1 00:00:00,040 --> 00:00:02,360 Speaker 1: And I bet those high price consultants we were talking 2 00:00:02,400 --> 00:00:04,640 Speaker 1: about just a minute ago may well have litigated this. 3 00:00:04,760 --> 00:00:06,640 Speaker 1: So if there are any of them out there, drop 4 00:00:06,640 --> 00:00:08,400 Speaker 1: a note in the comments, and you can even do 5 00:00:08,440 --> 00:00:10,480 Speaker 1: it anonymously so your employer won't fire you. 6 00:00:10,680 --> 00:00:11,960 Speaker 2: I'm Megan Connors and. 7 00:00:11,920 --> 00:00:14,800 Speaker 1: I'm Justin Wolfers. This is the professor is in. Think 8 00:00:14,880 --> 00:00:17,479 Speaker 1: of this as office hours, where I'm here to answer 9 00:00:17,880 --> 00:00:18,640 Speaker 1: your questions. 10 00:00:22,800 --> 00:00:26,440 Speaker 2: Last week you proved that gas prices do indeed rise 11 00:00:26,600 --> 00:00:29,520 Speaker 2: like rockets, but fall like feathers as they respond to 12 00:00:29,920 --> 00:00:32,040 Speaker 2: changes in the cost of oil. Today we're going to 13 00:00:32,280 --> 00:00:35,239 Speaker 2: answer some follow up questions on the topic. Okay, so 14 00:00:35,520 --> 00:00:40,479 Speaker 2: first question, this asymmetric pattern of rising like rockets falling 15 00:00:40,520 --> 00:00:43,720 Speaker 2: like feathers, is that something we typically just see with 16 00:00:44,000 --> 00:00:47,400 Speaker 2: gas prices or does it show up more broadly in 17 00:00:47,479 --> 00:00:48,159 Speaker 2: other places. 18 00:00:48,520 --> 00:00:51,240 Speaker 1: You always expect me to know everything about every product. 19 00:00:51,560 --> 00:00:56,120 Speaker 1: That's hard. So when oil prices rise, the cost of 20 00:00:56,200 --> 00:01:00,200 Speaker 1: producing gas rises, and what happens is gas rises very 21 00:01:00,280 --> 00:01:03,000 Speaker 1: very quickly within a lot of the adjustment happens within 22 00:01:03,040 --> 00:01:05,080 Speaker 1: a week. There's been a lot of that happening with 23 00:01:05,160 --> 00:01:07,880 Speaker 1: the Iran war. When oil price is full, which by 24 00:01:07,920 --> 00:01:10,319 Speaker 1: the way, happens whenever we think peace might break out. 25 00:01:10,440 --> 00:01:13,039 Speaker 1: Gas prices don't fall immediately. They seem to drop like 26 00:01:13,080 --> 00:01:16,120 Speaker 1: a feather, and those of us who buy gas, that's 27 00:01:16,240 --> 00:01:19,600 Speaker 1: very frustrating. So it's been most clearly found for gasoline. 28 00:01:19,720 --> 00:01:22,680 Speaker 1: There's research also showing it happens for diesel. Now you 29 00:01:22,760 --> 00:01:25,360 Speaker 1: might say, well, there's still a whole rest to the economy. 30 00:01:25,760 --> 00:01:27,600 Speaker 1: For the rest of the economy, the biggest friction we're 31 00:01:27,600 --> 00:01:29,679 Speaker 1: pricing is actually a slightly different one. There might be 32 00:01:29,720 --> 00:01:32,240 Speaker 1: some of this, I'm not sure. I don't think there's 33 00:01:32,319 --> 00:01:34,960 Speaker 1: enough nerds running enough regressions. I never think there's enough 34 00:01:34,959 --> 00:01:37,280 Speaker 1: nerds running enough regressions. But the biggest friction in the 35 00:01:37,280 --> 00:01:39,959 Speaker 1: rest of the economy is actually business conditions change and 36 00:01:40,080 --> 00:01:43,640 Speaker 1: prices stata same. That price stickiness, that's the word we use, 37 00:01:44,000 --> 00:01:47,240 Speaker 1: is actually a really important driver of what happens to 38 00:01:47,360 --> 00:01:51,880 Speaker 1: the macro economy. Okay, so what happens is the economy 39 00:01:51,880 --> 00:01:54,400 Speaker 1: starts to boom, people want to buy more stuff or 40 00:01:54,440 --> 00:01:57,960 Speaker 1: costs go up, but firms keep their prices fixed. The 41 00:01:58,160 --> 00:02:01,560 Speaker 1: typical duration of a price in the economy is round 42 00:02:01,600 --> 00:02:04,760 Speaker 1: about twelve months, so it's not like shopkeepers are out 43 00:02:04,800 --> 00:02:08,800 Speaker 1: there saying something change. Let me get out my price changer. 44 00:02:09,120 --> 00:02:11,160 Speaker 1: Prices really get stuck for quite a long time. Now, 45 00:02:11,160 --> 00:02:13,000 Speaker 1: you and I can think about lots of reasons, and 46 00:02:13,000 --> 00:02:14,679 Speaker 1: I think folks at home can think about lots of 47 00:02:14,720 --> 00:02:16,640 Speaker 1: reasons like you don't want to pay the cost of 48 00:02:16,800 --> 00:02:18,800 Speaker 1: changing your prices, or that's not a big thing, but 49 00:02:18,840 --> 00:02:21,920 Speaker 1: it to frustrates your customers. There's a lot of possible reasons. 