How much is that laptop worth?

Much more than you paid for it, especially if you have had it for a while.  A recent article in Slate examines how much consumer surplus is derived from computer ownership and internet access.  If one buys a new computer every four years and has a $40/month internet connection, the package costs roughly $700/year.  But the article raises the provocative question: suppose someone stole your computer and hacked your connection -- how much would you pay to get them back?  The difference between this ransom (annualized over the expected lifetime of the computer) and $700/year equals consumer surplus.

Before he became an economic advisor to the President, Austan Goolsbee (then at the University of Chicago) estimated that only 0.2 percent of income went to computers and internet access, but since people spend 10 percent of their leisure time online, the value of the internet is closer to 2.0 percent of income. 

Key implications: (1) competition in computer manufacturing and internet access yields big gains for consumers and (2) we really are a bit better off than the GDP statistics say we are. 

The all-you-can-eat data buffet is now closed

On Wednesday AT&T announced plans to scrap its unlimited data plan and replace it with tiered pricing.  New users will buy a bucket of bytes; most users are likely to select 200 meg for $15/month or 2 gig for $25/month.  Currently everyone pays a flat fee of $30, which means you can watch as many video files and download as many songs as you like -- marginal cost is zero.  With a flat fee, a relatively small number of power users ends up consuming a disproportionally large share of bandwidth capacity.  Under the new payment scheme, users have to decide if the value of the extra bytes offsets the extra cost, providing an incentive to conserve on data usage and thereby allow the existing bandwidth to be more widely available.

Ironically, AT&T has always sold a bucket of free minutes of phone time accompanied by a fairly steep fee for each extra minute.  One has to wonder why they and other carriers did not adopt this approach to data from the offset.  A possible answer is that they wanted to demonstrate the benefits of the device and encourage people to buy the service.  Now that the iPhone and other smartphones have become ubiquitous, the freebies for power users are over.  Most users will save a few bucks each month, as long as they do not get hooked on the YouTube app.

Versioning Hollywood movies

Saturday's WSJ reports a long overdue development: Hollywood studios plan to start distributing new films directly to households within 30 days of their initial release.  MBA 505 veterans know that the studios use Shapiro and Varian's theory of versioning to extract the maximum amount of consumer surplus.  After appearing in first run theaters, movies are distributed to dollar movie houses, cable, and DVD.  Those who are most impatient pay the higher price.  With the growth of bandwidth and a rising share of households with HD TVs and surround sound, I have long thought that the studios would start issuing movies directly to households sooner -- thereby grabbing more of that consumer surplus for themselves and leaving less for movie theaters.  It appears that day is here.  Studios plan to charge $20-30 for a nearly first run movie (e.g., Robin Hood would be a likely choice this weekend), which is competitive with movie prices for a couple.  Of course if you watch a movie at home you will miss certain things, like overpriced snacks and strangers talking on their cell phone.

Why concert tickets are sometimes hard to get

Yesterday's N&O reports that the March 27 Wilco concert at DPAC was sold out within 17 minutes. But if you visit sites such as Ticketsnow or Stubhub, you can still find plenty of seats, albeit at a considerable markup over list price. To quote the late, great Marvin Gaye, "What's Goin' On?"

Even though DPAC has 2700 seats, only about 1000 went on sale to the general public. Some were presold to DPAC patrons or members of Wilco's fan club. Others were reserved for guests/friends of the band. No doubt these are some of the sources of the tickets currently for sale online. Prices at Ticketsnow range from $57 to $251 apiece; originally all seats were on sale for $35 according to the DPAC website.

The economic puzzle here is why do the band and the concert promoters set initial prices so far below market clearing levels. Bands make most of their money from touring as opposed to recording, so one has to wonder why Wilco is sharing consumer surplus with others.