me. If folks choose not to pay for content, fine. But calling a site trash and worthless just because people are trying to make money from their work without going the ad route is really strange to me.

   9. Barry`s_Lazy_Boy Posted: March 29, 2019 at 02:08 PM (#5826717)
If anything is weird, it is repeatedly posting paywall articles for one and only one site.
   10. Jeremy Renner App is Dead and I killed it Posted: March 29, 2019 at 02:24 PM (#5826726)
9--I did not post this article. But there are many posters here who have commented that they have access to the site and enjoy discussing. Plus as shared upstream the site does really good work on baseball. I can understand someone wanting to share. But if folks are hostile to sharing I guess that's a thing.
   11. Rusty Priske Posted: March 29, 2019 at 02:55 PM (#5826742)
Collusion. Period.
   12. snapper (history's 42nd greatest monster) Posted: March 29, 2019 at 02:59 PM (#5826744)
Collusion. Period.

Yeah. This seems like textbook collusion.

For three hours, they will work together at the direction of the league to set recommendations, which teams will use in negotiations with their players.


If this was all the airlines meeting together to standardize their pricing algorithms, they'd be in court in 30 minutes.
   13. Misirlou doesn't live in the restaurant Posted: March 29, 2019 at 03:06 PM (#5826746)
1st Amendment.


Doesn't apply to contractual agreements to not discuss certain matters.
   14. Misirlou doesn't live in the restaurant Posted: March 29, 2019 at 03:07 PM (#5826747)
If this was all the airlines meeting together to standardize their pricing algorithms, they'd be in court in 30 minutes.


Right, but baseball has an anti-trust exemption, so by law they are allowed to do this. But per the CBA they are not.
   15. snapper (history's 42nd greatest monster) Posted: March 29, 2019 at 03:10 PM (#5826750)
Right, but baseball has an anti-trust exemption, so by law they are allowed to do this. But per the CBA they are not.

Right. The MLBPA should sue them for violating the CBA, or file a grievance to NLRB, whatever the correct procedure is.
   16. BrianBrianson Posted: March 29, 2019 at 03:13 PM (#5826752)
If this was all the airlines meeting together to standardize their pricing algorithms, they'd be in court in 30 minutes.


That's (probably) true. But the airlines all know the prices other airlines charge, and use that information to set their own prices. There's no need to come to a formal agreement to standardise your pricing algorithm, when all the players know it's in their own best interest to do so anyways. Two gas stations at the same intersection will always have the same price, the owners don't need to talk to each other.
   17. vortex of dissipation Posted: March 29, 2019 at 03:20 PM (#5826755)
Two gas stations at the same intersection will always have the same price, the owners don't need to talk to each other.


Unless it's Chevron and Arco. I pass frequently by an intersection that has stations of those two brands, and there's sometimes a forty cents a gallon difference in their prices.
   18. snapper (history's 42nd greatest monster) Posted: March 29, 2019 at 03:21 PM (#5826756)
That's (probably) true. But the airlines all know the prices other airlines charge, and use that information to set their own prices. There's no need to come to a formal agreement to standardise your pricing algorithm, when all the players know it's in their own best interest to do so anyways.

Sure there is. If they all use standard algorithms they can all charge higher prices without fear of being undercut.

In the simplest form, if they could come together and agree to add "+$100" to the end of every fare calculation, that would be a huge boon to them, and hideously collusive.
   19. Misirlou doesn't live in the restaurant Posted: March 29, 2019 at 03:22 PM (#5826757)
But the airlines all know the prices other airlines charge, and use that information to set their own prices.


Not really, no. Prices for seats on a specific flight change daily, if not hourly. The may know what their competitor's price is right now, but they have only a vague idea of their price will be tomorrow. So many factors go into what they charge for a seat, all airlines have their own proprietary algorithm to set set prices. Same in baseball. Without collusion like this, teams have vague idea of how other teams value players and what they are willing to pay for, but that's all it is.
   20. Jeremy Renner App is Dead and I killed it Posted: March 29, 2019 at 03:25 PM (#5826759)
19--thanks. Your answer is totally correct, re: airline pricing
   21. BrianBrianson Posted: March 29, 2019 at 03:26 PM (#5826761)
In the simplest form, if they could come together and agree to add "+$100" to the end of every fare calculation, that would be a huge boon to them, and hideously collusive.