50 00:02:22,360 --> 00:02:26,519 Speaker 1: What's equally interesting is how this disrupts the logic of markets. 51 00:02:26,680 --> 00:02:29,120 Speaker 1: When we teach introduct your economics, we talk about supply 52 00:02:29,200 --> 00:02:31,720 Speaker 1: and demand, and then there's an equilibrium price where supply 53 00:02:31,760 --> 00:02:35,320 Speaker 1: equals demand. When we move to macroeconomics, we talk about 54 00:02:35,320 --> 00:02:37,200 Speaker 1: the ups and downs of the business cycle, which sounds 55 00:02:37,240 --> 00:02:39,360 Speaker 1: like we're not getting to that happy equilibrium. Well, if 56 00:02:39,400 --> 00:02:41,800 Speaker 1: a lot of businesses are keeping their prices stuck for 57 00:02:41,880 --> 00:02:45,000 Speaker 1: quite a long time, the supply and demand dynamics that 58 00:02:45,080 --> 00:02:47,680 Speaker 1: get us back to equilibrium gets stuck. And then they 59 00:02:47,720 --> 00:02:49,600 Speaker 1: get stuck for me, and then they might get stuck 60 00:02:49,639 --> 00:02:51,520 Speaker 1: for the firms that are upstream and downstream of me, 61 00:02:51,600 --> 00:02:53,640 Speaker 1: or that compete with me, and that can have big effects. 62 00:02:53,639 --> 00:02:56,160 Speaker 1: And it's actually a big reason why we might think 63 00:02:57,000 --> 00:03:00,840 Speaker 1: that the economy doesn't instantaneously adjust to a range of 64 00:03:00,880 --> 00:03:01,720 Speaker 1: economic shocks. 65 00:03:01,880 --> 00:03:04,960 Speaker 2: Are those menu costs? Is that what we call them 66 00:03:05,040 --> 00:03:12,640 Speaker 2: when it's hard to try? I actually I worked at 67 00:03:12,639 --> 00:03:15,000 Speaker 2: a restaurant and as a teenager, and I remember it 68 00:03:15,040 --> 00:03:16,919 Speaker 2: was like a big deal any time that we needed 69 00:03:16,919 --> 00:03:19,760 Speaker 2: to reprint menus and change the cost. 70 00:03:20,160 --> 00:03:22,480 Speaker 1: So this is the metaphor, and I think it's important. 71 00:03:22,480 --> 00:03:24,720 Speaker 1: So let me go back. What we're just describing is 72 00:03:25,080 --> 00:03:29,200 Speaker 1: across the macro economy, people don't move prices very often, 73 00:03:29,200 --> 00:03:31,600 Speaker 1: even as business conditions change a lot. We call that 74 00:03:31,680 --> 00:03:34,600 Speaker 1: sticky prices. It's sticky a relative to what you might 75 00:03:34,720 --> 00:03:38,240 Speaker 1: think would happen. And then the metaphor that economists used 76 00:03:38,240 --> 00:03:40,120 Speaker 1: for this is they call it menu costs, which is, 77 00:03:40,200 --> 00:03:43,160 Speaker 1: at a literal level, they meant that restaurant you worked at, 78 00:03:43,200 --> 00:03:45,920 Speaker 1: printing up laminated menus every three weeks would be a 79 00:03:45,920 --> 00:03:48,480 Speaker 1: waste of a lot of money. Now the important thing here, though, Megan, 80 00:03:48,720 --> 00:03:51,000 Speaker 1: is it's a metaphor. Right. I bet if you went 81 00:03:51,040 --> 00:03:53,240 Speaker 1: back to that restaurant today, you'd sit down, you'd scan 82 00:03:53,320 --> 00:03:55,960 Speaker 1: a QR code. And so if you thought menu costs 83 00:03:55,960 --> 00:03:59,440 Speaker 1: were literally the cost of changing prices which did used 84 00:03:59,440 --> 00:04:02,440 Speaker 1: to be more printing menus, changing the price tags on 85 00:04:02,480 --> 00:04:05,400 Speaker 1: the stores. They're obviously not very big anymore, but the 86 00:04:05,440 --> 00:04:07,760 Speaker 1: phenomenon persists, which is why I think you should think 87 00:04:07,760 --> 00:04:08,560 Speaker 1: of it as a metaphor. 88 00:04:09,000 --> 00:04:10,800 Speaker 2: Is there and you might not know the answer to 89 00:04:10,800 --> 00:04:14,800 Speaker 2: this question, but I would suspect that maybe, is it 90 00:04:14,880 --> 00:04:18,240 Speaker 2: possible prices are getting less sticky as we move toward 91 00:04:18,279 --> 00:04:20,799 Speaker 2: a more digital world. 