Monopoly rents from graduation

As a recent university graduate, I’m now ready to air my views on what I’ve seen and experienced within various institutions of higher education. First on my list: university monopolies.

A quick primer for those of you unfamiliar with the topic (actually, your days playing Monopoly might be more relevant than you think) or who are a bit rusty:

Characteristics of a monopoly market

  • Me and my honours supervisorOne seller. If instead there are only few sellers (but more than one), then it is an oligopoly.
  • Pricing power lies with the monopolist. They set whatever price they choose, and customers must either pay that price or do without.
  • Rent-generation. Monopolists earn abnormal profit – unless, that is, this is whittled away by a fixed cost (see below).
  • Inefficiency. Further to the above – the monopolist’s profit is surplus taken from consumers. Not all of the surplus, except with some effective price discrimination, but certainly consumers are left worse off than they would have been with a more competitive market. And more importantly, the loss to consumers exceeds the gain to the monopolist – thus the inefficiency.

 

And now, what exactly am I talking about in the context of universities? Here are a few of the areas in which unis have a monopoly:

University Monopolies

  1. Courses taken towards your qualification. Although there’s always the prospect of obtaining credit for subjects completed at other institutions (e.g. on exchange), most universities have some minimum amount of courses that must be completed ‘in house’. Certainly that makes sense – it would be odd if someone could obtain a degree from Harvard having only completed their terminal semester there – but it nonetheless gives the university a monopoly over at least the majority of your education.
  2. Textbooks. Again, not a perfect example, particularly given the efficient secondary markets that arise once a textbook has been used for multiple semesters, but certainly one that will resonate with students. For many courses, to decline buying the prescribed textbook is to risk failure, so the incredibly high prices become an unfortunate but inevitable aspect of student life.
  3. Participation in your graduation ceremony.
  4. Photos of your graduation ceremony.

The last two items on my (certainly incomplete) list prompted me to write this post.

To attend my university graduation, graduands were required to fork out $100. Now, I understand that there are costs associated with graduation – staff labour and gown are the two that spring to mind – but $100 seems far too high to accurately reflect the marginal cost of including me in the ceremony. I have a pretty large melon and as such it took about an extra minute to fit me with a mortarboard, so I’m willing to add that to the labour cost, but even if the stench from my ego was so bad that they had to have the gown specially dry cleaned after I’d worn it, I still can’t come to a figure higher than perhaps $30-40 for my marginal cost. Hence I’m left with the conclusion that the uni is using its monopoly power over graduation attendance to extract rents.

PhotographerAs to the photos: although graduands were free to take their own photos, there was a photographer on stage during the ceremony whose company also had a vast labyrinth set up just outside the graduation hall where smiling students and loaded parents could purchase photo packs. But the cost – wowee, and ouch!

To be fair, they offered a very nice and very professional service, with photographers who obviously knew what they were doing, but boy did you pay for the privilege. To make it matters worse, the photographers presence on the stage lent the whole operation the air of being promoted by the university. Behavioural economics tells us that if this is the case, people will typically adopt the option implicitly suggested by the organisation, rather than taking their own photos.

Quick word on price – a comparison of the prices charged by the photography company with those asked by Officeworks for the same service (in terms of the finished product, at least) dispels any illusions that cost is the issue here. At least, not unless the photographers are being paid extraordinarily good wages.

So this company must be making a motza out of fresh graduates. But the uni isn’t stupid, and can pick and choose which company gets the spoils. So my bet is that the university is charging the company a fairly hefty fee for allowing them to cash in on the monopoly action.

But why is this all so bad?

That’s the million-dollar question, innit? My objections are two-fold.

  • Morally: I’m just not so keen on squeezing students, particularly in a world in which a university education is fast becoming indispensable for earning a decent living. Even if it ends up being the students’ parents who are squeezed (which is pretty likely in the case of graduation photos), it still seems like an organisation taking advantage of an emotionally-charged situation (who can think about cost when your little baby has just graduated?!).
  • Economically: as mentioned above, monopolies are inefficient. I, for example, would have liked some professionally-done photos to remember my graduation, but I was far from willing to pay what was asked. (I was even unwilling to ask my parents to pay, that’s how wildly out of the ballpark I thought they were!)