No, there's a much simpler form, where they don't come together, but all add "+$100" to the end of every fare calculation anyways, because they're not idiots. The only reason they're not doing this is because they're already setting prices at the optimal level - increasing their fares would see them lose sales volume in a way that'd decrease total profit.

Or more simply: Why agree to do something illegal together, when it's legal if you just all do it without an agreement?
   22. snapper (history's 42nd greatest monster) Posted: March 29, 2019 at 03:30 PM (#5826763)
No, there's a much simpler form, where they don't come together, but all add "+$100" to the end of every fare calculation anyways, because they're not idiots. The only reason they're not doing this is because they're already setting prices at the optimal level - increasing their fares would see them lose sales volume in a way that'd decrease total profit.

You think if every airline raised prices $100 per seat they'd collectively lose money? You're insane.

Or more simply: Why agree to do something illegal together, when it's legal if you just all do it without an agreement?

Because you can't enforce the agreement, b/c of anti-trust law. Someone will cheat, and only raise prices $50, and get more business.

MLB through its central office, slush funds, and meetings like the one described above, can enforce the collusion, and does.
   23. BrianBrianson Posted: March 29, 2019 at 03:34 PM (#5826764)
Airlines may not be the perfect example, although I suspect there's a strong evolutionary pressure that forces all the airlines to use similar pricing algorithms (I'm not sure if corporate anti-espionage laws prohibit airline companies from backwards engineering the algorithms - if they don't, then they probably all know each others algorithms).

Or one could substitute gas stations or cans of pop or TV streaming services or packets of baseball cards or whatever has slower price changes if you like. If you're running a business and you're not a fool, you're charging the same as your competitors (of course, the word "competitors" is glossing over a lot of nuance)
   24. snapper (history's 42nd greatest monster) Posted: March 29, 2019 at 03:40 PM (#5826771)
Think about how collusion works in real life. Lets pick that esteemed industry private carting.

In a competitive environment, the different firms will compete on price to gain customers, and the market reaches equilibrium at $50/ton (totally made up). The mob comes in and says, no you're all going to charge $75/ton and give us $25/ton. Anyone who charges less gets their trucks torched, and maybe a broken leg for good measure.

The carters are all okay with this b/c they still get $50/ton. They couldn't reach the agreement to raise prices on their own, b/c they don't have the threat of violence to enforce compliance.

Here, MLB is serving in the role of the mob.
   25. BrianBrianson Posted: March 29, 2019 at 03:45 PM (#5826774)
You think if every airline raised prices $100 per seat they'd collectively lose money? You're insane.


You think every airline is run by an idiot who'd get flunked out of a grade 9 business class? If it's the case that if they collectively raised their prices $100/seat they'd all be more profitable, they'd have to be absolute idiots not to do it (of course, I doubt they'd lose money, they'd just make less profit). You don't get put in charge of an airline because you hate making a lot of profit.

Because you can't enforce the agreement, b/c of anti-trust law. Someone will cheat, and only raise prices $50, and get more business.


You'd have to be incredibly dumb to do that - if you only raise your prices $50, all your competitors only raise their prices $50, and you don't generate any additional business. You don't need to enforce the agreement, because it's in everyone's best interest. It's self-enforcing.

If it's hard, use the really straightforward example of managing a gas station across the street from another gas station. You're selling really identical products (nominally you can hedge a little with frills like loyalty programmes, self-service, but it's extremely marginal). If the guy across the street cuts his price, you have to cut your price, or you won't get any busiess. If the guy across the street raises his price, you have a choice. You can leave yours the same - forcing him to lower his back, keeping your business the same, or you can raise your price to match his, increasing your profits. Which do you choose?

Now, you can't push your price up to $50/gallon. People will stop buying gas - they'll take the bus/walk/bike/cancel plans. So you're naturally pushed to both find the price that maximises both your profits. Unless making profit isn't the goal of your gas station.
   26. gef, talking mongoose & vexatious litigant Posted: March 29, 2019 at 03:56 PM (#5826780)

Unless it's Chevron and Arco. I pass frequently by an intersection that has stations of those two brands, and there's sometimes a forty cents a gallon difference in their prices.


