Produce the Greatest Value
My son teaches me economics
We have some interesting economics from classic collectibles this week. First I’ll talk about Pokemon cards, and at the bottom I’ll mention Lego.
Those without a 9 year-old boy obsessed with Pokemon might not know there is a global Pokemon card shortage. It has given me a chance to teach my son some basic economics, but I was surprised with what he's teaching me. Let's start with his lessons, then mine.
First, there are never cards in the stores. My son is baffled. He understands why it would be hard to find a card from 1998, but why can't he find cards printed today? They should just print more! So we have to talk about short-term production constraints. While in the long-run firms can adjust their capital to expand their business, in the short-run they are constrained.
Although stores are missing cards, you can find some on Amazon and eBay. These are sold by arbitrageurs, who wipe out the stores and then post them online for 3-4x retail. These arbitrageurs have turned my son against capitalism. Why are they allowed to sell them for so much? We talked about supply and demand, but of course he was upset at how unfair it is.
This was my first lesson from my son (there's another one coming). In normal, competitive markets, arbitrageurs perform an important function in discovering prices. By showing how high prices are, they show firms that it is profitable to enter the market, which increases supply. But Pokemon cards are not a normal, competitive market. Pokemon cards are created by a monopoly. The high prices can't induce anyone to supply more. And Pokemon is capacity-constrained, so it can't print anymore. Thus, arbitrageurs are just appropriating rents from collectors. That means captainscardshop is just taking consumer surplus from my son.
The high prices might induce Pokemon to expand capacity. But that only works if Pokemon thinks the high demand will persist. Which brings me to my second lesson.
The other day my son looked at his savings and realized he had enough money to get something nice for himself. As he considered his options, he told me, "Dad, I don't think I want to buy Pokemon cards with this money." This was huge! When cards were in stock, that was the only thing he wanted to buy. Now he's thinking of other purchases. This is a problem for Pokemon.
Pokemon could be facing a dynamic demand problem where excess demand today could kill future demand. Pokemon thrives off life-long fans. My kids know about Pokemon because I loved it as a kid. But if you make the fan experience unsatisfying (i.e. don’t print enough cards), then you fail to connect with the next generation. When they grow up, they might not carry the torch.
It’s been fascinating to have a front-row seat to my son’s economics education (if you saw my YouTube story this week, he says hi to you there). I’ll share the Lego story, but let me show some other things first.
Produce the Greatest Value
I feel the need to step-up the identity of the Market Power community. What does it mean to watch a Market Power video? Today’s video defines that. My goal is to help you Produce the Greatest Value. And my hope is that as we all strive to do that, we will create a greater good. If you want to hear more about the motivation behind the mission, go over to YouTube and check it out.
And keep an eye out for next week’s video: I’ll be ranking popular economics books.
Labor Shortage
I’m hearing a lot of stories about how tight the labor market is becoming. One that stuck out to me is this article on how manufacturing firms are having a hard time finding workers with the skills they need. But that’s not the only type of firm struggling to find work. Fast food restaurants can’t find workers, and I was talking to a FedEx manager the other day who said it’s impossible to find drivers. It’s wild to me that a year ago we had one of the highest unemployment rates on record, and now we can’t find people to fill jobs.
International Lego Thieves
Finally, the Lego story. There’s a black market in Lego sets, and this article explains the economics of supply on that market. It’s an amusing article where you can see lots of little economics lessons, like which sets are most profitable to steal and from where.