The Professor's Notes

We talk about the lawsuit brought by the US in the most recent Real Tech for Real People, Episode 110.  While we share our thoughts on the pluses and minuses of the lawsuit, I thought it would be good to share this article from LifeHacker as well.  In this article they discuss the impact the lawsuit could have on pricing.  They write in part:

In a nutshell, this means prices on ebooks went up because the agreement with Apple made it so other sellers, like Amazon, couldn’t lower the price on ebooks.

Three of the seven publishers have already settled with the Department of Justice, but Apple, Penguin, and Macmillan rejected the offer. Now that we know the reasons behind the lawsuit, let’s see if any of this news is actually will have an effect on pricing.

Read the full article here.

Back in 2007 I bought a Civic Hybrid.  At the time I “ran the numbers” and decided that the purchase made both economic and environmental sense.  I wrote about it on my blog, and explained why I believe the true environmentalists are conservatives.  At the time, I wrote:

I couldn’t bring myself to buy a Toyota Prius like our good friend Fleshy. I am not sure if it is because I don’t like the “cramped” look of the car, or simply that Fleshy, and so many liberals, wear that car as a (tight fitting) badge of good liberalism.

I was clearly aware that some people drive the Prius simply to show that “they care.”  Recently Freakonomics Radio (brought to you by the same guys that brought you the books Freakonomics and SuperFreakonomics) discussed the concept of “Conspicuous Conservationism” — that is, people that try to enhance their status by showing that they are being “altruistic” — even if they aren’t really effective.  For instance, Read the rest of this entry »

Genesis 10 is a company that focuses on delivering performance and matching the right people to the right tasks for companies. They have also started an outreach effort to help returning Vets transition to the workforce. From a recent email:

On Veteran’s Day, Genesis10’s founder and CEO Harley Lippman and newly appointed Manager of Diversity and Veterans Relations, Richard Sanchez, were interviewed by MSNBC’s Dylan Ratigan about the challenges American Veterans face transitioning their careers from the military to corporate America. Watch the clip here:

Working with Genesis10 means working with a company that is dedicated to serving our community where and when we can. Veterans Outreach is our latest initiative whereby Genesis10 will partner with clients to identify opportunities for U.S. Veterans. Using training and mentoring programs in place internally and through external partners, Genesis10’s Veterans Outreach will prepare and support Veterans during their career transition from the military to the private sector.

If you know a Veteran who may benefit from this program, we want to know. You or the Veteran can send a message directly to G10Veterans@genesis10.com. Please share this message with your network. We ask you to help us spread the word – because by working together we can connect and support the men and women who served to protect our freedoms with new career opportunities in business and technology.

I would encourage everyone to share this post, the video link, and the email address with anyone who is either a veteran, or knows a veteran–or knows someone who knows… (you get it–tell everyone!)

Who are the consumers of textbooks? And how do you define a consumer? We had this discussion recently on the podcast Real Tech for Real People episode 97. We were discussing the increasing use of tablets, and specifically iPads, in primary and secondary education. Of course, this led to a discussion of the use of tablets in higher education. The conversation was wide ranging in a couple key points emerged that I wish to write about here.

The primary and secondary schools systems are selecting a specific device and the books are content to go on that device. In this case, the system purchases the devices and the content and then delivers that to the student. So who is the consumer in this case? Setting aside for the moment the argument that the taxpayer is always the consumer, let’s focus on whether the consumer is the school district or the student. We can all agree that there are many stakeholders in this arrangement: the school board, parents, teachers, students, taxpayers, and I’m sure many others. But when I consider the consumer, I am considering their role in consumer plays in shaping the marketplace. In this case, while the students consumed the content, the school board by virtue of the purse string is the consumer. We can hope they are making wise decisions as they select the best combination of hardware, software, and support infrastructure.