For as long as I've lived in areas with Chevrons -- since the the mid-'80s, I think -- their prices seem to always be 10-15 cents a gallon more than anyone else's.
   27. snapper (history's 42nd greatest monster) Posted: March 29, 2019 at 04:21 PM (#5826787)
You'd have to be incredibly dumb to do that - if you only raise your prices $50, all your competitors only raise their prices $50, and you don't generate any additional business. You don't need to enforce the agreement, because it's in everyone's best interest. It's self-enforcing.

It's not self-enforcing. That's the whole idea of competition.

If everyone else raised their prices $100, and you only raised them $50, you would gain business, and they would lose business. Then they'd cut their prices to match yours. That's how competition works and lowers prices.

But if you all raise prices the same amount, you all lose very little business, only those who decide not to fly, and make more profits. The incentive to defect and try to make even more money is always there, and prevents collusion unless the industry has some way to punish the defectors.

If this wasn't true, we'd see prices on goods going ever upwards.

Price collusion is the furthest thing from self-enforcing. Do you think the PC makers like selling you a PC for $500 instead of the $3000 they used to get? No, they just can't effectively collude.
   28. Hysterical & Useless Posted: March 29, 2019 at 04:26 PM (#5826791)
they just can't effectively collude.


Huh, those tech people are supposed to be so smart
   29. snapper (history's 42nd greatest monster) Posted: March 29, 2019 at 04:33 PM (#5826794)
Huh, those tech people are supposed to be so smart

Collusive pricing is very hard to enforce w/o extra legal means. The law seriously frowns on it.

That's why you see so much M&A activity. Once you get to the point where there are effectively 2 or 3 firms in a market, you can collude much easier, b/c it's simple ### for tat, rather than trying to monitor 50 competitors and punish each one that defects.
   30. Nasty Nate Posted: March 29, 2019 at 04:45 PM (#5826796)

It's not self-enforcing. That's the whole idea of competition.
Right. If price-fixing and collusion were self-enforcing ... they wouldn't be price-fixing and collusion.
   31. Barry`s_Lazy_Boy Posted: March 29, 2019 at 04:51 PM (#5826797)
http://www.espn.com/mlb/story/_/id/26390887/union-scolds-mlb-awarding-arbitration-belt

Major League Baseball Players Association executive director Tony Clark scolded the MLB and its teams for making a game out of the arbitration process by awarding a toy belt to the team deemed having done the best to keep salaries down.

"That clubs make sport of trying to suppress salaries in a process designed to produce fair settlements shows a blatant lack of respect for our Players, the game, and the arbitration process itself," Clark said in a statement issued Friday.
   32. What did Billy Ripken have against ElRoy Face? Posted: March 29, 2019 at 05:03 PM (#5826800)
Once you get to the point where there are effectively 2 or 3 firms in a market, you can collude much easier, b/c it's simple ### for tat,
Which is pretty much where we're at with air travel.
   33. Saved By the Belliard Posted: March 29, 2019 at 05:05 PM (#5826801)
This collusion (for arbitration) is specifically allowed for in the CBA, according to this Deadspin article

There’s another weird bit about arbitration: Collusion is allowed here. Front offices don’t merely swap informal information, they’ve set up an entire department to help every team keep its arbitration offers as low as possible, and to help them win their hearings.


I would assume the MLBPA can also do the same if the owners can.
   34. . Posted: March 29, 2019 at 05:25 PM (#5826806)
Front offices don’t merely swap informal information, they’ve set up an entire department to help every team keep its arbitration offers as low as possible, and to help them win their hearings.


What does "keep its arbitration offers as low as possible" even mean? The offers of both club and player are public knowledge in every case that goes to arbitration. As are the winning parties in contested hearings.

   35. BrianBrianson Posted: March 29, 2019 at 05:31 PM (#5826814)
If everyone else raised their prices $100, and you only raised them $50, you would gain business, and they would lose business. Then they'd cut their prices to match yours. That's how competition works and lowers prices.


Right, except that you've noticed everyone else has to cut their prices, and so they keep their business, and you don't gain anything. If you'd raised your prices $100, you'd be making $100/more per customer. But you (and thus, everyone else) only raised your prices $50, so now you're only making $50/more per customer. And you haven't gotten any more customers. So, why did you do that?

Do you think the PC makers like selling you a PC for $500 instead of the $3000 they used to get? No, they just can't effectively collude.


Yes, they do. They're much happier selling 100 million PCs a year for $500 that cost them $400 to make than they were selling 1 million PCs a year they made for $2500 and sold for $3000.

