Can retailers still outfox savvy shoppers?

Ever since people began bartering, there has been a constant struggle between buyer and seller to get the largest possible share of the value-cost margin.  Shoppers now have access to a cornucopia of pricing information on the web.  If stores do not offer reasonable deals, they lose business to Amazon and the like. 

Today's NYT reports how some major retail chains, including JCP (the store previously known as Penney's), have revised their pricing strategies.  The story contains some juicy tidbits on pricing:

An item that cost Penney’s $10 in 2002 was typically marked up to $28. By 2011, a $10 item had been marked up to $40. But the price the customer actually paid for the $10 item increased only 5 cents during that period — to $15.95, from $15.90.

... the average markup for apparel at a department store began around 65 percent. Over 10 weeks, the stores will go to 25 or 30 percent off, then 50 percent off, 60 percent, and finally 70 percent or more, a discount so deep that the stores sometimes sell below cost.

The game for consumers is to tradeoff availability with savings.  The latest, most popular styles may sell out but patience is rewarded with bigger discounts, a form of what we economists call third degree price discrimination.  JCP claims it has cut its retail prices by 40 percent in a move toward what it calls "fair and square" pricing.  Consumer reaction?  Lukewarm at best so far, the article indicates.  One shopper posted “I really, really miss my coupons" on JCP's Facebook page. 

Energy independence, here we come!

Good news in today's NYT lead story: the US is actually becoming more energy independent.  In 2011 we imported 45% of our liquid fuels, down from 60% six years later.  The reasons are economics 101: more supply and less demand.  Production is up because of technological advances and incentives created by higher prices (drill, baby, drill).  Demand is off because of the recession and, yes, incentives created by higher prices (drive less, buy a more energy efficient vehicle, move closer to work).  

More evidence that markets work: law schools

The market for lawyers is being adversely impacted by three forces: financial regulations have dried up the volume of financial deals, more legal work is being outsourced overseas, and corporations insist on more bang per buck of legal fees.  We are now starting to see reaction on the supply side of the market -- the number of people taking the LSAT has fallen by 24% over the last two years.  My guess is that the LSAT numbers were artificially high in 2009 and 2010 as students sought out law degrees as a safe harbor from the Great Recession.  But a 24% drop is huge, no matter what spin you try.  This could be tough news for the smaller, less visible law schools. 

Tariffs on solar panels

Just as Americans are paying near $4/gallon of gasoline, today the U.S. Commerce Department announced that it was imposing tariffs on Chinese manufacturers of solar panels.  The tariffs are being imposed because -- horror of horrors! -- the Chinese government was subsidizing their own solar panel manufacturers.  Even worse (in the Fed's eyes at least), the Chinese were selling panels to American customers at prices below cost.  No word yet on how big the tariffs will be, but certainly we can count on the cost of solar panels rising.  Politically this is a bit of a head-scratcher; it should alienate the environmental crowd and there is no union of solar panel makers to placate. 

Why are parking spaces so hard to find?

Obvious answer: the price is too low.  Today's NYT reports an interesting experiment from (of all places) San Francisco (not usually a bastion of free market thinking).  SanFran has applied technology that allows meter prices to vary depending on demand.  The idea is to have one spot open on each block all the time so that drivers do not clog the streets and generate additional CO2 emissions cruising in search of an empty spot.  Prices fall in areas with lots of spots and rise in those with no spots. 

Apple fixing book prices?

So says the US Department of Justice, according to WSJ.  What we cannot dispute: as Apple was introducing the iPad in 2010, it signed a contract with five leading book publishers under which (1) publishers could set whatever price they wanted, (2) Apple would take a 30% cut, and (3) publishers would not allow rival retailers to sell at a lower price. 

One might view the last item as an attempt to fix prices, although it would be subject to voluntary contracts between publishers and retailers.  In an op-ed yesterday, WSJ's Gordon Crovitz provides some context.  At the time of the iPad launch, Amazon had 90% of the e-book market and was selling e-books at a loss to encourage sales of Kindle.  It is difficult to see how Apple had much monopoly leverage in this setting.  Given the massive changes in marketing practices and business models that are still taking place in publishing, it may difficult to come up with evidence on harm to consumers, especially if you compare prices of e-books to printed books.

Raleigh Chamber chimes in on immigration reform

Harvey Schmitt, CEO and president of the Raleigh Chamber, points out how not-so-smart immigration policies are hurting local tech firms.  In an N&O op-ed last Friday, Schmitt argues that limiting the number of foreign workers earning graduate degrees in science and technology is hurting the average American worker.  (I am not sure where he gets his 2.6 extra jobs for each new foreign grad student who decides to stay here.)  Local companies are having a hard time attracting an keeping tech workers.  For those interested in learning more about the issue, the Chamber is sponsoring a forum on immigration Monday at 8 a.m.

Another encouraging jobs report

For the third month in a row, the US added 200k+ jobs in February.  With upward revisions to data from earlier months, WSJ reports that we have added 1.2m jobs over the last six months.  This is the most impressive job growth we have seen since the end of the recession.

However, the labor market still has a lot of ground to make up.  Employment is still 5m+ lower than it was when the recession started.  The employment-population ratio also is 2 full percentage points lower than it was in 2008.  Unemployment held steady at 8.3% in February, but could very well inch up in coming months as people re-enter the labor force. 

Unlimited data plans, R.I.P.

AT&T announced last week that it was no longer providing unlimited data to its $30/month customer base.  Once users reach 3GB per billing period, their speeds will be slowed significantly.  Right now 5% of users will be impacted, but that percentage is sure to rise.  AT&T customers have three options: (1) be more careful with their device settings and use WiFi as much as possible (as opposed to the 3G or 4G AT&T network), (2) switch to a different billing plan and pay higher monthly rates to get the same speeds as they did under the original plan and (3) switch to other carriers.  Sprint is the only other carrier with an unlimited data plan and, unless they see a surge in customers, one would guess that they will be next in line to generate more revenue from network users. 

In the short term, I imagine there will be some very upset, unhappy people.  But as broadband gets more and more available and runs at faster and faster speeds, one must question how much value AT&T's proprietary network will generate. 

Starting to 2nd guess the Fed

NYT's Gretchen Morgenstern issued the first salvo I have seen in the mainstream media in her column today.  She openly questions the wisdom of keeping rates at near zero levels, given that (a) this is significantly penalizing savers and (b) very few people qualify for the low interest rates, especially for mortgages.  Isn't the whole idea of low rates to stimulate borrowing?  Don't get me wrong; I'm not drinking the Ron Paul Kool-Aid about abolishing the Fed, but some serious questions about its interest rate policy need to be raised in this year's campaign.  I give Ben Bernanke very high marks for his moves in 2008 and 2009, but I have real concerns about the Fed's stated commitment to keep rates low for as much as another two years.