Given this scenario the selection of a specific hardware platform makes sense. As a consumer the school district is selecting an all encompassing solution for all to use. This approach will undoubtedly balance the educational needs with the technological abilities, and of course the fiscal reality is the school board faces. The district will be able to leverage their scarce taxpayer dollars to get the best benefit possible. Are there limitations to this approach? Perhaps. There might be better solutions that only run on a different platform. But those are the tradeoffs one makes when one selects a technological platform on which to base decisions. We must satisfice.

Not consider the higher education model. As professors and students alike start to look towards digital textbooks as a valuable and viable alternative to the costly new-used-new book cycle we find a new challenge. Read the rest of this entry »

The connectedness of… a newly selected nominee to the US Supreme Court, the abortion issue… Arizona immigration law… and a Pennsylvania tax amnesty commercial?

Privacy.  PRIVACY.  The RIGHT to PRIVACY.  Do you believe we should have a right to privacy?  Should we expect that our government will allow us to live our lives without surveillance, free from the need to check, to constantly look over our shoulders to see who from the government is watching?

As always the world is full of events occupying our time and driving the news.  And, as is usually the case, each story is presented in isolation.  Rarely does anyone discuss the connectedness of the stories or their implications.  Often, that means little, but occasionally the disconnectedness points to the dissonance in government when agencies pursue their agendas.  Once in a while the opportunity arises from this to view the conflict in “generalizable principles” that drive our government’s behavior. Read the rest of this entry »

In the last post I wrote about the perversions of incentives that cause the problems in the health care system.  Let me point out that it’s not that we are behaving irrationally.  We are behaving completely rationally–given the situation we face.  It’s that the situation (the “help” we are getting) encourages bad decisions that drive up costs.

So now we face  the BIG PROBLEM.

By shifting to a policy where everyone is now to be insured, we open the floodgates of demand (okay, a bit much. But we certainly will allow millions more in.) Demand for services will increase. So it would make sense that prices would increase to balance out the demand (remember Econ 101, all else equal, in the near term an increase in demand will result in an increase in price. In the long term it should result in an increase in supply, as the market responds to the increased demand for the product).

Will we see prices increase? Not for the consumer–they are capped at the Co-pay. And now we are seeing pressures to not raise prices from the supply side (and the insurance companies will be SHOT if they raise rates significantly).

So what happens now? If prices cannot go up, then demand will remain (unrealisticly) high. Unrealistic in that demand is acting free of the market place.

With demand high, and the inability to increase prices we will see no real “benefit” to more providers entering the marketplace.

More to the point, even if we could see more providers enter the market there are significant barriers to entry. Consider the medical field:

1. Doctors must go through extensive training, and then licensing (not to mention the fact that they never really get it right–so must keep “practicing”)

2. medicines must be approved after rigorous testing, and their labs must be approved, and so forth.

3. Various other licensing and authorizing are in place for therapists, assistants, nurses, and the like.

Supply cannot respond quickly, and with a rising demand and supply unable to keep up, and with no pricing mechanism to regulate the demand we will face:

Shortages of service resulting in long waiting lines/delays.

And how do you deal with shortages? Since the market forces are not allowed to work, we are left with the government stepping in, once again, to fix the mess of it’s own making. They will have to “ration” care.

Sorry–it’s a fact. In every nation that has shifted to “socialized” they have faced shortages, lines and rationing.

It’s not something we can “do better.”

It’s economics.

Okay, here’s another problem, since spend way too much time talking about the mandate… let’s talk basic economics.

The whole initiative is predicated on a few arguments:

1. Costs (prices) are too high.
2. Insurance companies are “making too much money”
3. Millions of people don’t have access to care
4. The Health Care people are receiving is poor (oh, wait, it’s not about the actual care…)

So let’s tackle this. The basic problem now comes down to a discussion of supply and demand/economics.

As the system currently works we have two sets of perverse incentives fighting against the consumer (and one of these incentives takes place with the willing, yet unknowing, assistance of the patient)

First, the perverse incentives of the patient:

Currently, the “cost of entry” into the health care system is high (monthly “Insurance” rates) but thanks to low, or no, co-pays, the marginal costs of most health care transactions are quite low.