Right. If price-fixing and collusion were self-enforcing ... they wouldn't be price-fixing and collusion.


If there're enough people in the market, you get someone really dense who thinks that lowering their prices will result in more customers, rather than realising it just results in everyone else lowering their prices and everyone making less profit.

In real life, it's a bit more organic, because people have fixed amounts of money, and so everything is competing with everything to some extent, so you can't get the information on your more removed "competitors" - a mattress company can't directly figure out how I'm weighing buying a new mattress against taking a vacation to Maine.
   36. BrianBrianson Posted: March 29, 2019 at 05:37 PM (#5826815)
Collusive pricing is very hard to enforce w/o extra legal means. The law seriously frowns on it.


It's very easy in any industry where entry is expensive enough that you don't typically get complete idiots running companies. It's easy to enforce, because collusive pricing results in everyone being rewarded, and whoever defects punishes everyone, including themselves. The market naturally rewards collusive pricing, and naturally punishes defectors. Unless you can defect hard enough to bankrupt all your competition, then jack your prices way up.
   37. snapper (history's 42nd greatest monster) Posted: March 29, 2019 at 06:59 PM (#5826826)
It's very easy in any industry where entry is expensive enough that you don't typically get complete idiots running companies. It's easy to enforce, because collusive pricing results in everyone being rewarded, and whoever defects punishes everyone, including themselves. The market naturally rewards collusive pricing, and naturally punishes defectors. Unless you can defect hard enough to bankrupt all your competition, then jack your prices way up.

This is so far from reality, I just can't even continue this discussion. Most industries are very competitive.

Yes, they do. They're much happier selling 100 million PCs a year for $500 that cost them $400 to make than they were selling 1 million PCs a year they made for $2500 and sold for $3000.

It's more like they're making $20 per computer on 100 million instead of $500 per computer on 10 million, and they're much worse off.

Have you seen the valuations of Dell or HP or any big PC or hardware maker? They've absolutely tanked from the heyday. Why do you IBM sold Thinkpad, because they were making money?
   38. BrianBrianson Posted: March 29, 2019 at 08:00 PM (#5826836)
This is so far from reality, I just can't even continue this discussion. Most industries are very competitive.


I mean, have you been unaware of pretty much every large industry of the last hundred years? You want to accuse most companies in most industries of running themselves in the stupidest way possible?

Although, trying to track Dell's valuation is a nightmare, as it's gone up and down and private and public and back and back. A lot of it is customer buying habits - people aren't buying PCs at the rate they used to, so you have to cut prices to compete with nothing, as customers just don't need new computers the way they did in 1999. I'm using an eight year old laptop - that would've been totally impossible in 1999. That's what you have to compete with - people simply not buying the product at all.

If you lower your prices, all your competitors will be forced to lower theirs. Unless the lower prices create new customers who were previously priced out of the market, this means you're decreasing your profits. Why would you choose to make less profit?
   39. . . . . . . Posted: March 29, 2019 at 10:53 PM (#5826900)
You guys are both right. It is very hard for collusive behavior to screw consumers (because equilibrium pricing tends to settle around a revenue maximizing price without collusion), but on the other hand, collusion is extremely powerful in reducing costs. And that is the flavor of collusion occurring here.
   40. John Reynard Posted: March 30, 2019 at 03:26 AM (#5826981)
If it's hard, use the really straightforward example of managing a gas station across the street from another gas station. You're selling really identical products (nominally you can hedge a little with frills like loyalty programmes, self-service, but it's extremely marginal). If the guy across the street cuts his price, you have to cut your price, or you won't get any busiess. If the guy across the street raises his price, you have a choice. You can leave yours the same - forcing him to lower his back, keeping your business the same, or you can raise your price to match his, increasing your profits. Which do you choose?

Now, you can't push your price up to $50/gallon. People will stop buying gas - they'll take the bus/walk/bike/cancel plans. So you're naturally pushed to both find the price that maximises both your profits. Unless making profit isn't the goal of your gas station.


Gas stations are a terrible example. The gas stations are almost always run the gas as a loss-leader to draw in customers who might buy overpriced stuff inside (food, lottery, whatever). I have three consulting clients who own chains of gas stations and never once have I been out to discuss gas pricing. However, I have been asked out to help get more people inside and spending more money while inside. The one guy tells me if he gets no reversed credit payments he makes like $40 a day on the gas per station (before wages for employees). The other two have just told me they don't make money on gas unless there is the rare case they filled the tank with cheap stuff early in the week and prices rose during the week.