92 00:04:21,160 --> 00:04:25,039 Speaker 1: I think that's a reasonable expectation, but there's no strong 93 00:04:25,120 --> 00:04:29,720 Speaker 1: evidence that's happening. And again, the reason is menu costs 94 00:04:29,760 --> 00:04:32,880 Speaker 1: are a metaphor. So at that restaurant which he worked, 95 00:04:33,360 --> 00:04:35,679 Speaker 1: was you're the only person in the whole economy Megan, 96 00:04:35,680 --> 00:04:39,200 Speaker 1: for whom it wasn't a metaphor. But if every time 97 00:04:39,240 --> 00:04:42,240 Speaker 1: I went to get my hair cut, my hairdress had 98 00:04:42,320 --> 00:04:45,760 Speaker 1: changed the price, I'd be like, what is up with this? 99 00:04:46,600 --> 00:04:48,920 Speaker 1: And I kind of feel betrayed every time she raised it, 100 00:04:48,960 --> 00:04:50,640 Speaker 1: and I'd feel a little bit special every time she 101 00:04:50,760 --> 00:04:54,920 Speaker 1: lowered it, And she just wants to avoid that whole discussion. 102 00:04:55,360 --> 00:04:57,520 Speaker 1: And so that's the moment when I think think about 103 00:04:57,520 --> 00:05:00,560 Speaker 1: this as a broader set of constraints, where there's something 104 00:05:00,600 --> 00:05:02,880 Speaker 1: between buys and sellers where have just a great conin 105 00:05:03,680 --> 00:05:05,560 Speaker 1: change prices that often one. 106 00:05:05,400 --> 00:05:09,040 Speaker 2: Of the mechanisms that you mentioned as being responsible for 107 00:05:09,400 --> 00:05:13,120 Speaker 2: gas prices falling more slowly has to do with the 108 00:05:13,120 --> 00:05:15,640 Speaker 2: supply chain and the fact that up and down the 109 00:05:15,640 --> 00:05:18,800 Speaker 2: supply chain, people aren't just responding to kind of the 110 00:05:18,880 --> 00:05:22,520 Speaker 2: latest price of oil, but the cost of any inventory 111 00:05:22,720 --> 00:05:25,240 Speaker 2: they may have. A lot of people kind of mentioned 112 00:05:25,240 --> 00:05:28,320 Speaker 2: in the comments that this doesn't seem to slow things 113 00:05:28,400 --> 00:05:30,600 Speaker 2: down on the way up, like you would expect that 114 00:05:30,640 --> 00:05:32,960 Speaker 2: same mechanism to work on the way up, And I 115 00:05:33,000 --> 00:05:35,159 Speaker 2: was just wondering if you could kind of maybe say 116 00:05:35,200 --> 00:05:37,719 Speaker 2: more to that or explain why that doesn't occur. 117 00:05:38,040 --> 00:05:40,640 Speaker 1: One of the things I love about my plotypals is 118 00:05:41,279 --> 00:05:44,480 Speaker 1: anytime I'm sluppy, I get colled out on it. And 119 00:05:44,520 --> 00:05:47,440 Speaker 1: honestly I was a little bit sluppy, so forgive me. 120 00:05:49,120 --> 00:05:52,320 Speaker 1: There's a couple of things I want to pick up there. One, 121 00:05:52,920 --> 00:05:54,760 Speaker 1: when I was talking about supply chains, I also should 122 00:05:54,760 --> 00:05:56,960 Speaker 1: have talked about production. So if you think about a 123 00:05:57,000 --> 00:06:00,799 Speaker 1: different isymmetry, there is an isymmetry. It's it's very easy 124 00:06:00,800 --> 00:06:02,839 Speaker 1: to cut back production. Just tell your workers not to 125 00:06:02,839 --> 00:06:05,520 Speaker 1: turn up tomorrow, Just turn the machines off in. Increasing 126 00:06:05,560 --> 00:06:08,480 Speaker 1: production might be a lot more difficult, So you've got 127 00:06:08,480 --> 00:06:10,760 Speaker 1: to hire more people, you've got to try and maybe 128 00:06:10,800 --> 00:06:12,919 Speaker 1: add a second shift. You've got to get hold of 129 00:06:12,960 --> 00:06:15,080 Speaker 1: resources that you don't already have, and so on. So 130 00:06:15,160 --> 00:06:18,839 Speaker 1: that's a different form of asymmetry. That's an asymmetry coming 131 00:06:18,880 --> 00:06:22,080 Speaker 1: out of production. I use the word supply chain instead. 132 00:06:22,440 --> 00:06:26,000 Speaker 1: What I really want to do is just emphasize to folks, Look, 133 00:06:26,000 --> 00:06:28,839 Speaker 1: if you're thinking about gas prices and oil, realize you 134 00:06:28,880 --> 00:06:32,040 Speaker 1: can't just think about oil coming out of the ground, 135 00:06:32,080 --> 00:06:34,000 Speaker 1: and you can't just think about two gas stations on 136 00:06:34,040 --> 00:06:37,039 Speaker 1: a corner. There's a whole set of markets in between, 137 00:06:37,560 --> 00:06:39,960 Speaker 1: and we should think about those as potential sources of 138 00:06:40,000 --> 00:06:42,120 Speaker 1: all of this. Let's come back to what I did say, 139 00:06:42,160 --> 00:06:44,160 Speaker 1: which was I said, well, because of past the inventory 140 00:06:44,160 --> 00:06:47,479 Speaker 1: blah blah blah, the oil that I already bought last month, 141 00:06:48,240 --> 00:06:51,920 Speaker 1: that's a sunk cost. Whether I bought it for a 142 00:06:51,960 --> 00:06:55,599 Speaker 1: high price or a low price actually shouldn't really matter. 