So to alleviate one source of students’ suffering and to decrease economic inefficiency in the world, universities should relinquish some of their monopoly power. Lowering the price of graduation to better reflect the cost and allowing more competition in the graduation photos market would be two good starting points.

Fantasy Leagues in everything

Top econ fantasy league pick right hereSo today I discovered that there is an economist fantasy league. I kid you not – check out the link! It works in a similar way to your garden-variety fantasy football setup: buy and sell economists, and score points based on their performance (which, in this context, means publications). Unfortunately, the market for economists is not super deep, which means that my desire to create a dream team of economists with whom I have personally interacted was over before it got off the ground. New players are randomly allocated 30 economists, and only those currently in teams are available to be acquired. Also, caveat lusor: to get involved you have to create a profile with RePEc. Not difficult to do, and also free, but makes highly visible your status as a layperson (I have zero publications and zero affiliations listed, sad).

Apart from enabling me to spend a happy half-hour messing with a new nerd pasttime, this also got me thinking: what other unlikely fantasy leagues could exist out there? I figure that there are three elements that need to be present for a fantasy league to be viable:

  • Easily accessible data source. For sports, no problem – everything is tabulated and ready to go. Similar for economists – publication data is a big deal (hence readily available), and simple to measure. On the flip side, a politician fantasy league (I’m thinking something like: points scored for non sequiturs and backflips, points lost for public gaffs) would be great, but difficult to source data for.
  • Broad enough base of interested observers. Not much fun playing on your own!
  • Adequate heterogeneity between players (that is, the units being used in fantasy teams). Without this, it becomes an exercise in finding hot shots or acquiring inside info on who is likely to take off suddenly. Still fun, but misses the tension present in, say, fantasy football, where there is the constant trade-off factor. That is, I might take a chance on a player with a low goal-scoring record but a huge amount of ball-time, or else I might stick with someone safe who doesn’t make many mistakes. This seems to be where the econ league falls down a bit – including conference papers, working papers, or something other than just actual publications might make it more interesting.

Check out those mad stats!

With that in mind, my top pick for outlandish potential fantasy league is: blogs. Google Analytics means that data are easy to come by, there’s plenty of interest, and the heterogeneity is more than adequate. I’d like to go out on a limb and predict that a blog fantasy league doesn’t exist yet, but if I have one firm belief, it’s in internet arbitrage: if you can think of it, it’s already on the internet somewhere. I’ll get googling straight after I finish this post.

Over to my readers, though – what fantasy leagues do you follow or would you like to see brought into existence? I’m looking forward to reading some of the suggestions…

Beating time-inconsistency and tomorrow Daniel

Following in a similar vein to my posts on discount rates and betting on weight loss, my friend and fellow economist blogger posted recently telling of the constant struggle between today Frankie and tomorrow Frankie. As she puts it: “When tomorrow frankie becomes today frankie, we have the issue of time [in]consistency.”

I hear you, Frankie. The war between tomorrow Daniel and today Daniel has pervaded my whole life – although interestingly, I find that sometime today Daniel gets the raw end of the deal. For example, when I decide to save my money at an embarrassingly low interest rate rather than reaping the utility gains today, that seems a lot like tomorrow Daniel irrationally getting his way. For the most part, though, tomorrow Daniel gets regularly exploited.

A solution is at hand, though – commitment devices! I talked about one in my post on weight loss. Another great option if you’re looking for something of the sort is Stickk. The idea is that you set a goal, decide the stakes, nominate a referee, and then (hopefully) follow through.

Bringing the Stickk idea back to tomorrow Daniel (and Frankie), the strength of the plan lies in the incentive shift. Suddenly today Daniel has an extra weapon in the perpetual war: tomorrow Daniel doesn’t just have his own laziness/profligacy/general disinclination to consider – there’s also the threat of losing the stakes that today (yesterday?) Daniel set.

Best part is, the stakes don’t even have to be monetary. In fact, I figure that social rewards (or punishments) trump financial any day of the week. For example, you could rig a system up to tweet something embarrassing if you don’t fulfil your goal on a given day. Or, simpler still, you could organise a mutual accountability pact with a friend – each of you will hold the other to their intentions, meting out a dose of (good-natured but effective) public shaming if they fail.

So there’s your answer – got anyone who can help you tame tomorrow Frankie?