Competitive behavior is tough to make good examples of. But, what baseball is doing is so far into collusion I can't believe they've gotten away with it this long. I suspect they'll eventually end up paying tons to players a court deems to have been harmed. Then again, with Trump appointees on some courts and how poorly the union has discovered the collusion, perhaps they'll be bad at venue shopping and fail at that too. Players union could use some good representation.
   41. KJOK Posted: March 30, 2019 at 03:28 AM (#5826982)
It's easy to enforce, because collusive pricing results in everyone being rewarded, and whoever defects punishes everyone, including themselves. The market naturally rewards collusive pricing, and naturally punishes defectors. Unless you can defect hard enough to bankrupt all your competition, then jack your prices way up.


Ironically, a version of this is what airlines have typically got into trouble doing. They lower they price in their 'hub' city, and other airlines chose to reduce service rather than continue to operate at a loss in that market. Then the dominant airline later raises their prices past where they were originally, once there is less competition in the hub.

Full disclosure - work in Airline Technology, having previously spent 15 years in a pricing related department, and before that worked for one of world's largest airlines...

   42. John Reynard Posted: March 30, 2019 at 03:31 AM (#5826983)
You guys are both right. It is very hard for collusive behavior to screw consumers (because equilibrium pricing tends to settle around a revenue maximizing price without collusion), but on the other hand, collusion is extremely powerful in reducing costs. And that is the flavor of collusion occurring here.


This depends on what you're selling. If you're selling a non-optional good like food, shelter, energy, healthcare, education you have a ton of leverage to collude and drive prices up until consumers are definitely damaged. If you don't think this is true, examine how much recent college grads have in long-term debt compared to college grads 30 years ago. Did they get a better education or have better work opportunities? Nah. They were screwed. And, in large part it is because the college board has decided to help collude using national rankings based on price in part as their hammer.
   43. Adam Starblind Posted: March 30, 2019 at 09:45 AM (#5826995)
Interesting discussion, guys. Only a smattering of "you're an idiot."
   44. Never Give an Inge (Dave) Posted: March 30, 2019 at 12:37 PM (#5827025)

If everyone else raised their prices $100, and you only raised them $50, you would gain business, and they would lose business. Then they'd cut their prices to match yours. That's how competition works and lowers prices.

Right, and if everyone raises prices by $100 some startup or foreign competitor looking to break into the US market is going to come in and undercut them all by $50 (or $100) and all of a sudden you've got an additional competitor who just made a name for themselves as the most affordable US airline.
   45. snapper (history's 42nd greatest monster) Posted: March 30, 2019 at 01:02 PM (#5827031)
Right, and if everyone raises prices by $100 some startup or foreign competitor looking to break into the US market is going to come in and undercut them all by $50 (or $100) and all of a sudden you've got an additional competitor who just made a name for themselves as the most affordable US airline.

Exactly right.

If price fixing was easy, every company would have a 25% ROE, and no one would ever go bankrupt.
   46. David Nieporent (now, with children) Posted: March 30, 2019 at 02:11 PM (#5827048)
But if you all raise prices the same amount, you all lose very little business, only those who decide not to fly, and make more profits. The incentive to defect and try to make even more money is always there, and prevents collusion unless the industry has some way to punish the defectors.

If this wasn't true, we'd see prices on goods going ever upwards.
Dude, have you never heard of price elasticity of demand?
   47. David Nieporent (now, with children) Posted: March 30, 2019 at 02:23 PM (#5827052)
This collusion (for arbitration) is specifically allowed for in the CBA, according to this Deadspin article
Actually, no. There's just an ipse dixit saying that it's okay:
There’s another weird bit about arbitration: Collusion is allowed here. Front offices don’t merely swap informal information, they’ve set up an entire department to help every team keep its arbitration offers as low as possible, and to help them win their hearings. Carig:
Maybe the paywalled article provides actual evidence that it's specifically allowed for in the CBA, but the Deadspin article doesn't give any meaningful information at all.

(To be sure, meeting after the fact and congratulating the GM that did the best in holding salaries down in arbitration would not itself be collusion anyway; it's just shmucky. But discussing beforehand how much to offer would be.)