143 00:06:56,200 --> 00:06:57,880 Speaker 1: And so as I was talking about the price of 144 00:06:57,960 --> 00:07:02,080 Speaker 1: existing inventory, I could sort of hear myself being unclear. 145 00:07:02,520 --> 00:07:08,480 Speaker 1: So there are storage costs and inventory carrying costs and 146 00:07:08,560 --> 00:07:11,320 Speaker 1: so having too much is expensive in a way that 147 00:07:11,400 --> 00:07:14,000 Speaker 1: if you have too little, it's expensive in a different way. 148 00:07:14,080 --> 00:07:17,400 Speaker 1: So that's again the asymmetry. The point is the moment 149 00:07:17,400 --> 00:07:20,480 Speaker 1: you've got an asymmetry and you know, either raising prices 150 00:07:20,560 --> 00:07:23,800 Speaker 1: versus lowering them. That could also come from an asymmetry 151 00:07:23,840 --> 00:07:27,280 Speaker 1: in raising production versus lowering production. And that's the point, 152 00:07:27,280 --> 00:07:29,480 Speaker 1: which is, let's go all the way back from the 153 00:07:29,520 --> 00:07:31,400 Speaker 1: gas at the gas station to how it got here, 154 00:07:31,440 --> 00:07:34,240 Speaker 1: which was turning oil into gas, and are the asymmetries there. 155 00:07:34,800 --> 00:07:37,760 Speaker 2: In your piece, you also mentioned that there could be 156 00:07:37,800 --> 00:07:40,520 Speaker 2: a bit of what we call price scouging going on here, 157 00:07:40,560 --> 00:07:43,520 Speaker 2: although that's difficult to prove. I was wondering if you 158 00:07:43,520 --> 00:07:46,080 Speaker 2: could take a step back and just speak a bit 159 00:07:46,120 --> 00:07:48,720 Speaker 2: more about what price scouging is in general. I feel 160 00:07:48,720 --> 00:07:51,400 Speaker 2: like that word gets thrown around a bunch, but is 161 00:07:51,440 --> 00:07:54,120 Speaker 2: there an actual, like technical definition. 162 00:07:54,800 --> 00:07:58,120 Speaker 1: Let me set the table first. The point that I 163 00:07:58,200 --> 00:08:00,360 Speaker 1: tried to make in the video is this. The fact 164 00:08:00,440 --> 00:08:02,520 Speaker 1: is true, prices rise like a rocket, they fall like 165 00:08:02,560 --> 00:08:05,880 Speaker 1: a feather. The interpretation, though, is open, which is it 166 00:08:05,960 --> 00:08:08,120 Speaker 1: could be that they're price gouging on the way down. 167 00:08:08,640 --> 00:08:11,840 Speaker 1: It could be that people's behavioral responses are we search 168 00:08:12,000 --> 00:08:15,160 Speaker 1: less when prices are coming down, and that puts less 169 00:08:15,240 --> 00:08:19,120 Speaker 1: market pressure on businesses to cut their prices. And then 170 00:08:19,160 --> 00:08:21,040 Speaker 1: you can think about the asymmetries we just talked about 171 00:08:21,040 --> 00:08:22,920 Speaker 1: in the production thing. The reason I want to go 172 00:08:23,000 --> 00:08:25,240 Speaker 1: back through that is, Notice I'm not saying it's not 173 00:08:25,360 --> 00:08:29,760 Speaker 1: price gouging. I'm saying this simple fact could be any 174 00:08:29,840 --> 00:08:32,280 Speaker 1: one of three things. I don't think we let gas 175 00:08:32,320 --> 00:08:35,400 Speaker 1: stations off the hook. We simply can't declare you guilty 176 00:08:35,480 --> 00:08:37,600 Speaker 1: and lock you up based on that. The other thing 177 00:08:37,600 --> 00:08:40,679 Speaker 1: I want to notice is, even if these are different explanations, 178 00:08:41,120 --> 00:08:44,440 Speaker 1: TACIT collusion is one of the explanations. Even with these 179 00:08:44,440 --> 00:08:48,880 Speaker 1: different explanations, notice that the consumer is getting soaked either way. 180 00:08:49,120 --> 00:08:52,480 Speaker 1: These are explanations for why prices float down like a feather. 181 00:08:52,720 --> 00:08:55,880 Speaker 1: An explanation is different than Hayman does it cost more 182 00:08:55,920 --> 00:08:59,160 Speaker 1: than it should? Does that piss you off being taken 183 00:08:59,200 --> 00:09:04,120 Speaker 1: advantage of? I think prices well above marginal costs, So 184 00:09:04,160 --> 00:09:09,480 Speaker 1: there's profitability. But what's earning a profit versus taking advantage off? 185 00:09:09,720 --> 00:09:15,520 Speaker 1: I At some level, anytime a monopoly offers something for 186 00:09:15,559 --> 00:09:20,600 Speaker 1: a high price, you know, Microsoft Window, Microsoft Word, costs 187 00:09:21,200 --> 00:09:24,360 Speaker 1: fifty bucks a year. You can only buy it from Microsoft. 