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October 17, 2010

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Neil

"Supermarkets want customers to use self-checkouts. Consumer surplus falls, but profits rise."

OR

Supermarkets are desperate for competitive advantage, and know that consumers choose where to shop largely on price. Therefore, by promoting self-checkouts, supermarkets are able to reduce staffing costs and, which in turn puts them in a position to charge lower prices. The profit margin remains unaltered.

Surely, Chris, you understand the difference between expressed and revealed preferences? Customers *SAY* they don't like self-checkouts, but if they have to pick between the store with friendly tellers or the store with lower prices, they go for the lower prices every time.

Left Outside

"Cheap clothing sells well, but partly because it falls apart so quickly and so needs replacing, whereas well-made clothing doesn’t."

Slightly off topic, but on the subject of crappy clothing it seems ever it was so.

pre-1800 Chinese and Japanese (I've been reading Kenneth Pomeranz as part of my Global History Masters and highly recommend it if you like your history economic and cosmopolitan) clothing deteriorated less quickly than European's.

This didn't show up in measurements of how productive the economy was but the production of it did. It also shows up in the extra learning-by-doing which occured in European manufacturers. Perhaps things being short lived has second order effects on consumer surplus by improving productive measures.

Luis Enrique

interesting thoughts. To be devils advocate a bit, how sure are you that the people who actually like X Factor derive less pleasure from it than these same people would, hypothetically speaking, if we still had a 1960s style record industry. Likewise how are you sure that those who do buy a dozen disposable items of fashionwear in a monthh get less pleasure out of that than they would owning a really good tweed skirt for 10 years?

Luis Enrique

sorry, another thought ... isn't deterioration in quality, going for the lowest price, marketing quick hits rather than acquired tastes etc. quite a conceptually different thing to extracting consumer surplus? Isn't that more about pricing, and can't prices be high enough so that the producer captures all the consumer surplus with any quality of good? How do we know that the record industry wasn't doing that in the 60s - wasn't the real cost of a record much higher then?

I've half a memory that extracting consumer surplus is about coming up with differentiated products, with high quality items to pull the most money out of the wealthy, with different varieties so that people with different 'willingness to pay' are coughing up the full. I guess that implies coming up with cheap products for the poorer. Wasn't it always so?

(It's not obvious that good music is more expensive to produce that the X factor. But it's much much lower risk than trying to find the next Smiths).

There's perhaps a second thing (potentially) going on here, which is the idea that we have a weakness for sugary rubbish (so to speak) which is fully exploited by commerce, whereas in some sense we'd be better off with higher quality things consumed less often. A sort of irrationality. I'm never sure what to make of such ideas.

Churm Rincewind

“Compare the pop music of your youth - the Stones, Bowie, the Smiths, Nirvana, whatever - to the X Factor “product”. One is life-changing music you’d listen to endlessly.”

The problem is that this just isn’t true. Popular music is largely, though not exclusively, tied to youth culture. Each generation becomes locked into preferring the popular music of its own youth, and ends up by moaning about the popular music of succeeding generations, and always in the same terms - it's "shallow", “manufactured”, “disposable” “unchallenging”. Such complaints are one of the surest signs of middle age.

This is why popular music, as opposed to “art” or “classical” music and “traditional” or “folk” music, is uniquely described by generation – the 60s, the 70s, the 80s, and so on – rather than by genre. It’s also why the broad appeal of each generation’s popular music dies with those whose youth it reflects. In time, David Bowie, the Smiths, and Nirvana will be consigned to exactly the same bin as Simon Cowell’s X Factor protégés, and forgotten as completely as Harry Roy, Nellie Lutcher and Big Bill Broonzy are today.

patrick

Churm Rincewind - I have a slightly different take on it - what we remember of the 60s, 70s and 80s might be Bowie, the Stones, the Beatles and the Smiths but stuff like Pans People, Bros, the Bay City Rollers, David Essex etc were selling in equally huge quantities. We've just forgotten all the awful stuff from further back.

In 20 years time, will anyone care about Joe McIllwhateverhe'scalled? Probably not - On the other hand, people might still be listening to the XX's debut

Jim

I remember the 80s, I was there. And the amount of crap music was immense. Just like today. Every era has its commercialised pop music (Stock Aitken & Waterman anyone?) and every era has its good stuff, if you look for it. Bowie was very influential, but sold very few records before he 'sold out' in the 80s with Lets Dance. The Smiths last album came out the same year Bros were topping the charts (1987). What we look back on as an era of 'quality' music was in fact a few decent bands on the edges, being outsold by the usual crap. It was ever thus. For the record here is the list of number one artistes from 1977: David Soul, Julie Covington, Leo Sayer, Manhattan Transfer, Abba, Denice Williams, Rod Stewart, Kenny Rogers, The Jacksons,Hot Chocolate, Donna Summer, Brotherhood of Man, Floaters (whoooooooooo!), Elvis, David Soul, Baccara, Abba, Wings. I rest my case.