EDIT: I reviewed the CBA. To oversimplify a bit, the anti-collusion provision only applies to free agency.
   48. snapper (history's 42nd greatest monster) Posted: March 30, 2019 at 02:46 PM (#5827057)
Dude, have you never heard of price elasticity of demand?

Sure. It's almost never higher than the price elasticity of profit. That's why monopolies almost always charge much higher prices than competitive industries. They face the whole demand curve, and almost never choose to go for low price/high quantity, unless their marginal cost of production is almost nil.

A simple example should make this clear. Say price elasticity is -1, i.e. a 10% price increase leads to a 10% decline in demand. That's high for an industry level, and normal for some firms.

If my product sells for $100, and my costs are $80, my profit margin is $20. So a 10% increase in prices is a 50% increase in profit per unit.

Lets say I'm selling 1000 units of my product. So that's 1000 units at $100, for $100,000 revenue, and $20,000 profit. If I can raise my price to $110, and only lose 10% of my demand, I'm now selling 900 units at $110. My revenue is down slightly to $99,000, but my profit is now $27,000. Any company takes that trade off every day.

Now, if I'm one of 25 firms in an industry, and I raise prices, the elasticity of demand I face will be high. But, if we all raise prices, then it will be low.
   49. What did Billy Ripken have against ElRoy Face? Posted: March 30, 2019 at 02:54 PM (#5827058)
Right, and if everyone raises prices by $100 some startup or foreign competitor looking to break into the US market is going to come in and undercut them all by $50 (or $100) and all of a sudden you've got an additional competitor who just made a name for themselves as the most affordable US airline.
Yeah, other than the immense economic barriers to entry and the limited and oligopolized gate space at airports, that works perfectly! I wonder why that doesn’t happen every month, what with the existing airlines giving consumers a perpetually worsening experience for increasing prices?
   50. snapper (history's 42nd greatest monster) Posted: March 30, 2019 at 04:11 PM (#5827077)
Yeah, other than the immense economic barriers to entry and the limited and oligopolized gate space at airports, that works perfectly! I wonder why that doesn’t happen every month, what with the existing airlines giving consumers a perpetually worsening experience for increasing prices?

It costs less to fly to Europe today than it did 30 years ago, in nominal dollars. Airline prices are ludicrously low.
   51. Howie Menckel Posted: March 30, 2019 at 05:16 PM (#5827089)
If I can raise my price to $110, and only lose 10% of my demand, I'm now selling 900 units at $110. My revenue is down slightly to $99,000, but my profit is now $27,000. Any company takes that trade off every day.

the newspaper industry could be a fun one: "Let's eliminate 80 percent of our payroll. And when we only lose 60 percent of our revenue, we all get bonuses - score!"
   52. Brian C Posted: March 30, 2019 at 10:21 PM (#5827134)
It costs less to fly to Europe today than it did 30 years ago, in nominal dollars. Airline prices are ludicrously low.

I had never flown overseas before until I went to Greece 3 years ago, and I was amazed at that time that I was able to buy round-trip airfare and hotel together for $750 for a 5-day trip. It wasn't a swanky hotel, but it was adequate, and at any rate I expected the airfare alone to be considerably more than that. And I didn't even really work to find cheap flights, that was just what Expedia spit out at me.

On the other hand, domestic air fare seems like it's getting more and more expensive (and as Elroy pointed out, for crummier and crummier service). Saying that flights to Europe are cheap doesn't quite seem like the whole story when it comes to airline prices.
   53. Brian White Posted: March 31, 2019 at 08:44 AM (#5827166)
On the other hand, domestic air fare seems like it's getting more and more expensive (and as Elroy pointed out, for crummier and crummier service). Saying that flights to Europe are cheap doesn't quite seem like the whole story when it comes to airline prices.


I thought the differences were between flying into big cities versus relatively smaller airports. In addition to more competition in big city airports, I get the sense that more flights to large cities are taken somewhat opportunistically (e.g. I was going to spend the long weekend at home, but good golly look how cheap this flight to Paris is, maybe I should pack my bag) and prone to substitution (well, prices to Paris went up, but I could go to London instead) thus are more price sensitive. That's a dynamic that you don't really get at smaller destinations - if you're flying to Boise, Idaho for instance, its usually for a specific reason on a specific date, and can't be switched just because the price is high.
   54. BillWallace Posted: April 01, 2019 at 01:42 PM (#5827491)
This whole discussion Brian was operating with a premise that these hypothetical companies would face a large price elasticity of demand from substitutes. i.e. if the price goes up to fly, then I'll just drive or take a train or stay home. If that were true, then collusion among airlines wouldn't help that much. But the reality is that it's not really true. Which is why snapper said "if they all raised prices by $100 then they'd make more money".