188 00:09:24,640 --> 00:09:27,160 Speaker 1: Is that price gouging because it costs them nothing to 189 00:09:27,160 --> 00:09:30,920 Speaker 1: produce one more license for it? Right? Netflix? If I 190 00:09:30,960 --> 00:09:34,160 Speaker 1: were to join Netflix, they're going to charge me what 191 00:09:34,200 --> 00:09:36,280 Speaker 1: is it, twenty bucks a month? Now fifteen bucks a month? 192 00:09:36,520 --> 00:09:38,720 Speaker 1: The cost of sending those bits and bytes down a 193 00:09:38,720 --> 00:09:41,520 Speaker 1: cable to me is about a penny a month. Is 194 00:09:41,559 --> 00:09:44,360 Speaker 1: that taking advantage? So there's I think taking advantage. We 195 00:09:44,360 --> 00:09:47,720 Speaker 1: should just recognize that as a social judgment. So it's 196 00:09:47,720 --> 00:09:49,960 Speaker 1: not something that I, as an economists could say, because 197 00:09:50,120 --> 00:09:51,679 Speaker 1: there's the flip side, which is I know it when 198 00:09:51,720 --> 00:09:53,720 Speaker 1: I see it. Right, So if it's a snowstorm and 199 00:09:53,760 --> 00:09:56,360 Speaker 1: I'm selling snow shovels for four hundred dollars apart, that 200 00:09:56,400 --> 00:09:59,320 Speaker 1: feels like price gouging. Now there's also a whole different 201 00:09:59,360 --> 00:10:01,000 Speaker 1: school of econom and I don't want us to get 202 00:10:01,000 --> 00:10:03,800 Speaker 1: stuck here. Who would then argue that's actually a really 203 00:10:03,800 --> 00:10:06,400 Speaker 1: good idea. Why? Because the only the person who wants 204 00:10:06,400 --> 00:10:08,720 Speaker 1: the snowshovel the most is the person who gets it. Now, 205 00:10:08,720 --> 00:10:10,560 Speaker 1: it's also the person who can afford it the most 206 00:10:10,559 --> 00:10:12,600 Speaker 1: who gets it. That's a very deep trade off. 207 00:10:12,920 --> 00:10:15,600 Speaker 2: So on that note, I mean, I feel like I've 208 00:10:15,679 --> 00:10:21,560 Speaker 2: heard of times of the government like investigating price gouging. 209 00:10:21,880 --> 00:10:25,120 Speaker 2: What are they looking for when they do that, and 210 00:10:25,720 --> 00:10:30,480 Speaker 2: what policy tools exist, if any, to kind of prevent 211 00:10:30,520 --> 00:10:32,200 Speaker 2: this or is it all just for show? 212 00:10:32,600 --> 00:10:36,319 Speaker 1: So let me clarify something I just said. An economist 213 00:10:36,360 --> 00:10:39,680 Speaker 1: finds it hard to define price gouging doesn't mean it 214 00:10:39,720 --> 00:10:43,040 Speaker 1: doesn't exist, and doesn't mean it's not socially awful. It 215 00:10:43,160 --> 00:10:45,600 Speaker 1: just means it doesn't naturally pop out of how I 216 00:10:45,640 --> 00:10:48,040 Speaker 1: think about my framework, and I want to acknowledge my 217 00:10:48,080 --> 00:10:50,280 Speaker 1: framework lacks things. Like I said, let's call it a 218 00:10:50,280 --> 00:10:53,400 Speaker 1: social convention, and so my frameworks applying de Man lacks 219 00:10:53,440 --> 00:10:56,160 Speaker 1: social conventions. That's why I think the most honest thing 220 00:10:56,160 --> 00:10:57,400 Speaker 1: I could do is say, hey, Megan, what do you 221 00:10:57,440 --> 00:10:59,960 Speaker 1: think price gouging is? Because it means something to you 222 00:10:59,760 --> 00:11:02,040 Speaker 1: and find it offensive, and you might even be willing 223 00:11:02,040 --> 00:11:04,520 Speaker 1: to support legislation to outlaw it. So there are a 224 00:11:04,559 --> 00:11:07,000 Speaker 1: bunch of states that have anti price gouging laws for 225 00:11:07,040 --> 00:11:09,600 Speaker 1: the very good reasons that you would defend. And it's 226 00:11:09,600 --> 00:11:12,600 Speaker 1: not that I'm against you, Megan, It's that I don't 227 00:11:12,640 --> 00:11:14,800 Speaker 1: feel they have a lot to offer. So what are 228 00:11:14,800 --> 00:11:17,520 Speaker 1: they looking for in those cases? I think you probably 229 00:11:17,559 --> 00:11:19,800 Speaker 1: have to look at the legislation. Let me tell you 230 00:11:19,880 --> 00:11:22,040 Speaker 1: one more secret, which is there's a whole field of 231 00:11:22,040 --> 00:11:25,600 Speaker 1: economics called industrial organization, and the whole field of consultants 232 00:11:25,600 --> 00:11:27,960 Speaker 1: that get paid enormous amounts of money to turn up 233 00:11:27,960 --> 00:11:30,760 Speaker 1: in court to either say that wasn't price gouging, that 234 00:11:30,840 --> 00:11:32,760 Speaker 1: there was price gouging. And if I was one of 235 00:11:32,760 --> 00:11:35,560 Speaker 1: those consultants, I could not afford to do this video 236 00:11:35,720 --> 00:11:38,400 Speaker 1: right now because I would be on the stand earning 237 00:11:38,440 --> 00:11:41,120 Speaker 1: two thousand dollars an hour. And that's why I'm not 238 00:11:41,160 --> 00:11:42,360 Speaker 1: going to give you a very good answer. 239 00:11:43,000 --> 00:11:46,520 Speaker 2: So one of the strategies that you mentioned the customers 240 00:11:46,600 --> 00:11:51,000 Speaker 2: should use is to shop around more when prices are 241 00:11:51,160 --> 00:11:54,520 Speaker 2: starting to decline. You mentioned apps like gas Buddy, and 242 00:11:54,559 --> 00:11:58,000 Speaker 2: I'm just curious, you know, do these apps? Do those 243 00:11:58,120 --> 00:12:02,680 Speaker 2: primarily benefit custom or could they also kind of help 244 00:12:02,720 --> 00:12:07,920 Speaker 2: facilitate that tacit collusion that you mentioned happens among gas stations, 245 00:12:07,960 --> 00:12:10,240 Speaker 2: Like where do the chips ball on that regard? 246 00:12:10,440 --> 00:12:12,840 Speaker 1: What a great question, and I'm just going to tell 247 00:12:12,880 --> 00:12:15,120 Speaker 1: you the truth. I had never thought about it that way. 248 00:12:15,440 --> 00:12:17,760 Speaker 1: I think one half of the question is very very easy. 249 00:12:17,960 --> 00:12:20,719 Speaker 1: When customers know more, customers can make better and more 250 00:12:20,720 --> 00:12:24,199 Speaker 1: informed choices. But that's what well economists call partial equilibrium. 251 00:12:24,320 --> 00:12:26,560 Speaker 1: It's only thinking about one side of the market. And 252 00:12:26,559 --> 00:12:30,440 Speaker 1: if you recall the story about tacit collusion, is oil 253 00:12:30,480 --> 00:12:33,520 Speaker 1: prices rise, so I raise my gas price to five bucks. 254 00:12:33,760 --> 00:12:36,880 Speaker 1: Meghan raises hers to five bucks as well. We both 255 00:12:36,960 --> 00:12:40,000 Speaker 1: understand there's a temptation for me to cut my price, 256 00:12:40,280 --> 00:12:42,959 Speaker 1: which is all steal all Meghan's business. But I also 257 00:12:43,040 --> 00:12:46,680 Speaker 1: understand she'll immediately retaliate, so therefore I'll steal all of 258 00:12:46,720 --> 00:12:49,120 Speaker 1: Meghan's business for two and a half seconds. Well, now 259 00:12:49,160 --> 00:12:51,160 Speaker 1: it doesn't feel like such a good idea, does it. 260 00:12:51,440 --> 00:12:55,040 Speaker 1: And so the fact that I can see what Meghan does, sorry, 261 00:12:55,040 --> 00:12:57,880 Speaker 1: that Meghan can see what I do and respond so quickly, 262 00:12:58,120 --> 00:12:59,880 Speaker 1: is what gives me an incentive not to cut my 263 00:13:00,600 --> 00:13:04,360 Speaker 1: and so I guess anything that speeds that up potentially 264 00:13:04,760 --> 00:13:07,120 Speaker 1: helps tacit collusion. Now I want to give you the 265 00:13:07,240 --> 00:13:10,280 Speaker 1: yes and version. Okay, So the fact that two gas 266 00:13:10,320 --> 00:13:12,679 Speaker 1: stations are across the road and they can see each 267 00:13:12,679 --> 00:13:16,240 Speaker 1: other signs immediately, that makes tacit collusion much much more possible. 268 00:13:16,240 --> 00:13:18,559 Speaker 1: If they're on up sides of town, it would take 269 00:13:18,559 --> 00:13:20,640 Speaker 1: a day or two for them to notice. And now 270 00:13:20,679 --> 00:13:23,360 Speaker 1: all of a sudden, I might think I can sneak 271 00:13:23,840 --> 00:13:26,319 Speaker 1: a price cut. Megan's not going to notice, and now 272 00:13:26,400 --> 00:13:28,120 Speaker 1: that's the reason why I'm going to cut my price. 