Will Jones

But wasn't the record industry in the 50s and 60s just as quick cash oriented - hordes of writers churning out songs for the stars to sing, Elvis recorded tonnes of songs, but how many from that time still stand up today, maybe a dozen?. I also seem to recall The Beatles (no less) having to take a stand insisting that their first single would be their own work (Love Me Do), rather than than the studio's 'guranteed No.1' jobbed by someone else (How Do You Do if I remember rightly and later done by Gerry and the Pacemakers). If it wasn't for George Martin coming from classical recording and willing to go along with them rather than a producer from the rock side of the studio, things might have been different.

chris

Yes, the music industry has always been cynical and money-grabbing, and there is a danger of selective recall. But:
1. The comparator here isn't just the 50s-80s, but the pre-war period too.
2. Listening to Dale Winton's pick of the pops on Saturday lunchtime, I've often been surprised by the quality of the 60s and 70s charts (and, yes, disappointed by those from "my time".)
3. There are two sorts of bad music; that which tries to be good but fails, and that which doesn't even try to be good but just fills a gap in the market. My impression is that the latter is now more significant a proportion of the industry than before.
4. Compared to the 60s (say), the target audience for the music business is less youth - who get moved by pop music more than others - and more middle-aged.
5. Even the better new pop music - AFAIK - seems derivative. If there are genuine new genres, aren't they more underground than they were?

Bruce

Supermarket checkouts: the logical conclusion is we'll be asked to pay a premium for the "service" of being assisted by a real person if we don't wish to use self-checkouts.

Churm: Big Bill Broonzy forgotten? Not by you or me, mate. Never.

Churm Rincewind

Bruce: Hooray! I was hoping so much to be contradicted...

Pete

"Even the better new pop music - AFAIK - seems derivative. If there are genuine new genres, aren't they more underground than they were?"

I'm not really sure about this, but I always assumed that the "underground" now comprises a much greater fraction of the whole than it used to. Certainly, you don't seem to need nearly as many singles to make it to number 1 as you used to.

If that's true, then couldn't music be one of those Long Tail cases where more people are moving away from the mainstream and into particular niches that they actually feel more passionate about?

Churm Rincewind

Pete - Not so. The vast majority of CD sales and music downloads are to the older generations, who prefer to stick with the mainstream music of their youth. The charts are based on very short timescales and therefore reflect a younger demographic who are impressed by immediacy, as opposed to the more measured purchases of their elders. That's why, paradoxically, those who buy the least nevertheless have the most influence on the charts.

Luis Enrique - Great post.

dirigible

"Compare the pop music of your youth - the Stones, Bowie, the Smiths, Nirvana, whatever - to the X Factor “product”. One is life-changing music you’d listen to endlessly. The other is something thrown into a Tesco trolley to be heard once or twice before the listener tires of it. "

Honestly, kids these days with their punk music -er- X-Factor winners, I don't know what the world is coming to! When I was young we had *real* music. OK our parents couldn't understand it, but it was dead good and it really spoke to our situation and aspirations. Apart from Nirvana, who were shit...

I don't know the name for this fallacy, but the few good pieces of music we found among the sea of dross of our youth doesn't mean that music was less manufactured or godawful in general prior to Simon Cowell.

And music has always been derivative. And regressive. The Stones gentrified their blues influences, the Beatles looked like a backward step to Cliff Richard in the early 60s.

nail art

This show is gonna flop. With shows like American Idol, So You Think You Can Dance, America's Got Talent, and Dancing With The Stars, the American TV market is already over satutated with these type of Reality Talent Shows. When X-Factor hits the airwaves next year, people are gonna be burned out with this genre of television.

Gregorycarter

On "monetizing the consumer surplus": surely one can only turn consumer surplus into revenue through price discrimination?

Airlines do this through variable yield pricing and stripping back the core service to the bone and then generating ancillary revenue on optional services.

Unless football clubs take the same approach, then they are not monetizing the consumer surplus, so much as finding a clearing price where demand meets supply, so I'm not sure that example quite works.

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