Freedomnomics: Why the Free Market Works and Other Half-Baked Theories Don't by John Jr. (books that read to you TXT) 📕

Glassman and John R. Lott, Jr., “Cheaper Drugs Are No Cure-All,” The Globe and Mail (Canada), Monday, November 17, 2003. See also John R. Lott, Jr. and James Glassman, “The Drug World’s Easy Riders,” Wall Street Journal Europe, Wednesday, July 23, 2003.

10 Ibid.

11 Price controls, even when intended as a short-term remedy, often prove difficult to abolish for political reasons. For example, the gasoline and oil price controls discussed here, first imposed on August 15, 1971, were not removed until almost ten years later, on January 28, 1981 See National Public Radio, “Fuel Prices Chronology,” NPR Online (http://www.npr.org/news/specials/oil/gasprices.chronology.html). An even longer example is found in New York City, where older apartments are still subject to price controls dating back to World War II. See Robert Bartley, “New York’s Self-Destruction,” Wall Street Journal, May 19, 2003.

12 Ben Stein, “Don’t Beat Up Big Oil. It’s Just Doing Its Job,” New York Times, November 20, 2005.

13 The actual statement by Menken was “There is always an easy solution to every human problem—neat, plausible, and wrong.” H. L. Menken, “The Divine Afflatus,” New York Evening Mail, November 15, 1917

14 Some of the discussion in this section is based upon John R. Lott, Jr. and Russell D. Roberts, “A Guide to the Pitfalls of Identifying Price Discrimination,” Economic Inquiry, vol. 29, no. 1, January 1991: 14-23

15 David Asman, “Why We See Less and Less Life-Saving Breakthrough Drugs,” Foxnews.com, January 5, 2007 (http://www.foxnews.com/story/0,2933, 242098,00.html), and John R. Lott, Jr. and James Glassman, “The Drug World’s Easy Riders,” Wall Street Journal Europe, Wednesday, July 23, 2003.

16 Meghan Daum, “$4k Cat Is Nothing to Sneeze At,” Los Angeles Times, October 7, 2006, and “Hypoallergenic Cats for Sale,” ABC News, October 6, 2006 (http://abcnews.go.com/Nightline/story?id=2537618).

17 Http://www.amazon.com/Seagrams-Seltzer-Pack-oz-Cans/dp/B0005YW4HS/sr=85/qid=1162946960/ref=sr_1_5/102-2738756-5711361?ie=UTF8&s=gourmet-food and http://www.amazon.com/Canada-Dry-Seltzer-Water-Cans/dp/B00061EXQK/sr=81/qid=1162946860/ref=pd_bbs_sr_1/102-2738756-5711361?ie=UTF8&s=gourmet-food.

18 Http://www.amazon.com/Coca-Cola-Diet-Coke-Pack-Cans/ d p/B0005ZXEB2/sr=8-4/qid=1162946960/ref=sr_1_4/102-2738756-5711361?ie=UTF8&s= gourmet-food. These purchases were made on November 7, 2006 in Springfield, Pennsylvania.

19 I checked the prices at the supermarket near my home, Genuardi’s, which is owned by Safeway. The situation there was similar: cola costs less than carbonated water across the board. For two-liter bottles, the cheapest seltzer was a Safeway brand costing $1.49, while Coca-Cola Classic sold for ten cents less. Safeway’s own cola brand, Go2 Cola, normally sold for $1.49—the same price as their Seltzer—but was temporarily discounted for Genuardi’s members to just eighty-eight cents. Another brand of seltzer, Vintage, also normally went for $1.49, but was on sale for $1.09.

20 John R. Lott, Jr. and Russell D. Roberts, “A Guide to the Pitfalls of Identifying Price Discrimination,” Economic Inquiry, vol. 29, no. 1, January 1991, 14.

21 After all, New York City had 24,600 restaurants as of September 2006. (David B. Caruso, “NYC weighs ban on artificial trans fats,” Chicago Tribune , September 27, 2006).

22 John R. Lott, Jr. and Russell D. Roberts, “A Guide to the Pitfalls of Identifying Price Discrimination,” Economic Inquiry, vol. 29, no. 1, January 1991,18-19. I would also like to thank my cousin Jim Lyden, who has managed two different Outback Steakhouses, for helpful discussions on these topics.

23 Ibid.

24 Http://www.southwest.com.

25 Another puzzle is the requirement that consumers have to spend a Saturday night at their destination in order to receive the discount. This is typically explained as an example of price discrimination against business travelers, but it may only be a form of peak load pricing if those who stay over Saturday night travel on Sunday, the quietest day of the week. The puzzle remains as to why there is not an explicit discount for returning on Sunday, but this is also a problem for the price discrimination explanation.

26 John R. Lott, Jr. and Russell D. Roberts, “A Guide to the Pitfalls of Identifying Price Discrimination,” Economic Inquiry, vol. 29, no. 1, January 1991.

27 Rhode Island Gas Prices (http://riroads.com/everyday/gas.htm).

28 National Petroleum News Factbook, Des Plaines, Illinois: Hunter Publishing Co., (1987). An Associated Press story in July 1986 showed a similar pattern: “Regular unleaded gasoline at self-service stations costs about 80.13 cents a gallon, compared with 1.0994 at full-service stations, and premium unleaded costs about 95.01 cents a gallon, compared with $1.1965 at full-service stations.” Associated Press, “Gasoline Prices at 7-Year Low,” New York Times, July 28, 1986.

29 People would undoubtedly claim monopoly power if the price spread between full-and self-serve regular and premium unleaded were reversed. The explanation provided here would ask one to look at the number of gallons sold on average per customer.

30 John R. Lott, Jr. and Russell D. Roberts, “A Guide to the Pitfalls of Identifying Price Discrimination,” Economic Inquiry, vol. 29, no. 1, January 1991: 14-23.

31 This section is based upon Robert G. Hansen and John R. Lott, Jr., “Profiting from Induced Changes in Competitors’ Market Values: The Case of Entry and Entry Deterrence,” Journal of Industrial Economics, vol. 43, no. 3, September 1995, 261-276.

32 Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 113 S. Ct. 2578 (1993).

For a discussion of the American Airlines case and the Federal jury’s decision to acquit, see Neuborne, Ellen, “Lawsuit could curb price wars,” USA Today, August 25, 1993. Continental and Northwest Airlines sought more than $3 billion in damages from American Airlines. They alleged that a price war that American instigated in 1992, where they reduced coach fares by an average of 38 percent and eliminated most discounts, was an attempt to drive them out of business.

Not everyone was satisfied with this decision. Alfred Kahn has argued that “The way big airlines respond to competition from start-ups could objectively be described as predation.” Richard Tomkins, “When Fares Aren’t Fair,” Financial Times (London), February 10, 1998.

Two papers that provide empirical evidence of predation are Malcolm R. Burns’s paper about American Tobacco (“Predatory Pricing and the Acquisition Cost of Competitors,” Journal of Political Economy, 1986) and Granitz and Klein