273 00:13:28,280 --> 00:13:31,160 Speaker 1: So that breaks the tacit collusion if Megan can't see. 274 00:13:31,200 --> 00:13:33,120 Speaker 1: If I believe Meghan's not going to see my price 275 00:13:33,160 --> 00:13:35,440 Speaker 1: cut and respond, now when we're across the street from 276 00:13:35,480 --> 00:13:38,120 Speaker 1: each other, that enforces the tacit collusion. Now what does 277 00:13:38,160 --> 00:13:40,640 Speaker 1: gas Buddy do? Gas Buddy make sure not only that 278 00:13:40,800 --> 00:13:43,400 Speaker 1: it's as if Meghan is across the street from me, 279 00:13:43,440 --> 00:13:45,600 Speaker 1: but it's also as if one hundred other gas stations 280 00:13:45,640 --> 00:13:47,640 Speaker 1: across the street from me. So the good news is 281 00:13:47,640 --> 00:13:49,040 Speaker 1: if any of them cuts their price, they're going to 282 00:13:49,040 --> 00:13:51,240 Speaker 1: get a lot of customers because customers can see what happens. 283 00:13:51,960 --> 00:13:54,120 Speaker 1: But also, now I'm here and I'm thinking should I 284 00:13:54,120 --> 00:13:56,480 Speaker 1: cut my price, and I'm like, oh, cricky, Everyone's going 285 00:13:56,480 --> 00:14:01,000 Speaker 1: to see immediately. Therefore everyone's going to respond immediately. Therefore, 286 00:14:01,360 --> 00:14:02,959 Speaker 1: you know, maybe I don't want to cut my price. 287 00:14:03,040 --> 00:14:06,160 Speaker 1: So I could imagine gas buddy going either ways and 288 00:14:06,200 --> 00:14:08,720 Speaker 1: I bet those high price consultants we were talking about 289 00:14:08,760 --> 00:14:10,880 Speaker 1: just a minute ago may well have litigated this. So 290 00:14:10,920 --> 00:14:13,360 Speaker 1: if there are any of them out there, drop a 291 00:14:13,400 --> 00:14:15,120 Speaker 1: note in the comments, and you can even do it 292 00:14:15,160 --> 00:14:17,120 Speaker 1: anonymously so your employer won't fire you. 293 00:14:18,120 --> 00:14:22,040 Speaker 2: So to wrap up this conversation, I wanted to talk 294 00:14:22,080 --> 00:14:24,840 Speaker 2: about the bet that you made a few months ago 295 00:14:25,160 --> 00:14:29,080 Speaker 2: with Stacey Vanocksmith about gas prices on the eve of 296 00:14:29,120 --> 00:14:32,880 Speaker 2: the midterm election. You bet that the national average would 297 00:14:32,920 --> 00:14:35,640 Speaker 2: be less than three dollars and sixty cents at that time. 298 00:14:35,840 --> 00:14:37,640 Speaker 2: She bet that it would be above that. And I 299 00:14:37,680 --> 00:14:40,600 Speaker 2: just wanted to check in on how you're feeling. Does 300 00:14:40,680 --> 00:14:44,080 Speaker 2: anything from this analysis or recent events change your mind 301 00:14:44,200 --> 00:14:46,880 Speaker 2: or solidify your opinion. Just wanted to get kind of 302 00:14:46,920 --> 00:14:47,680 Speaker 2: a pulse check. 303 00:14:47,920 --> 00:14:50,280 Speaker 1: So what was funny was we made that bet months ago, 304 00:14:50,920 --> 00:14:53,360 Speaker 1: and it was in the midst of the Iran war, 305 00:14:53,960 --> 00:14:56,560 Speaker 1: and I thought when I said gas prices are going 306 00:14:56,640 --> 00:14:59,000 Speaker 1: to be three sixty, I thought I was saying, wow, 307 00:14:59,040 --> 00:15:02,240 Speaker 1: there's still going to be and a whole bunch of people, 308 00:15:02,400 --> 00:15:05,280 Speaker 1: including Stacey, and I think, including you, are like, you're crazy, 309 00:15:05,480 --> 00:15:07,320 Speaker 1: justin that's not high and let me show you high. 310 00:15:07,520 --> 00:15:11,120 Speaker 1: Felt like a crocodile undue moment. So what's I think 311 00:15:11,160 --> 00:15:13,680 Speaker 1: the most There's two important factors here that we've talked 312 00:15:13,720 --> 00:15:16,440 Speaker 1: about that I think are important. The first is the 313 00:15:16,440 --> 00:15:18,480 Speaker 1: Iran war is the number one and the strata of 314 00:15:18,520 --> 00:15:21,200 Speaker 1: them is the number one thing driving oil prices. So 315 00:15:21,840 --> 00:15:25,440 Speaker 1: when peace broke out for that glorious day and a half, 316 00:15:25,800 --> 00:15:29,560 Speaker 1: when the President announced a memorandum of understanding which basically 317 00:15:29,600 --> 00:15:31,720 Speaker 1: said we agree that in the future we hope will 318 00:15:31,720 --> 00:15:34,320 Speaker 1: have an agreement, which I think is terrific. I am 319 00:15:34,360 --> 00:15:36,640 Speaker 1: glad that they agreed that they want an agreement. I 320 00:15:36,720 --> 00:15:39,000 Speaker 1: just wish they had actually had an agreement. And by 321 00:15:39,040 --> 00:15:41,240 Speaker 1: the way, don't be surprised next time you sign an 322 00:15:41,280 --> 00:15:43,520 Speaker 1: agreement that you hope that there'll be an agreement if 