The reality is that this is true, because most people would still fly. Some would stay home, sure. But airlines could easily double their prices, maybe triple and still come out way ahead (as long as they all did it as a collective action). And if we let them form a cartel, they'd do just that.

This is why restricting M&A and anti-trust are so important.
   55. What did Billy Ripken have against ElRoy Face? Posted: April 01, 2019 at 03:17 PM (#5827542)
The reality is that this is true, because most people would still fly. Some would stay home, sure. But airlines could easily double their prices, maybe triple and still come out way ahead (as long as they all did it as a collective action). And if we let them form a cartel, they'd do just that.
Exactly. Policy-wise, we haven't caught up with (read: completely ignore) the fact that in 2019, air travel is largely a necessity rather than a luxury or a substitutable service.
   56. Jeremy Renner App is Dead and I killed it Posted: April 01, 2019 at 03:27 PM (#5827547)
The dynamic pricing models used by airlines puts a huge premium on what is perceived as business travel versus leisure travel. Meaning business travellers will pay more than leisure travellers as there is less price sensitivity.
   57. BrianBrianson Posted: April 01, 2019 at 03:36 PM (#5827557)
No, there's a large amount of truly optional flying, and when prices double or triple things that you didn't realise were optional reveal themselves. Especially now that there are a lot of cheap flights around.

Indeed, the people who would pay 3X the cost probably mostly already are, in front of that little curtain.
   58. What did Billy Ripken have against ElRoy Face? Posted: April 01, 2019 at 03:41 PM (#5827561)
No, there's a large amount of truly optional flying,
Depends on what you think of as "optional." I would argue that, for example, in our geographically dispersed reality, flying to visit one's immediate family is not optional for a whole lot of people. And "either move close to them or suck it up and drive for 2 days" isn't realistic.
   59. BrianBrianson Posted: April 01, 2019 at 05:03 PM (#5827634)
And "either move close to them or suck it up and drive for 2 days" isn't realistic.


Lots of people do this, because flying is still too expensive for them. If ticket prices went up 3X overnight, a lot of people who would've said it's unrealistic today would say it's realistic tomorrow. Or, they'd still fly, but just visit their family a lot less often (I visit my parents at least an order of magnitude more often now that it's a 7 hour drive and $50 of gas, not a 7 hour flight and $2000 worth of jet fuel.)
   60. Brian C Posted: April 01, 2019 at 08:03 PM (#5827673)
I would argue that, for example, in our geographically dispersed reality, flying to visit one's immediate family is not optional for a whole lot of people.

This is plainly absurd, of course it is optional in all kinds of ways. My parents live down in Florida and I'm going to see them in a couple of months for the first time in 3 years. There are several reasons for why I haven't been lately (they're awesome, so none of those reasons have to do with family strife or anything), but the price of flights to Jacksonville is certainly one of them. Likewise, I'm certain they'd visit me and my brother (who lives in Texas) more often if flights were cheaper.

Now, I get your point that many people face a lot of pressure to visit the fam. But that's just not the same as saying that they fly just as often as they would if cost was less of an issue.
   61. David Nieporent (now, with children) Posted: April 01, 2019 at 09:20 PM (#5827701)
Depends on what you think of as "optional." I would argue that, for example, in our geographically dispersed reality, flying to visit one's immediate family is not optional for a whole lot of people. And "either move close to them or suck it up and drive for 2 days" isn't realistic.
No, it's optional for 100% of people. (Okay, if one needs a bone marrow transplant from a relative, it's not exactly optional. Call it 99.99%.) And, yes, suck it up and drive for 2 days is also 100% realistic. (There are also trains and buses.)