Given the low costs incurred per visit, and the high “sunk” costs incurred to enter the system, the insureds (patients) who HAVE insurance are incented to go to the doctors more frequently, and to go ahead and get the prescriptions (Hey, it’s only $3 copay at Wal*Mart!)

Of course, this is a mirage. The actual costs of each visit and each prescription are borne by the insurance companies, which then have to recover their costs through increased premiums, which of course has everyone screaming that the insurance companies are “gouging” the customers.

On the other hand, we have a set of pricing incentives that also conspire against the consumer. The ‘care providers” are aware that the patient/customer doesn’t see the actual costs–they only pay the co-pay. So given this we have a series of perversions that are at play:

1. Doctors are more able to prescribe tests/medicines, and the like, since they will receive little if any push-back from the patients because of costs. More services with a low marginal cost to the consumer/patient, but a higher total cost, paid by the insurance companies.
2. Insurance companies work to lower their costs by negotiating to pay health care providers a fraction (some value less than 1) of the billable rate. Thus the providers are incented to increase their prices the maintain their revenue stream. This increases the costs once again.

So these two twists to the problem work once again to force the insurance companies to have to raise the rates (really on everyone) to cover the payments they are having to make.

Now–as consumers, we see that we are paying a high “sunk cost” as a monthly fee and, rather than view this as traditional insurance (where I am betting against myself) the consumer wants to try to get at least that benefit back out of the “system” (and is encouraged to do so, by “low co-pays”)

Sadly, the whole mess was brought on by our desire to protect everyone and provide some level planning to health care. The “free market” actually would provide better incentives here, placing limits/governors not only on how much people are willing to spend on services, but the prices that people would have to pay. If service providers want to stay in business then they would be forced to price competitively based on the market, and the market would be making the decisions based on the consumers. As it stands now, with the “same co-pay regardless” the consumer has no indication of value, and the market cannot respond. Viagra is as valued as Interferon and as Motrin.

What to do when everything costs the same?

Let the experiment begin.

I am not alone in my expectation that the Health Care (insurance) reform will not improve Health Care (it won’t make bad doctors good ones, for instance) and it won’t improve access since lower prices have that pesky effect of increasing demand–in a field where the barriers to entry for suppliers are significant.

I will say this:  Welcome to the new “Grand Experiment.”  If it succeeds, then by all means celebrate (but could we get a good solid definition of success on which we can all agree?)  But (and this is significant) if it fails, how many will have died as part of the experiment, and will we ever be able to recover?

One final note:  As researchers we have to seek, and get, informed consent from human subjects before we can experiment on them.  Did you get the forms?

Writing as an academic, I desperately want to get my hands on (the demand data for) the iPad.  Specifically,  I wonder about the “pre-order” demands that have been placed.

I am not writing this as a “hater” or critic of the iPad.  I just would love to see if the demand spiked on the first day and dropped precipitously, or whether the demand over the 21 days prior to shipping stayed relatively constant, or even ramped up as we approached the 3rd of April.

Here’s what I wonder:  people who are early adopters, and the first to get in line and wait for days for a new product, are by all anecdotal evidence I have heard the ones who pre-order, and pre-ordered on the first day they could.  And in the case of my brother, ordered it as soon as the Apple Store made it available.

If my supposition is true, then the demand for pre-ordered items would have been heavily front-loaded.  Conversely,  I would find it quite interesting if demand for the iPad through pre-ordering had any sort of ramping to the demand pattern.  If the demand was increasing, then the big question of the day would be:  Why?

The next question is are the people who would normally stand in line to get the next “really cool product” the same who would want to pre-order right away (and thus reduce or eliminate lines at the stores) or is the psychology of waiting in line for a “cool new product” palpably different from the psychology of “getting” it?

Anyone have any thoughts or insights into this?