323 00:15:43,600 --> 00:15:46,560 Speaker 1: neither side then abides by the agreement that they agreed 324 00:15:46,600 --> 00:15:48,720 Speaker 1: that they wanted to agree to it but hadn't yet agreed 325 00:15:48,720 --> 00:15:51,760 Speaker 1: to right, Just don't be surprised. That's just not sign 326 00:15:51,920 --> 00:15:54,800 Speaker 1: in human nature. It's just the world. So when peace 327 00:15:54,840 --> 00:15:57,880 Speaker 1: broke out, I looked really good. Now last couple of days, 328 00:15:57,960 --> 00:16:00,840 Speaker 1: it turns out we're back to bombing Iran. President has 329 00:16:00,880 --> 00:16:03,400 Speaker 1: said he thinks the truce is off, They're still going 330 00:16:03,440 --> 00:16:06,640 Speaker 1: to keep talking because talking is better than bombing. Always. 331 00:16:06,720 --> 00:16:10,040 Speaker 1: Talking is cheap relative to bombing. Talking saves lives, Talking 332 00:16:10,080 --> 00:16:14,000 Speaker 1: saves economies. Talking is always worth it. But it looks 333 00:16:14,040 --> 00:16:17,080 Speaker 1: like we're going to be in July with strife. Now, 334 00:16:17,080 --> 00:16:19,240 Speaker 1: this is where we can tie this into rockets and feathers. 335 00:16:19,280 --> 00:16:22,480 Speaker 1: If the oil price goes up, we learned the gas 336 00:16:22,520 --> 00:16:25,880 Speaker 1: price goes straight up, but for it's come down, maybe 337 00:16:25,920 --> 00:16:28,080 Speaker 1: half of that occurs in three to four weeks, and 338 00:16:28,120 --> 00:16:30,400 Speaker 1: all of it occurs within eight weeks. Well, we're now 339 00:16:30,480 --> 00:16:33,360 Speaker 1: about sixteen, you know, or a few months away from 340 00:16:33,400 --> 00:16:36,160 Speaker 1: the election, So there'll be another good check in another 341 00:16:36,200 --> 00:16:38,440 Speaker 1: couple of months when this rocks and feathers thing could 342 00:16:38,480 --> 00:16:42,360 Speaker 1: actually determine where that progress in Iran leads to progress 343 00:16:42,400 --> 00:16:46,200 Speaker 1: at the pump before the punter's head to the polls. 344 00:16:46,360 --> 00:16:47,400 Speaker 1: How is that for a lot of peace? 345 00:16:47,640 --> 00:16:50,880 Speaker 2: It's great And from my point of view, I'm hoping 346 00:16:51,240 --> 00:16:54,280 Speaker 2: that you win this bet for all of us could 347 00:16:54,320 --> 00:16:55,280 Speaker 2: be a very good sign. 348 00:16:55,600 --> 00:16:59,000 Speaker 1: Yeah, not just for gas prices, but because gas prices 349 00:16:59,040 --> 00:17:01,880 Speaker 1: would likely be low because the world is the safe, 350 00:17:01,880 --> 00:17:03,720 Speaker 1: a more peaceful and more prosperous place. 351 00:17:04,080 --> 00:17:06,480 Speaker 2: Well, on that note, thank you so much for taking 352 00:17:06,560 --> 00:17:08,560 Speaker 2: time to answer these questions to her. 353 00:17:09,000 --> 00:17:12,040 Speaker 1: And I would just say a huge thank you because 354 00:17:12,560 --> 00:17:14,440 Speaker 1: I do a lot of interviews on TV and stuff 355 00:17:14,440 --> 00:17:16,640 Speaker 1: where they just ask you the easy stuff, and it's 356 00:17:16,680 --> 00:17:18,680 Speaker 1: a pretty good econ one. I one teacher, I sort 357 00:17:18,680 --> 00:17:20,880 Speaker 1: of know how to answer it. And the great thing 358 00:17:21,240 --> 00:17:26,440 Speaker 1: about our community is those questions were all so rich 359 00:17:27,359 --> 00:17:30,840 Speaker 1: and if I felt unconvincing, it's because you were watching 360 00:17:30,920 --> 00:17:33,879 Speaker 1: me think through it on my feet and I think, actually, 361 00:17:34,680 --> 00:17:36,960 Speaker 1: that's the most fun part of economics, isn't it, Meghan, 362 00:17:37,000 --> 00:17:39,919 Speaker 1: which is thinking something through together, and we just had 363 00:17:39,960 --> 00:17:40,639 Speaker 1: a moment to do that. 364 00:17:40,720 --> 00:17:44,399 Speaker 2: So thank you absolutely, And if you want us to 365 00:17:44,440 --> 00:17:47,160 Speaker 2: think through any of your other questions in a future segment, 366 00:17:47,520 --> 00:17:50,080 Speaker 2: just leave a comment wherever you are listening or watching 367 00:17:50,119 --> 00:17:53,560 Speaker 2: to this, and don't forget to like and subscribe Platypus 368 00:17:53,600 --> 00:17:57,960 Speaker 2: Economics on YouTube, subsac and basically wherever you can find 369 00:17:58,040 --> 00:18:09,080 Speaker 2: us on social media.