"X is convenient so therefore it is a necessity" is just not a thing.
   62. What did Billy Ripken have against ElRoy Face? Posted: April 01, 2019 at 10:52 PM (#5827727)
There are several reasons for why I haven't been lately (they're awesome, so none of those reasons have to do with family strife or anything), but the price of flights to Jacksonville is certainly one of them. Likewise, I'm certain they'd visit me and my brother (who lives in Texas) more often if flights were cheaper.
Call it what you will, but wouldn't it be a better society if there were actually enough airlines to have significant competition instead of "one airline introduces new fees, then all the other ones follow a month later" like we have now -- or, heaven forbid, if airlines were subject to sensible regulations -- such that price was much less of an obstacle for people like you and your parents?
   63. Brian C Posted: April 01, 2019 at 11:02 PM (#5827730)
Well ... yes, it would be nice if expensive stuff that was convenient for me was cheaper. This is an extremely banal point, however, that has not much of anything to do with anything.

What kind of regulations do you suggest that would lower the price of airline fares? Are you actually doing anything here besides yelling at the clouds in the hopes that plane rides magically get cheaper?
   64. What did Billy Ripken have against ElRoy Face? Posted: April 01, 2019 at 11:06 PM (#5827731)
Stop letting them all merge and consolidate, for starters, as BillWallace suggested in 54. If they're going to charge new fees for things that used to be included in the price of the ticket, make them actually reduce the price of the ticket.
   65. What did Billy Ripken have against ElRoy Face? Posted: April 01, 2019 at 11:12 PM (#5827732)
Basically, there should either be enough airlines and enough accessibility for new market entrants (in terms of airport gates, etc.) for there to be robust competition, or if not, airlines should be regulated as we do public utilities. I mean, electricity in the home is a convenience, not a real necessity, right?
   66. Eric J can SABER all he wants to Posted: April 01, 2019 at 11:19 PM (#5827738)
And "either move close to them or suck it up and drive for 2 days" isn't realistic.

For what it's worth, the family of six I grew up in drove from Tulsa to Chicago (one long day or two relatively short days) to visit family at least once a year, and drove from Tulsa to Tampa (two full days) several times over the years as well.

You must be Registered and Logged In to post comments.

 

 

<< Back to main

News

All News | Prime News

Old-School Newsstand


BBTF Partner

Dynasty League Baseball

Support BBTF

donate

Thanks to
The Piehole of David Wells
for his generous support.

Bookmarks

You must be logged in to view your Bookmarks.

Hot Topics

NewsblogPrimer Dugout (and link of the day) 11-14-2019
(5 - 11:38am, Nov 14)
Last: Jefferson Manship (Dan Lee)

NewsblogdeGrom repeats, JV edges Cole for Cy honors
(20 - 11:33am, Nov 14)
Last: What did Billy Ripken have against ElRoy Face?

NewsblogHe told a kid to slide. Then he got sued.
(67 - 11:23am, Nov 14)
Last: snapper (history's 42nd greatest monster)

Hall of MeritMock 2020 Modern Baseball Ballot
(44 - 11:20am, Nov 14)
Last: Esoteric

Gonfalon CubsRegrets
(100 - 11:09am, Nov 14)
Last: Kiko Sakata

NewsblogOT- Soccer Thread- October 2019
(471 - 11:07am, Nov 14)
Last: Mefisto

NewsblogOT - NBA Thread, Start of the 2019-2020 Season
(824 - 10:52am, Nov 14)
Last: Athletic Supporter is USDA certified lean

NewsblogMLB minimum salary rises $8,500 to $563,500 next season
(4 - 10:51am, Nov 14)
Last: kubiwan

NewsblogGiants pick ousted Phillies manager Gabe Kapler to succeed Bruce Bochy
(19 - 10:50am, Nov 14)
Last: SoSH U at work

NewsblogAfter failed soccer endeavor, Mike Piazza set to manage Italian National Baseball Team
(2 - 10:12am, Nov 14)
Last: Crispix Attacksel Rios

NewsblogPadres unveil new brown and gold color scheme
(22 - 10:10am, Nov 14)
Last: Infinite Yost (Voxter)

NewsblogThe Astros stole signs electronically in 2017 | The Athletic (paywall)
(161 - 9:55am, Nov 14)
Last: The Duke

NewsblogBoras bashes lack of competition, senses faster-paced market
(2 - 9:41am, Nov 14)
Last: eric

NewsblogAngels hire Tony La Russa as baseball operations special assistant
(21 - 8:55am, Nov 14)
Last: Ben Broussard Ramjet

NewsblogAcing it: Success of Nats, Astros puts attention on starters
(7 - 8:20am, Nov 14)
Last: Rally

Page rendered in 0.6197 seconds
46 querie(s) executed